UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20293

UNION BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)



VIRGINIA	54-1598552
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1051 East Cary Street

Suite 1200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)
		Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



	Yes ¨ No x

The number of shares of common stock outstanding as of ~~August 2,~~November 1, 2017 was ~~43,707,506.~~43,732,082.

UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX



ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of ~~June~~September 30, 2017 (unaudited) and December 31, 2016 (audited)	2

	Consolidated Statements of Income (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016	3

	Consolidated Statements of Comprehensive Income (unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016	5

	Consolidated Statements of Cash Flows (unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016	6

	Notes to Consolidated Financial Statements (unaudited)	7

	Report of Independent Registered Public Accounting Firm	4544

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4645

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6970

Item 4.	Controls and Procedures	7172

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	7173

Item 1A.	Risk Factors	7174

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 6.	Exhibits	75

	Signatures	76

Glossary of Acronyms and Defined Terms



2016 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, 2016
AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALL	–	Allowance for loan losses
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Union Bank & Trust
BOLI	–	Bank-owned life insurance
bps	–	Basis points
the Company	–	Union Bankshares Corporation and its subsidiaries
Dodd-Frank Act	–	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS	–	Earnings per share
Exchange Act	–	Securities Exchange Act of 1934
FASB	–	Financial Accounting Standards Board
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
Federal Reserve Bank	–	Federal Reserve Bank of Richmond
FHLB	–	Federal Home Loan Bank of Atlanta
U.S. GAAP or GAAP	–	Accounting principles generally accepted in the United States
HELOC	–	Home equity line of credit
HTM	–	Held to maturity
IDC	–	Interactive Data Corporation
LIBOR	–	London Interbank Offered Rate
NPA	–	Nonperforming assets
ODCM	–	Old Dominion Capital Management, Inc.
OREO	–	Other real estate owned
OTTI	–	Other than temporary impairment
PCI	–	Purchased credit impaired
ROA	–	Return on average assets
ROE	–	Return on average common equity
ROTCE	–	Return on average tangible common equity
SEC	–	Securities and Exchange Commission
StellarOne	–	StellarOne Corporation
TDR	–	Troubled debt restructuring
UMG	–	Union Mortgage Group, Inc.
Xenith	–	Xenith Bankshares, Inc.

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	June 30, 2017		December 31, 2016			September 30, 2017		December 31, 2016
	(Unaudited)		(Audited)			(Unaudited)		(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	135,759	$	120,758		$	115,776	$	120,758
Interest-bearing deposits in other banks	45,473		58,030			60,294		58,030
Federal funds sold	678		449			891		449
Total cash and cash equivalents	181,910		179,237			176,961		179,237
Securities available for sale, at fair value	960,537		946,764			968,361		946,764
Securities held to maturity, at carrying value	205,630		201,526			204,801		201,526
Restricted stock, at cost	69,631		60,782			68,441		60,782
Loans held for sale, at fair value	41,135		36,487			30,896		36,487
Loans held for investment, net of deferred fees and costs	6,771,490		6,307,060			6,898,729		6,307,060
Less allowance for loan losses	38,214		37,192			37,162		37,192
Net loans held for investment	6,733,276		6,269,868			6,861,567		6,269,868
Premises and equipment, net	121,842		122,027			120,808		122,027
Other real estate owned, net of valuation allowance	9,482		10,084			8,764		10,084
Goodwill	298,191		298,191			298,191		298,191
Amortizable intangibles, net	17,422		20,602			16,017		20,602
Bank owned life insurance	180,110		179,318			181,451		179,318
Other assets	96,021		101,907			93,178		101,907
Total assets	$	8,915,187	$	8,426,793		$	9,029,436	$	8,426,793
LIABILITIES
Noninterest-bearing demand deposits	$	1,501,570	$	1,393,625		$	1,535,149	$	1,393,625
Interest-bearing deposits	5,262,864		4,985,864			5,346,677		4,985,864
Total deposits	6,764,434		6,379,489			6,881,826		6,379,489
Securities sold under agreements to repurchase	34,543		59,281			43,337		59,281
Other short-term borrowings	602,000		517,500			574,000		517,500
Long-term borrowings	434,260		413,308			434,750		413,308
Other liabilities	49,081		56,183			54,152		56,183
Total liabilities	7,884,318		7,425,761			7,988,065		7,425,761
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,706,000 shares and 43,609,317 shares, respectively.	57,643		57,506
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,729,229 shares and 43,609,317 shares, respectively.						57,708		57,506
Additional paid-in capital	607,666		605,397			608,884		605,397
Retained earnings	361,552		341,938			373,468		341,938
Accumulated other comprehensive income	4,008		(3,809		)	1,311		(3,809		)
Total stockholders' equity	1,030,869		1,001,032			1,041,371		1,001,032
Total liabilities and stockholders' equity	$	8,915,187	$	8,426,793		$	9,029,436	$	8,426,793

