Atlantic Union Bankshares (AUB) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Atlantic Union Bankshares Corporation, including balance sheets, statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the periods ended March 31, 2023 and 2022, along with detailed notes explaining significant accounting policies and financial instrument specifics Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific quarter-end dates Total Assets (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $20,103,370 | | Dec 31, 2022 | $20,461,138 | Key Asset Changes (Mar 31, 2023 vs. Dec 31, 2022) | Asset Category | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :---------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Securities available for sale | $2,252,365 | $2,741,816 | -$489,451 | | Loans held for investment, net | $14,467,768 | $14,338,374 | +$129,394 | Total Liabilities (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $17,663,134 | | Dec 31, 2022 | $18,088,401 | Key Liability Changes (Mar 31, 2023 vs. Dec 31, 2022) | Liability Category | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :-------------------------- | :-------------------------- | :-------------------------- | :----------- | | Noninterest-bearing deposits| $4,578,009 | $4,883,239 | -$305,230 | | Interest-bearing deposits | $11,877,901 | $11,048,438 | +$829,463 | | Other short-term borrowings | $245,000 | $1,176,000 | -$931,000 | Total Stockholders' Equity (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $2,440,236 | | Dec 31, 2022 | $2,372,737 | Consolidated Statements of Income Details the company's revenues, expenses, and net income over specific quarterly periods Net Income Available to Common Shareholders (YoY) | Period | Amount (in thousands) | Change (YoY) | | :------------- | :-------------------- | :----------- | | Mar 31, 2023 | $32,686 | -$8,037 | | Mar 31, 2022 | $40,723 | | Key Income/Expense Changes (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :------------------------------------ | :--------------------- | :--------------------- | :----------- | | Net interest income | $153,443 | $130,931 | +$22,512 | | Provision for credit losses | $11,850 | $2,800 | +$9,050 | | Total noninterest income | $9,628 | $30,153 | -$20,525 | | Loss on sale of securities | ($13,400) | — | -$13,400 | | Total noninterest expenses | $108,274 | $105,321 | +$2,953 | Earnings Per Common Share (EPS) (YoY) | Period | Basic EPS | Diluted EPS | | :------------- | :-------- | :---------- | | Mar 31, 2023 | $0.44 | $0.44 | | Mar 31, 2022 | $0.54 | $0.54 | Consolidated Statements of Comprehensive Income (Loss) Reports net income and other comprehensive income (loss) components, reflecting changes in equity not from net income Comprehensive Income (Loss) (YoY) | Period | Amount (in thousands) | Change (YoY) | | :------------- | :-------------------- | :----------- | | Mar 31, 2023 | $92,006 | +$258,434 | | Mar 31, 2022 | ($166,428) | | Key Components of Other Comprehensive Income (Loss) (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :---------------------------------------------------------------- | :--------------------- | :--------------------- | :----------- | | Change in fair value of cash flow hedges (net of tax) | $13,714 | ($23,313) | +$37,027 | | Unrealized holding gains (losses) on AFS securities (net of tax) | $32,068 | ($186,967) | +$219,035 | Consolidated Statements of Changes in Stockholders' Equity Outlines the changes in the company's equity accounts, including net income, dividends, and other comprehensive income Total Stockholders' Equity (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $2,440,236 | | Dec 31, 2022 | $2,372,737 | Key Changes in Stockholders' Equity (Q1 2023) | Item | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Net Income | $35,653 | | Other comprehensive income (net of taxes) | $56,353 | | Dividends on common stock | ($22,417) | | Dividends on preferred stock | ($2,967) | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting periods Net Cash Provided by Operating Activities (YoY) | Period | Amount (in thousands) | Change (YoY) | | :------------- | :-------------------- | :----------- | | Mar 31, 2023 | $59,567 | -$51,880 | | Mar 31, 2022 | $111,447 | | Net Cash Provided by (Used in) Investing Activities (YoY) | Period | Amount (in thousands) | Change (YoY) | | :------------- | :-------------------- | :----------- | | Mar 31, 2023 | $405,565 | +$745,578 | | Mar 