Local bank stocks up with $172M offering

The bank’s Carytown branch. (Michael Schwartz)

Richmond’s biggest locally based bank last week added to its capital coffers.

Atlantic Union Bank and its parent company announced the closing of a $172.5 million stock offering.

The downtown-based company sold 6.9 million so-called depositary shares, which are essentially fractional shares of preferred stock. The shares hit the market at $25 apiece, netting AUB $166 million after expenses paid to underwriters and investment banks that handled the offering.

It’s the bank’s first capital raise since fall 2016, and follows the ending of a stock buyback effort that ended in April at $130 million.

John Asbury

CEO John Asbury and CFO Rob Gorman said the latest capital raise is an effort the bank has had in mind for a while to maintain its capital ratios as required by regulators.

“It’s effectively a restack and remix of the bank’s capital base,” Asbury said.

Gorman said, “Before Covid hit we had envisioned being in the capital markets this time of year to raise capital to grow the bank. Obviously things changed materially, but the strategy still works, but it’s also a defensive play.”

That defensive stance is related to the bank planning ahead for potential loan losses should the economy continue to falter as the coronavirus shutdown evolves.

“We wanted to make sure we had plenty of capital over and beyond what was required by the regulators,” Gorman said.

AUB initially aimed to raise $100 million to $150 million in the offering, but investor interest warranted additional sales to bring the total amount raised to $172.5 million.

The depositary shares amount to a 1/400th ownership in preferred stock, which pays a quarterly dividend of 6.875 percent and are traded on the Nasdaq Global Select Market under the symbol AUBAP.

The offering was handled by Morgan Stanley, BofA Securities, Keefe, Bruyette & Woods, Raymond James, RBC Capital Markets, UBS Securities and Piper Sandler.

Rob Gorman

Gorman said the share buyers were primarily retail investors, driven in part by the volatility of the stock market of late.

“Investors are looking for high-quality credit and they’re looking for yield as well,” Gorman said.
AUB’s offering marks the first capital raise of any sort for a local bank since Virginia Commonwealth Bank and its parent company completed a $25 million debt offering last fall.

As for the outlook of potential risk for loans going bad due to the coronavirus downturn, Asbury said, “So far, so good.”

“My metaphor has been, ‘Are we in the eye of the hurricane?’ Is the storm passing? We’re not really sure. Right now things are holding up surprisingly well.”

And should things continue to hold up, Asbury said the newfound capital could be used more offensively.

“Now, if the economy picks up and credit losses are below what we might have expected, then great, we’re reloaded and well-positioned, and we’ll use it to grow and can use it for acquisitions,” he said.

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