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except share and per share data)


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016		September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Interest and dividend income:
Interest and fees on loans	$	72,612	$	64,747	$	140,696	$	127,694	$	75,948	$	66,190	$	216,644	$	193,884
Interest on deposits in other banks	115		65		186		112		181		65		367		178
Interest and dividends on securities:
Taxable	4,982		4,510		9,905		8,826		5,175		4,732		15,081		13,558
Nontaxable	3,512		3,459		7,074		6,898		3,546		3,446		10,620		10,344
Total interest and dividend income	81,221		72,781		157,861		143,530		84,850		74,433		242,712		217,964

Interest expense:
Interest on deposits	6,100		4,197		11,176		8,393		7,234		4,552		18,410		12,945
Interest on short-term borrowings	1,400		710		2,350		1,332		1,871		765		4,221		2,098
Interest on long-term borrowings	4,722		2,098		8,768		4,298		4,547		2,088		13,316		6,386
Total interest expense	12,222		7,005		22,294		14,023		13,652		7,405		35,947		21,429

Net interest income	68,999		65,776		135,567		129,507		71,198		67,028		206,765		196,535
Provision for credit losses	2,173		2,300		4,295		4,904		3,050		2,472		7,345		7,376
Net interest income after provision for credit losses	66,826		63,476		131,272		124,603		68,148		64,556		199,420		189,159

Noninterest income:
Service charges on deposit accounts	4,963		4,754		9,792		9,488		5,153		4,965		14,945		14,454
Other service charges and fees	4,637		4,418		9,045		8,574		4,529		4,397		13,575		12,971
Fiduciary and asset management fees	2,725		2,333		5,519		4,471		2,794		2,844		8,313		7,315
Mortgage banking income, net	2,793		2,972		4,818		5,117		2,305		3,207		7,123		8,324
Gains on securities transactions, net	117		3		598		146		184		—		782		145
Bank owned life insurance income	1,335		1,361		3,460		2,734		1,377		1,389		4,837		4,122
Loan-related interest rate swap fees	1,031		1,091		2,211		1,753		416		1,303		2,627		3,056
Other operating income	455		1,061		1,451		1,624		778		845		2,228		2,470
Total noninterest income	18,056		17,993		36,894		33,907		17,536		18,950		54,430		52,857

Noninterest expenses:
Salaries and benefits	30,561		28,519		62,730		56,567		29,769		30,493		92,499		87,061
Occupancy expenses	4,718		4,809		9,621		9,785		4,939		4,841		14,560		14,627
Furniture and equipment expenses	2,720		2,595		5,323		5,232		2,559		2,635		7,882		7,867
Printing, postage, and supplies	1,406		1,280		2,556		2,419		1,154		1,147		3,710		3,566
Communications expense	872		927		1,782		2,016		798		948		2,580		2,964
Technology and data processing	3,927		3,608		7,827		7,422		4,232		3,917		12,059		11,340
Professional services	2,092		2,548		3,750		4,537		1,985		1,895		5,734		6,432
Marketing and advertising expense	2,279		1,924		4,019		3,863		1,944		1,975		5,963		5,838
FDIC assessment premiums and other insurance	947		1,379		1,652		2,741		1,141		1,262		2,793		4,003
Other taxes	2,022		1,607		4,043		3,225		2,022		639		6,065		3,864
Loan-related expenses	1,281		1,229		2,610		2,107		1,349		1,531		3,959		3,638
OREO and credit-related expenses	342		894		884		1,463		1,139		503		2,023		1,965
Amortization of intangible assets	1,544		1,745		3,180		3,625		1,480		1,843		4,661		5,468
Training and other personnel costs	1,043		905		2,012		1,649		887		863		2,900		2,512
Acquisition and conversion costs	2,744		—		2,744		—
Merger-related costs									732		—		3,476		—
Other expenses	1,432		1,282		2,592		2,872		1,366		2,421		3,957		5,291
Total noninterest expenses	59,930		55,251		117,325		109,523		57,496		56,913		174,821		166,436