31, 2022 | ($340,013) | | Net Cash Used in Financing Activities (YoY) | Period | Amount (in thousands) | Change (YoY) | | :------------- | :-------------------- | :----------- | | Mar 31, 2023 | ($412,884) | -$235,252 | | Mar 31, 2022 | ($177,632) | | - Key Investing Activities (Q1 2023): * Proceeds from sales of AFS securities: $558,466 thousand * Net increase in LHFI: ($145,260) thousand[22] - Key Financing Activities (Q1 2023): * Net decrease in short-term borrowings: ($910,077) thousand * Net increase in interest-bearing deposits: $829,449 thousand[22] Notes to Consolidated Financial Statements This section provides detailed disclosures on the company's significant accounting policies, financial instruments, loan portfolio, credit quality, and segment performance, highlighting the adoption of new accounting standards and the impact of a balance sheet repositioning strategy Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines the company's foundational accounting principles, including recent ASU adoptions and their financial impact - Atlantic Union Bankshares Corporation (NYSE: AUB) is the holding company for Atlantic Union Bank, headquartered in Richmond, Virginia, with 109 branches and approximately 125 ATMs in Virginia, Maryland, and North Carolina. Non-bank affiliates include equipment financing, brokerage services, and insurance products[27] - Adopted ASU No. 2022-01 (Derivatives and Hedging) effective January 1, 2023, with no significant impact on financial statements[30][34] - Adopted ASU No. 2022-02 (Financial Instruments-Credit Losses) effective January 1, 2023, eliminating Troubled Debt Restructurings (TDRs) and introducing Troubled Loan Modifications (TLMs) for borrowers experiencing financial difficulty[31][36][37] - Accrued interest is excluded from the Allowance for Loan and Lease Losses (ALLL) and Allowance for Credit Losses (ACL) for securities, and is written off when collection is improbable[38] Note 2. SECURITIES Details the company's available-for-sale and held-to-maturity securities portfolios, including fair values and repositioning strategy AFS Securities Portfolio (Mar 31, 2023 vs. Dec 31, 2022) | Metric | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :------------------------------------ | :-------------------------- | :-------------------------- | :----------- | | Estimated Fair Value | $2,252,365 | $2,741,816 | -$489,451 | | Total Unrealized Losses | ($408,122) | ($462,838) | +$54,716 | HTM Securities Portfolio (Mar 31, 2023 vs. Dec 31, 2022) | Metric | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :------------------------------------ | :-------------------------- | :-------------------------- | :----------- | | Carrying Value | $855,418 | $847,732 | +$7,686 | | Total Unrealized Losses | ($38,505) | ($48,063) | +$9,558 | - In Q1 2023, the company executed a balance sheet repositioning strategy by selling $505.7 million of AFS securities at a pre-tax loss of $13.4 million to reduce high-cost FHLB borrowings, aiming for improved liquidity, enhanced tangible common equity, and additional run-rate earnings[46][60] - Restricted stock includes FRB stock of $67.0 million and FHLB stock of $20.6 million at March 31, 2023 (down from $53.2 million at December 31, 2022)[58] Note 3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES Provides details on the loan portfolio, credit quality, and the allowance for loan and lease losses, including nonaccrual loans Total LHFI, net of deferred fees and costs (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $14,584,280 | | Dec 31, 2022 | $14,449,142 | Allowance for Loan and Lease Losses (ALLL) (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $116,512 | | Dec 31, 2022 | $110,768 | Nonaccrual LHFI (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $29,082 | | Dec 31, 2022 | $27,038 | - As of March 31, 2023, Troubled Loan Modifications (TLMs) had an amortized cost basis of $20.5 million with an estimated $296 thousand in allowance. Unfunded commitments on TLMs totaled $4.4 million, and no significant defaults occurred during Q1 2023[71][73] ALLL Activity (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------- | :--------------------- | :----------- | | Loans charged-off | ($5,726) | ($1,509) | -$4,217 | | Recoveries credited to allowance | $1,167 | $1,513 | -$346 | | Provision charged to operations | $10,303 | $2,800 | +$7,503 | Net Charge-offs by Segment (Q1 2023 vs. Q1 2022) | Segment | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :--------- | :--------------------- | :--------------------- | :----------- | | Commercial | ($4,492) | ($33) | -$4,459 | | Consumer | ($67) | $37 | -$104 | | Total | ($4,559) | $4 | -$4,563 | Note 4. GOODWILL AND INTANGIBLE ASSETS Reports on the company's goodwill and amortizable intangible assets, including reallocations and amortization expense Goodwill and Intangible Assets (Mar 31, 2023 vs. Dec 31, 2022) | Asset Type | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :---------------------- | :-------------------------- | :-------------------------- | :----------- | | Goodwill | $925,211 | $925,211 | $0 | | Amortizable intangibles | $24,482 | $26,761 | -$2,279 | - Effective January 1, 2023, an organizational change reallocated $9.6 million of goodwill and $1.6 million of intangible assets from the Consumer Banking segment to the Wholesale Banking segment, with no impairment identified[94] Amortization Expense of Intangibles (YoY) | Period | Amount (in thousands) | | :----- | :-------------------- | | Q1 2023| $2,279 | | Q1 2022| $3,039 | Note 5. LEASES Details the company's lease arrangements, including net investment in sales-type leases and operating lease liabilities Total Net Investment in Sales-type and Direct Financing Leases (QoQ) | Metric | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Lease receivables, net | $257,643 | $266,380 | -$8,737 | | Unguaranteed residual values, net | $15,269 | $15,159 | +$110 | | Total net investment | $272,912 | $281,539 | -$8,627 | Lessee Arrangements (Mar 31, 2023 vs. Dec 31, 2022) | Metric | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :----------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Operating ROU assets | $34,520 | $35,729 | -$1,209 | | Operating Lease liabilities | $45,897 | $47,696 | -$1,799 | | Weighted-average remaining lease term| 6.70 years | 6.80 years | -0.10 years | Total Lease Cost (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :--------------- | :--------------------- | :--------------------- | :----------- | | Net Operating Lease Cost | $2,240 | $2,309 | -$69 | | Finance Lease Cost | $254 | $257 | -$3 | | Total Lease Cost | $2,494 | $2,566 | -$72 | Note 6. BORROWINGS Outlines the company's short-term and long-term borrowings, including changes in FHLB advances and available liquidity Total Short-term Borrowings (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $408,760 | | Dec 31, 2022 | $1,318,837 | Key Short-term Borrowing Changes (Mar 31, 2023 vs. Dec 31, 2022) | Item | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :------------------------ | :-------------------------- | :-------------------------- | :----------- | | Federal Funds Purchased | — | $160,000 | -$160,000 | | FHLB Advances | $245,000 | $1,016,000 | -$771,000 | - The average interest rate on short-term borrowings increased to 4.24% in Q1 2023 from 1.79% in Q1 2022[111] Total Long-term Borrowings (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $390,150 | | Dec 31, 2022 | $389,863 | - The company became eligible to borrow from the Federal Reserve's Bank Term Funding Program (BTFP) in Q1 2023, with $548.6 million available liquidity as of March 31, 2023, which was not utilized[109] Note 7. COMMITMENTS AND CONTINGENCIES Discloses off-balance sheet commitments, pledged assets, and contingent liabilities, including legal proceedings - The company is in settlement discussions with the CFPB regarding alleged violations related to overdraft practices. A probable and estimable liability has been recorded, but further losses are reasonably possible and not estimable[119][332] Total Commitments with Off-Balance Sheet Risk (QoQ) | Item | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Commitments to extend credit | $5,485,988 | $5,229,252 | +$256,736 | | Letters of credit | $155,878 | $156,459 | -$581 | | Total commitments with off-balance sheet risk | $5,641,866 | $5,385,711 | +$256,155 | - The reserve for unfunded commitments and indemnification reserve totaled $15.6 million at March 31, 2023, an increase from $14.1 million at December 31, 2022[122] Total Pledged Assets (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $5,428,217 | | Dec 31, 2022 | $4,908,037 | Note 8. DERIVATIVES Provides details on the company's derivative instruments, including notional amounts and fair values for hedging activities Derivative Instruments Notional Amounts (QoQ) | Category | Mar 31, 2023 Notional Amount (in thousands) | Dec 31, 2022 Notional Amount (in thousands) | | :-------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Cash flow hedges | $900,000 | $900,000 | | Fair value hedges | $131,976 | $133,576 | | Derivatives not designated as accounting hedges | $6,002,395 | $5,820,005 | Fair Value of Derivative Instruments (QoQ) | Category | Mar 31, 2023 Assets (in thousands) | Mar 31, 2023 Liabilities (in thousands) | Dec 31, 2022 Assets (in thousands) | Dec 31, 2022 Liabilities (in thousands) | | :-------------------------------------- | :--------------------------------- | :-------------------------------------- | :--------------------------------- | :-------------------------------------- | | Cash flow hedges | $2,838 | $2,158 | $1,163 | $6,599 | | Fair value hedges | $2,938 | — | $4,117 | — | | Derivatives not designated as accounting hedges | $67,954 | $195,375 | $75,030 | $229,401 | - Fair value hedges for loans had an aggregate notional amount of $82.0 million at March 31, 2023 (vs. $83.6 million at Dec 31, 2022), with an unrealized gain of $9.2 million (vs. $11.0 million)[136][144] - Fair value hedges for AFS securities had an aggregate notional amount of $50.0 million at both periods, with an unrealized gain of $1.2 million at March 31, 2023 (vs. $1.9 million at Dec 31, 2022)[138][144] Note 9. STOCKHOLDERS' EQUITY Details the components of stockholders' equity, including AOCI and information on share repurchase programs Total Stockholders' Equity (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $2,440,236 | | Dec 31, 2022 | $2,372,737 | Accumulated Other Comprehensive Income (Loss) (AOCI) (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | ($361,933) | | Dec 31, 2022 | ($418,286) | - The company's share repurchase program expired on December 9, 2022, and there was no active share repurchase program as of March 31, 2023[146][338] Note 10. FAIR VALUE MEASUREMENTS Explains the methodology for fair value measurements, categorizing financial instruments into a three-level hierarchy - The company uses a three-level hierarchy for fair value measurements: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[150][151] - AFS securities and financial derivatives are primarily valued using Level 2 inputs, relying on independent valuation techniques and market data from third-party vendors[152][153][154] - Loans Held for Sale (LHFS) are valued at fair value using Level 2 inputs based on secondary market prices. Loans Held for Investment (LHFI) are estimated using discounted cash flows, with performing loans often involving Level 3 unobservable inputs[157][166] - Demand and savings deposits are valued at their carrying amount, while certificates of deposit are valued using discounted cash flow analysis with market rates (Level 2)[168] Note 11. EARNINGS PER SHARE Presents the calculation of basic and diluted earnings per common share for the reported periods Earnings Per Common Share (YoY) | Period | Basic EPS | Diluted EPS | | :------------- | :-------- | :---------- | | Mar 31, 2023 | $0.44 | $0.44 | | Mar 31, 2022 | $0.54 | $0.54 | Net Income Available to Common Shareholders (YoY) | Period | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $32,686 | | Mar 31, 2022 | $40,723 | Note 12. SEGMENT REPORTING AND REVENUE Details financial performance by operating segment, including resegmentation and noninterest income breakdown - Effective January 1, 2023, the company re-segmented its operations into Wholesale Banking, Consumer Banking, and Corporate Other, reallocating certain wealth management lines of business and $9.6 million of goodwill from Consumer Banking to Wholesale Banking[177] Segment Income Before Income Taxes (Q1 2023 vs. Q1 2022) | Segment | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :---------------- | :--------------------- | :--------------------- | :----------- | | Wholesale Banking | $22,153 | $38,986 | -$16,833 | | Consumer Banking | $16,928 | $8,235 | +$8,693 | | Corporate Other | $3,866 | $5,742 | -$1,876 | | Total | $42,947 | $52,963 | -$10,016 | Total Noninterest Income (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :------------------------------------ | :--------------------- | :--------------------- | :----------- | | Deposit Service Charges | $7,902 | $7,596 | +$306 | | Fiduciary and asset management fees | $4,262 | $7,255 | -$2,993 | | Mortgage banking income | $854 | $3,117 | -$2,263 | | Loss on sale