Income before income taxes	24,952		26,218		50,841		48,987		28,188		26,593		79,029		75,580
Income tax expense	6,996		6,881		13,761		12,689		7,530		6,192		21,292		18,881
Net income	$	17,956	$	19,337	$	37,080	$	36,298	$	20,658	$	20,401	$	57,737	$	56,699
Basic earnings per common share	$	0.41	$	0.44	$	0.85	$	0.82	$	0.47	$	0.47	$	1.32	$	1.29
Diluted earnings per common share	$	0.41	$	0.44	$	0.85	$	0.82	$	0.47	$	0.47	$	1.32	$	1.29
Dividends declared per common share	$	0.20	$	0.19	$	0.40	$	0.38	$	0.20	$	0.19	$	0.60	$	0.57
Basic weighted average number of common shares outstanding	43,693,427		43,746,583		43,674,070		43,998,929		43,706,635		43,565,937		43,685,045		43,853,548
Diluted weighted average number of common shares outstanding	43,783,952		43,824,183		43,755,045		44,075,706		43,792,058		43,754,915		43,767,502		43,967,725

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016			2017			2016

Net income	$	17,956		$	19,337		$	37,080		$	36,298		$	20,658		$	20,401		$	57,737		$	56,699
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges	(775		)	(1,007		)	(807		)	(3,688		)	41			(78		)	(766		)	(3,766		)
Reclassification adjustment for losses (gains) included in net income (net of tax, $171 and $74 for the three months and $269 and $150 for the six months ended June 30, 2017 and 2016, respectively)	318			138			499			279
Reclassification adjustment for losses (gains) included in net income (net of tax, $102 and $83 for the three months and $370 and $233 for the nine months ended September 30, 2017 and 2016, respectively)													189			154			688			433
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $2,707 and $1,991 for the three months and $4,665 and $3,624 for the six months ended June 30, 2017 and 2016, respectively)	5,027			3,698			8,664			6,730
Reclassification adjustment for losses (gains) included in net income (net of tax, $41 and $1 for the three months and $209 and $51 for the six months ended June 30, 2017 and 2016, respectively)	(76		)	(2		)	(389		)	(95		)
Unrealized holding gains (losses) arising during period (net of tax, $1,470 and $604 for the three months and $3,195 and $4,227 for the nine months ended September 30, 2017 and 2016, respectively)													(2,729		)	1,121			5,935			7,851
Reclassification adjustment for losses (gains) included in net income (net of tax, $64 and $0 for the three months and $274 and $51 for the nine months ended September 30, 2017 and 2016, respectively)													(119		)	—			(508		)	(95		)
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $86 and $155 for the three months and $185 and $312 for the six months ended June 30, 2017 and 2016, respectively)	(160		)	(287		)	(344		)	(579		)
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $88 and $128 for the three months and $273 and $439 for the nine months ended September 30, 2017 and 2016, respectively)													(163		)	(237		)	(507		)	(816		)
Bank owned life insurance:
Reclassification adjustment for losses included in net income	85			—			194			—			84			—			278			—
Other comprehensive income	4,419			2,540			7,817			2,647
Other comprehensive income (loss)													(2,697		)	960			5,120			3,607
Comprehensive income	$	22,375		$	21,877		$	44,897		$	38,945		$	17,961		$	21,361		$	62,857		$	60,306

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2017 AND 2016

(Dollars in thousands, except share and per share amounts)

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total

Balance - December 31, 2015 $ 59,159
$ 631,822
$ 298,134
$ 6,252
$ 995,367
Net income - 2016

36,298

36,298
Other comprehensive income (net of taxes of $3,411)

2,647
2,647
Issuance of common stock in regard to acquisition (17,232 shares) 23
430
453
Dividends on common stock ($0.38 per share)

(16,685 )
(16,685 )
Stock purchased under stock repurchase plan (1,312,556 shares) (1,747 ) (28,943 )

(30,690 )
Issuance of common stock under Equity Compensation Plans (34,227 shares) 46
436

482
Issuance of common stock for services rendered (9,552 shares) 13
227

240
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (31,993 shares) 43
(441 )

(398 )
Stock-based compensation expense
1,487

1,487
Balance - June 30, 2016 $ 57,537
$ 605,018
$ 317,747
$ 8,899
$ 989,201

Balance - December 31, 2016 $ 57,506
$ 605,397
$ 341,938
$ (3,809 ) $ 1,001,032
Net income - 2017

37,080

37,080
Other comprehensive income (net of taxes of $4,540)

7,817
7,817
Dividends on common stock ($0.40 per share)

(17,466 )
(17,466 )
Issuance of common stock under Equity Compensation Plans (31,818 shares) 43
529

572
Issuance of common stock for services rendered (11,320 shares) 15
383

398
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (59,426 shares) 79
(1,145 )

(1,066 )
Stock-based compensation expense
2,502

2,502
Balance - June 30, 2017 $ 57,643
$ 607,666
$ 361,552
$ 4,008
$ 1,030,869



	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total

Balance - December 31, 2015	$	59,159		$	631,822		$	298,134		$	6,252		$	995,367
Net income - 2016							56,699						56,699
Other comprehensive income (net of taxes of $3,970)										3,607			3,607
Issuance of common stock in regard to acquisition (17,232 shares)	23			430									453
Dividends on common stock ($0.57 per share)							(24,957		)				(24,957		)
Stock purchased under stock repurchase plan (1,411,131 shares)	(1,876		)	(31,300		)							(33,176		)
Issuance of common stock under Equity Compensation Plans (54,044 shares)	72			681									753
Issuance of common stock for services rendered (14,576 shares)	19			360									379
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (35,515 shares)	47			(492		)							(445		)
Stock-based compensation expense				2,284									2,284
Balance - September 30, 2016	$	57,444		$	603,785		$	329,876		$	9,859		$	1,000,964

Balance - December 31, 2016	$	57,506		$	605,397		$	341,938		$	(3,809	)	$	1,001,032
Net income - 2017							57,737						57,737
Other comprehensive income (net of taxes of $3,018)										5,120			5,120
Dividends on common stock ($0.60 per share)							(26,207		)				(26,207		)
Issuance of common stock under Equity Compensation Plans (58,421 shares)	78			891									969
Issuance of common stock for services rendered (16,529 shares)	22			539									561
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (76,505 shares)	102			(1,415		)							(1,313		)
Stock-based compensation expense				3,472									3,472
Balance - September 30, 2017	$	57,708		$	608,884		$	373,468		$	1,311		$	1,041,371

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2017 AND 2016

(Dollars in thousands)


	2017			2016			2017			2016
Operating activities:
Net income	$	37,080		$	36,298		$	57,737		$	56,699
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Depreciation of premises and equipment	5,431			4,983			8,307			7,617
Writedown of OREO	257			400			845			879
Amortization, net	6,977			6,845			10,500			10,241
Amortization related to acquisition, net	70			1,077
Amortization (accretion) related to acquisition, net							(158		)	1,400
Provision for credit losses	4,295			4,904			7,345			7,376
Gains on securities transactions, net	(598		)	(146		)	(782		)	(145		)
Bank owned life insurance income	(3,460		)	(2,734		)
Increase in loans held for sale, net	(4,648		)	(2,084		)
Gains on sales of other real estate owned, net	(72		)	(1		)
BOLI income							(3,999		)	(4,122		)
Decrease (increase) in loans held for sale, net							5,591			(10,784		)
Losses (gains) on sales of other real estate owned, net							32			(278		)
Losses on sales of premises, net	27			72			51			97
Stock-based compensation expenses	2,502			1,487			3,472			2,284
Issuance of common stock for services	398			240			561			379
Net decrease (increase) in other assets	3,991			(8,549		)	4,952			(11,169		)
Net (decrease) increase in other liabilities	(4,392		)	1,920
Net increase in other liabilities							909			11,192
Net cash and cash equivalents provided by (used in) operating activities	47,858			44,712			95,363			71,666
Investing activities:
Purchases of securities available for sale and restricted stock	(124,411		)	(122,690		)	(205,965		)	(159,863		)
Purchases of securities held to maturity	(7,836		)	—			(7,836		)	—
Proceeds from sales of securities available for sale and restricted stock	52,626			15,424			91,911			18,272
Proceeds from maturities, calls and paydowns of securities available for sale	59,342			56,414			88,675			83,942
Proceeds from maturities, calls and paydowns of securities held to maturity	909			610			818			1,841
Net increase in loans held for investment	(464,667		)	(271,689		)	(594,967		)	(479,346		)
Net increase in premises and equipment	(5,273		)	(3,059		)	(7,139		)	(5,102		)
Proceeds from BOLI settlements							2,497			—
Proceeds from sales of other real estate owned	381			2,138			1,028			4,982
Cash paid in acquisition	—			(4,077		)	—			(4,077		)
Cash acquired in acquisitions	—			207			—			207
Net cash and cash equivalents provided by (used in) investing activities	(488,929		)	(326,722		)	(630,978		)	(539,144		)
Financing activities:
Net increase in noninterest-bearing deposits	107,945			19,797			141,524			69,331
Net increase in interest-bearing deposits	277,000			112,093			360,813			225,239
Net increase in short-term borrowings	59,762			289,285			40,556			276,748
Cash paid for contingent consideration	(3,003		)	—			(3,003		)	—
Proceeds from issuance of long-term debt	20,000			—			20,000			—
Repayments of long-term debt	—			(17,500		)	—			(32,500		)
Cash dividends paid - common stock	(17,466		)	(16,685		)	(26,207		)	(24,957		)
Repurchase of common stock	—			(30,690		)	—			(33,176		)
Issuance of common stock	572			482			969			753
Vesting of restricted stock, net of shares held for taxes	(1,066		)	(398		)	(1,313		)	(445		)
Net cash and cash equivalents provided by (used in) financing activities	443,744			356,384			533,339			480,993
Increase in cash and cash equivalents	2,673			74,374
Increase (decrease) in cash and cash equivalents							(2,276		)	13,515
Cash and cash equivalents at beginning of the period	179,237			142,660			179,237			142,660
Cash and cash equivalents at end of the period	$	181,910		$	217,034		$	176,961		$	156,175
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	22,424		$	14,212		$	33,947		$	21,812
Income taxes	16,400			15,800			19,600			19,800
Supplemental schedule of noncash investing and financing activities
Transfers between loans and other real estate owned	$	(36	)	$	619		$	585		$	865
Issuance of common stock in exchange for net assets in acquisition	—			453			—			453