of securities | ($13,400) | — | -$13,400 | | Total noninterest income | $9,628 | $30,153 | -$20,525 | Note 13. SUBSEQUENT EVENTS Reports significant events occurring after the balance sheet date, such as dividend declarations - On May 2, 2023, the Board of Directors declared a quarterly dividend of $171.88 per share for Series A preferred stock (equivalent to $0.43 per depositary share), payable on June 1, 2023[188] - On May 2, 2023, the Board of Directors also declared a quarterly dividend of $0.30 per share of common stock, payable on June 2, 2023[188] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, liquidity, and capital resources for Q1 2023. It highlights the impact of recent banking industry volatility, rising interest rates, and the company's balance sheet repositioning strategy, which included selling AFS securities to reduce FHLB borrowings EXECUTIVE OVERVIEW Provides a high-level summary of the company's financial performance, liquidity, and strategic actions in the current quarter - The banking industry experienced significant volatility in Q1 2023 due to bank failures, leading the company to actively monitor liquidity and deposit flows[208] - In Q1 2023, the company executed a balance sheet repositioning by selling $505.7 million of AFS securities at a pre-tax loss of $13.4 million to reduce high-cost FHLB borrowings, aiming for improved liquidity and enhanced tangible common equity. The estimated loss earn-back period is approximately two years[212][214] - As of March 31, 2023, approximately 72.1% of the company's deposits were insured or collateralized, and available liquidity sources covered approximately 130% of uninsured and uncollateralized deposits. Brokered deposits increased by $370.5 million[209] - Despite industry challenges, the company's and the Bank's regulatory capital ratios continued to exceed well-capitalized standards[210] RESULTS OF OPERATIONS Analyzes the company's net income, net interest income, and noninterest income/expense trends for the period Net Income & EPS (Q1 2023 vs. Q1 2022) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :-------------------------------------- | :--------------------- | :--------------------- | :----------- | | Net income available to common shareholders | $32,686 | $40,723 | -$8,037 | | Basic and diluted EPS | $0.44 | $0.54 | -$0.10 | Adjusted Operating Earnings & EPS (Non-GAAP) (Q1 2023 vs. Q1 2022) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :-------------------------------------- | :--------------------- | :--------------------- | :----------- | | Adjusted operating earnings available to common shareholders | $47,222 | $45,074 | +$2,148 | | Adjusted diluted operating EPS | $0.63 | $0.60 | +$0.03 | Net Interest Income (Q1 2023 vs. Q1 2022) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :-------------------------------------- | :--------------------- | :--------------------- | :----------- | | Net interest income | $153,443 | $130,931 | +$22,512 | | Net interest margin | 3.41% | 2.97% | +44 bps | Noninterest Income (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :------------------------------------ | :--------------------- | :--------------------- | :----------- | | Total noninterest income | $9,628 | $30,153 | -$20,525 | | Loss on sale of securities | ($13,400) | — | -$13,400 | | Fiduciary and asset management fees | $4,262 | $7,255 | -$2,993 | | Mortgage banking income | $854 | $3,117 | -$2,263 | Noninterest Expense (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | | :------------------------------------ | :--------------------- | :--------------------- | :----------- | | Total noninterest expense | $108,274 | $105,321 | +$2,953 | | Salaries and benefits | $60,529 | $58,298 | +$2,231 | | FDIC assessment premiums and other insurance | $3,899 | $2,485 | +$1,414 | DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Examines changes in the company's assets, liabilities, deposits, borrowings, and credit quality metrics Total Assets (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $20,103,370 | | Dec 31, 2022 | $20,461,138 | Total LHFI, net of deferred fees and costs (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $14,584,280 | | Dec 31, 2022 | $14,449,142 | Total Deposits (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $16,455,910 | | Dec 31, 2022 | $15,931,677 | - Deposit mix shifted in Q1 2023, with interest-bearing deposits increasing by $829.5 million (including $377.9 million in brokered deposits) and demand deposits decreasing by $305.2 million as customers moved to higher-yielding products[250] Total Borrowings (QoQ) | Date | Amount (in thousands) | | :------------- | :-------------------- | | Mar 31, 2023 | $798,910 | | Dec 31, 2022 | $1,708,700 | Nonperforming Assets (NPAs) (QoQ) | Metric | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Total NPAs | $29,111 | $27,114 | +$1,997 | | NPAs as % of total LHFI | 0.20% | 0.19% | +1 bp | Allowance for Credit Losses (ACL) (QoQ) | Metric | Mar 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (QoQ) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Total ACL | $131,711 | $124,443 | +$7,268 | | ACL as % of total LHFI | 0.90% | 0.86% | +4 bps | NON-GAAP FINANCIAL MEASURES Reconciles non-GAAP financial measures to their most directly comparable GAAP measures, providing additional insights - The company provides supplemental non-GAAP financial measures (e.g., tax-equivalent net interest income, tangible common equity, adjusted operating earnings/expenses) to offer additional understanding of ongoing operations and enhance comparability by excluding significant non-recurring items[306] Net Interest Income (FTE) Reconciliation (Q1 2023 vs. Q1 2022) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :-------------------------------------- | :--------------------- | :--------------------- | | Net interest income (GAAP) | $153,443 | $130,931 | | FTE adjustment | $3,788 | $3,336 | | Net interest income (FTE) (non-GAAP) | $157,231 | $134,267 | | Net interest margin (GAAP) | 3.41% | 2.97% | | Net interest margin (FTE) (non-GAAP) | 3.50% | 3.04% | Tangible Common Equity to Tangible Assets Reconciliation (Mar 31, 2023 vs. Mar 31, 2022) | Metric | Mar 31, 2023 (in thousands) | Mar 31, 2022 (in thousands) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Ending tangible assets (non-GAAP) | $19,153,677 | $18,806,597 | | Ending tangible common equity (non-GAAP)| $1,324,186 | $1,356,145 | | Tangible common equity to tangible assets (non-GAAP) | 6.91% | 7.21% | Adjusted Operating Earnings (Non-GAAP) Reconciliation (Q1 2023 vs. Q1 2022) | Item | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :-------------------------------------- | :--------------------- | :--------------------- | | Net income (GAAP) | $35,653 | $43,690 | | Plus: Legal reserve, net of tax | $3,950 | — | | Plus: Strategic branch closing costs, net of tax | — | $4,351 | | Plus: Loss on sale of securities, net of tax | $10,586 | — | | Adjusted operating earnings (non-GAAP) | $50,189 | $48,041 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk, its primary market risk, through an asset liability committee using earnings simulation and economic value modeling. As of March 31, 2023, the company was less asset sensitive compared to March 31, 2022, expecting net interest income to increase in a rising rate environment and decline in a falling rate environment Interest Sensitivity Describes the company's approach to managing interest rate risk through various analytical models - The company's primary market risk is interest rate risk, which is reviewed by the asset liability committee and managed using static gap analysis, earnings simulation modeling, and economic value simulation[314][315] Earnings Simulation Modeling Assesses the potential impact of interest rate changes on net interest income over a 12-month forecast horizon - Earnings simulation modeling measures the sensitivity of net interest income to changes in interest rates over a 12-month horizon, based on current and projected balances and rates[318][320] Net Interest Income Sensitivity (March 31, 2023 vs. March 31, 2022) | Change in Yield Curve | Mar 31, 2023 % | Mar 31, 2022 % | | :-------------------- | :------------- | :------------- | | +300 basis points | 7.91 | 15.55 | | +100 basis points | 2.06 | 5.36 | | -100 basis points | (4.75) | (7.40) | | -300 basis points | (11.46) | (19.67) | - As of March 31, 2023, the company was less asset sensitive compared to March 31, 2022, expecting net interest income to increase with an immediate rise in market rates and decline in decreasing interest rate environments[323] Economic Value Modeling Evaluates the long-term impact of interest rate fluctuations on the economic value of equity - Economic value simulation modeling calculates the estimated fair value of assets and liabilities over different interest rate environments to