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1. ACCOUNTING POLICIES

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 ~~Annual Report on~~ Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Loans

The Company originates commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial and residential real estate loans (including acquisition and development loans and residential construction loans) throughout its market area. The ability of the Company’s debtors to honor their contracts on such loans is dependent upon the real estate and general economic conditions in those markets, as well as other factors.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Below is a summary of the Company's loan segments:

Construction and Land Development – construction loans generally made to commercial and residential builders for specific construction projects. The successful repayment of these types of loans is generally dependent upon (a) a commitment for permanent financing from the Company, or (b) from the sale of the constructed property. These loans carry more risk than both types of commercial real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. As in commercial real estate term lending, the Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.

Also, included in this category are loans generally made to residential home builders to support their lot and home inventory needs. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk as compared to other commercial lending. This class of lending manages risks related to residential real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s ability to manage inventory and run projects. The Company manages this risk by lending to experienced builders and developers by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations with any particular customer or geographic region.

Commercial Real Estate – Owner Occupied – term loans made to support owner occupied real estate properties that rely upon the successful operation of the business occupying the property for repayment. General market conditions and economic activity may affect these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry.

Commercial Real Estate – Non-Owner Occupied – term loans typically made to borrowers to support income producing properties that rely upon the successful operation of the property for repayment. General market conditions and economic activity may impact the performance of these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, and hotel as well as avoiding concentrations to any one business or industry.

Residential 1-4 Family – loans generally made to both commercial and residential borrowers. Residential 1-4 Family loan portfolios carry risks associated with the creditworthiness of the borrower or the tenant and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.

Multifamily Real Estate – loans made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.

Commercial & Industrial – loans generally made to support the Company’s borrowers’ need for equipment/vehicle purchases and short-term or seasonal cash flow needs. Repayment relies upon the successful operation of the business. This type of lending carries a lower level of commercial credit risk as compared to other commercial lending. The Company manages this risk by using general underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry.

HELOC – the consumer HELOC portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, using experienced underwriting, requiring standards for appraisers, and not making subprime loans.

Auto – the consumer indirect auto lending portfolio generally carries certain risks associated with the values of the collateral that management must mitigate. The Company focuses its indirect auto lending on one to two year old used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future. This type of lending places reliance on computer-based loan approval systems to supplement other underwriting standards.

Consumer and all other – portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Also included in this category are loans that generally support small business lines of credit and agricultural lending, neither of which are a material source of business for the Company.

Affordable Housing Entities

The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three and ~~six~~nine months ended ~~June~~September 30, 2017, the Company recognized amortization of ~~$190,000~~$229,000 and ~~$414,000,~~$643,000, respectively, and tax credits of ~~$174,000~~$240,000 and ~~$484,000,~~$724,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. For the three and ~~six~~nine months ended ~~June~~September 30, 2016, the Company recognized amortization of ~~$130,000~~$185,000 and ~~$260,000,~~$445,000, respectively, and tax credits of ~~$210,000~~$265,000 and ~~$420,000,~~$685,000, respectively. The carrying value of the Company’s investments in these qualified affordable housing projects was ~~$9.4~~$9.1 million and $9.9 million as of ~~June~~September 30, 2017 and December 31, 2016, respectively. At ~~June~~September 30, 2017 and December 31, 2016, the Company's recorded liability totaled ~~$4.6~~$4.0 million and $7.1 million, respectively, for the related unfunded commitments, which are expected to be paid from the second half of 2017 through 2019.

Adoption of New Accounting Standards

In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to

Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted this standard in the first quarter of 2017. The adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The original guidance has been amended through subsequent accounting standard updates that resulted in technical corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable to all entities and, once effective, will replace significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-

based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. Entities can elect to adopt the guidance either on a full or modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented. Modified retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The Company plans to adopt this guidance on the effective date, January 1, ~~2018.~~2018 via the modified retrospective approach. The Company ~~is finalizing~~performed its assessment of the adoption of this ASU and the related subsequent technical corrections ~~issued; however, based~~issued. Based on the ~~work performed,~~completed contracts reviewed thus far, the ~~Company does~~adoption of this accounting guidance is not ~~anticipate that there will be~~expected to have a material impact on ~~its~~the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets, but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. ~~Upon adoption, the Company will record a right of use asset and a lease payment obligation associated with arrangements previously accounted for as operating leases.~~ The Company is currently ~~assessing~~working to identify the ~~impact ASU No. 2016-02~~complete lease population, including potential embedded leases. The adoption of this standard is expected to result in additional assets and liabilities, as the Company will be required to recognize operating leases on the Consolidated Balance Sheet. Other implementation matters to be addressed include, but are not limited to, the determination of effects on the financial and capital ratios and the quantification of the impacts that this accounting guidance will have on ~~its~~the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and required consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently assessing the impact ASU No. 2016-13 will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This ASU clarifies the definition of a business that appears in ASC 805, Business Combinations. Amendments narrow the definition and provide a framework for making judgments whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company has concluded the adoption of ASU 2017-01 will not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update).” This ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. ASU 2017-03 is effective upon issuance. The Company has concluded the adoption of ASU 2017-03 will not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU simplifies accounting for goodwill impairments by eliminating step two (the implied fair value to carrying value of goodwill) from the existing goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has concluded the adoption of ASU 2017-04 will not have a material impact on its consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales

of Nonfinancial Assets.” This ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2018. The Company ~~is currently assessing the impact~~concluded that ASU 2017-05 will not have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU focuses on the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. The Company has concluded the adoption of ASU 2017-08 will not have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU relates to changes in the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company has concluded the adoption of ASU 2017-09 will not have a material impact on its consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU relates to any entity that elects to apply hedge accounting in accordance with current GAAP. The amendment simplifies the application of the hedge accounting guidance and improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact ASU 2017-12 will have on its consolidated financial statements.

2. SECURITIES

Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of ~~June~~September 30, 2017 and December 31, 2016 are summarized as follows (dollars in thousands):


	Amortized		Gross Unrealized					Estimated		Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
June 30, 2017
September 30, 2017
Obligations of states and political subdivisions	$	270,206	$	9,087	$	(753	)	$	278,540	$	285,921	$	7,582	$	(1,304	)	$	292,199
Corporate bonds	116,318		1,009		(909		)	116,418		114,997		1,241		(816		)	115,422
Mortgage-backed securities	548,229		5,417		(1,895		)	551,751		546,038		4,119		(3,253		)	546,904
Other securities	13,886		—		(58		)	13,828		13,890		—		(54		)	13,836
Total available for sale securities	$	948,639	$	15,513	$	(3,615	)	$	960,537	$	960,846	$	12,942	$	(5,427	)	$	968,361

December 31, 2016
Obligations of states and political subdivisions	$	274,007	$	4,962	$	(3,079	)	$	275,890	$	274,007	$	4,962	$	(3,079	)	$	275,890
Corporate bonds	123,674		892		(2,786		)	121,780		123,674		892		(2,786		)	121,780
Mortgage-backed securities	536,031		4,626		(5,371		)	535,286		536,031		4,626		(5,371		)	535,286
Other securities	13,885		—		(77		)	13,808		13,885		—		(77		)	13,808
Total available for sale securities	$	947,597	$	10,480	$	(11,313	)	$	946,764	$	947,597	$	10,480	$	(11,313	)	$	946,764