indicate the longer-term earnings capability of the balance sheet[324] Economic Value of Equity Sensitivity (March 31, 2023 vs. March 31, 2022) | Change in Yield Curve | Mar 31, 2023 % | Mar 31, 2022 % | | :-------------------- | :------------- | :------------- | | +300 basis points | (11.44) | (9.59) | | +100 basis points | (4.05) | (2.90) | | -100 basis points | 3.01 | 0.56 | | -300 basis points | 5.90 | (12.13) | - As of March 31, 2023, the company's economic value of equity was generally less asset sensitive in a rising interest rate environment compared to March 31, 2022, due to the composition of the balance sheet and pricing characteristics of certain deposits[324] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023. No material changes to internal control over financial reporting occurred during the quarter - The company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023[325][326] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2023[329] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ongoing settlement discussions with the CFPB regarding alleged violations related to overdraft practices. A liability has been accrued, but the final outcome, including potential additional losses or litigation, remains uncertain - Ongoing settlement discussions with the CFPB regarding alleged violations of Regulation E and the Consumer Financial Protection Act related to overdraft practices and policies[332] - A probable and estimable liability has been recorded in connection with this matter[119] - The final terms, timing, or amount of loss (potentially including restitution and a civil money penalty) are uncertain, and litigation may commence if a settlement is not reached[332] Item 1A. Risk Factors No material changes to previously disclosed risk factors were identified during Q1 2023, except for new risks related to recent developments in the financial services industry, particularly concerns about liquidity and potential deposit outflows following bank failures - No material changes from the risk factors previously disclosed in the Company's 2022 Form 10-K, except as described in this section[333] - New risks include potential adverse effects on business, financial condition, and results of operations due to developments impacting the financial services industry, such as recent bank failures (Silicon Valley Bank, Signature Bank, and First Republic Bank) and general concerns involving liquidity[334][335] - Uncertainty from bank failures may lead to deposit outflows, increased borrowing and funding costs, and heightened competition for liquidity, which could materially impact the company[335] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not have any unregistered sales of equity securities. Its share repurchase program, which authorized up to $100.0 million of common stock purchases, expired on December 9, 2022, and no active program was in place as of March 31, 2023 - No unregistered sales of equity securities during the period[337] - The share repurchase program, authorized for up to $100.0 million, expired on December 9, 2022. Approximately 1.3 million shares (or $48.2 million) were repurchased in 2022 under this program[338] - As of March 31, 2023, the company does not have an authorized share repurchase program[338] Common Stock Repurchases (Q1 2023) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :------------------------- | :--------------------- | :------------------------------- | | January 1 - January 31, 2023 | 1,101 | 36.33 | | February 1 - February 28, 2023 | 54,279 | 37.87 | | March 1 - March 31, 2023 | 576 | 35.16 | | Total | 55,956 | 37.81 | Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, compensation plans, certifications, and interactive data files - Exhibits include Amended and Restated Articles of Incorporation and Bylaws, Deferred Compensation Plans, Stock Share Agreements, Management Incentive Plan, Certifications (Section 302 and 906 of Sarbanes-Oxley Act of 2002), and Interactive Data Files (Inline XBRL)[341][344] Signatures The report is duly signed on May 4, 2023, by John C. Asbury, President and Chief Executive Officer, and Robert M. Gorman, Executive Vice President and Chief Financial Officer, certifying compliance with the Securities Exchange Act of 1934 - The report was signed on May 4, 2023, by John C. Asbury, President and Chief Executive Officer, and Robert M. Gorman, Executive Vice President and Chief Financial Officer[346]