The following table shows the gross unrealized losses and fair value ~~(in~~(dollars in thousands) of the Company’s available for sale securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of ~~June~~September 30, 2017 and December 31, 2016. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Less than 12 months					More than 12 months					Total					Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2017
September 30, 2017
Obligations of states and political subdivisions	$	27,804	$	(717	)	$	624	$	(36	)	$	28,428	$	(753	)	$	55,319	$	(700	)	$	9,338	$	(604	)	$	64,657	$	(1,304	)
Mortgage-backed securities	197,560		(1,436		)	41,582		(459		)	239,142		(1,895		)	283,466		(2,708		)	42,481		(545		)	325,947		(3,253		)
Corporate bonds and other securities	20,230		(367		)	38,872		(600		)	59,102		(967		)	21,128		(353		)	32,674		(517		)	53,802		(870		)
Total available for sale securities	$	245,594	$	(2,520	)	$	81,078	$	(1,095	)	$	326,672	$	(3,615	)	$	359,913	$	(3,761	)	$	84,493	$	(1,666	)	$	444,406	$	(5,427	)

December 31, 2016
Obligations of states and political subdivisions	$	108,440	$	(3,007	)	$	588	$	(72	)	$	109,028	$	(3,079	)	$	108,440	$	(3,007	)	$	588	$	(72	)	$	109,028	$	(3,079	)
Mortgage-backed securities	316,469		(4,979		)	42,096		(392		)	358,565		(5,371		)	316,469		(4,979		)	42,096		(392		)	358,565		(5,371		)
Corporate bonds and other securities	47,388		(1,537		)	40,468		(1,326		)	87,856		(2,863		)	47,388		(1,537		)	40,468		(1,326		)	87,856		(2,863		)
Total available for sale securities	$	472,297	$	(9,523	)	$	83,152	$	(1,790	)	$	555,449	$	(11,313	)	$	472,297	$	(9,523	)	$	83,152	$	(1,790	)	$	555,449	$	(11,313	)

As of ~~June~~September 30, 2017, there were ~~$81.1~~$84.5 million, or 3036 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of ~~$1.1~~$1.7 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2016, there were $83.2 million, or 30 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.8 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. The Company has determined that these securities are temporarily impaired as of ~~June~~September 30, 2017 and December 31, 2016 for the reasons set out below:

Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.

Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of available for sale securities as of ~~June~~September 30, 2017 and December 31, 2016, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	23,527	$	23,610	$	21,403	$	21,517	$	23,387	$	23,510	$	21,403	$	21,517
Due after one year through five years	120,077		122,479		108,198		109,778		128,261		130,107		108,198		109,778
Due after five years through ten years	276,269		281,588		300,552		301,888		267,492		271,830		300,552		301,888
Due after ten years	528,766		532,860		517,444		513,581		541,706		542,914		517,444		513,581
Total securities available for sale	$	948,639	$	960,537	$	947,597	$	946,764	$	960,846	$	968,361	$	947,597	$	946,764

For information regarding the estimated fair value of available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of ~~June~~September 30, 2017 and December 31, 2016, see Note 6 “Commitments and Contingencies.”

Held to Maturity

The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.

The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of ~~June~~September 30, 2017 and December 31, 2016 are summarized as follows (dollars in thousands):


	Carrying		Gross Unrealized					Estimated		Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value		Value ⁽¹⁾		Gains		(Losses)			Fair Value
June 30, 2017
September 30, 2017
Obligations of states and political subdivisions	$	205,630	$	5,909	$	(93	)	$	211,446	$	204,801	$	5,111	$	(77	)	$	209,835

December 31, 2016
Obligations of states and political subdivisions	$	201,526	$	1,617	$	(828	)	$	202,315	$	201,526	$	1,617	$	(828	)	$	202,315

(1) The carrying value includes ~~$4.4~~$4.0 million as of ~~June~~September 30, 2017 and $5.2 million as of December 31, 2016 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.

The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of ~~June~~September 30, 2017 and December 31, 2016. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Less than 12 months					More than 12 months					Total					Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2017
September 30, 2017
Obligations of states and political subdivisions	$	3,088	$	(67	)	$	644	$	(26	)	$	3,732	$	(93	)	$	5,130	$	(53	)	$	638	$	(24	)	$	5,768	$	(77	)

December 31, 2016
Obligations of states and political subdivisions	$	92,841	$	(747	)	$	648	$	(81	)	$	93,489	$	(828	)	$	92,841	$	(747	)	$	648	$	(81	)	$	93,489	$	(828	)

As of ~~June~~September 30, 2017, there was ~~$644,000,~~$638,000, or one issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 ~~months. This security~~months and had an unrealized loss of ~~$26,000.~~$24,000. As of December 31, 2016, there was $648,000, or one issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 ~~months. This security~~months and had an unrealized loss of $81,000. ~~The~~This security is a municipal bond with minimal credit exposure and is credit enhanced with a guarantee from the local school board. For this reason, the Company has determined that ~~these securities~~this security in a loss position ~~are~~is temporarily impaired as of ~~June~~September 30, 2017 and December 31, ~~2016 for the reasons set out below:~~

~~Obligations of states and political subdivisions.~~ This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment.2016. Because the Company does not intend to sell ~~any of the investments~~this investment and the accounting standard of “more likely than not” has not been met for the Company to be required to sell ~~any of~~ the ~~investments~~investment before recovery of its amortized cost basis, which may be maturity, the Company does not consider ~~these investments~~this investment to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of held to maturity securities as of ~~June~~September 30, 2017 and December 31, 2016, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	September 30, 2017				December 31, 2016
	Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value
Due in one year or less	$	5,879	$	5,902	$	4,403	$	4,440
Due after one year through five years	41,196		41,959		28,383		28,763
Due after five years through ten years	65,893		67,444		51,730		51,522
Due after ten years	91,833		94,530		117,010		117,590
Total securities held to maturity	$	204,801	$	209,835	$	201,526	$	202,315

June 30, 2017 December 31, 2016

Carrying
Value ⁽¹⁾

Estimated
Fair Value

Carrying
Value ⁽¹⁾

Estimated
Fair Value
Due in one year or less $ 4,797
$ 4,826
$ 4,403
$ 4,440
Due after one year through five years 34,383
35,020
28,383
28,763
Due after five years through ten years 63,538
65,281
51,730
51,522
Due after ten years 102,912
106,319
117,010
117,590
Total securities held to maturity $ 205,630
$ 211,446
$ 201,526
$ 202,315

For information regarding the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of ~~June~~September 30, 2017 and December 31, 2016, see Note 6 “Commitments and Contingencies.”

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At ~~June~~September 30, 2017 and December 31, 2016, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both ~~June~~September 30, 2017 and December 31, 2016. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $27.6 million and $23.8 million for ~~June~~September 30, 2017 and December 31, 2016 and FHLB stock in the amount of ~~$42.1~~$40.9 million and $37.0 million as of ~~June~~September 30, 2017 and December 31, 2016, respectively.

Other-Than-Temporary-Impairment

During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three and ~~six~~nine months ended ~~June~~September 30, 2017, and in accordance with the guidance, no OTTI was recognized.

For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000. During the quarter ended March 31, 2016, the municipal security was sold. As a result, the Company recognized an additional loss on sale of the previously written down security.

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 (dollars in thousands).


	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017			Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Realized gains (losses):
Gross realized gains	$	180		$	661		$	296		$	958
Gross realized losses	(63		)	(63		)	(112		)	(176		)
Net realized gains	$	117		$	598		$	184		$	782

Proceeds from sales of securities	$	31,320		$	52,626		$	39,284		$	91,911


	Three Months Ended June 30, 2016		Six Months Ended June 30, 2016			Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Realized gains (losses):
Gross realized gains	$	3	$	242		$	—	$	242
Gross realized losses	—		(96		)	—		(97		)
Net realized gains	$	3	$	146		$	—	$	145

Proceeds from sales of securities	$	892	$	15,424		$	2,848	$	18,272

3. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	June 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Construction and Land Development	$	799,938	$	751,131	$	841,738	$	751,131
Commercial Real Estate - Owner Occupied	888,285		857,805		903,523		857,805
Commercial Real Estate - Non-Owner Occupied	1,698,329		1,564,295		1,748,039		1,564,295
Multifamily Real Estate	367,257		334,276		368,686		334,276
Commercial & Industrial	568,602		551,526		554,522		551,526
Residential 1-4 Family	1,066,519		1,029,547		1,083,112		1,029,547
Auto	274,162		262,071		276,572		262,071
HELOC	535,088		526,884		535,446		526,884
Consumer and all other	573,310		429,525		587,091		429,525
Total loans held for investment, net ⁽¹⁾	$	6,771,490	$	6,307,060	$	6,898,729	$	6,307,060

(1) Loans, as presented, are net of deferred fees and costs totaling ~~$898,000~~$335,000 and $1.8 million as of ~~June~~September 30, 2017 and December 31, 2016, respectively.

The following table shows the aging of the Company’s loan portfolio, by segment, at ~~June~~September 30, 2017 (dollars in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	602	$	26	$	83	$	2,694	$	5,659	$	790,874	$	799,938	$	7,221	$	100	$	54	$	3,026	$	5,671	$	825,666	$	841,738
Commercial Real Estate - Owner Occupied	3,148		194		56		17,906		1,279		865,702		888,285		1,707		689		679		17,668		2,205		880,575		903,523
Commercial Real Estate - Non-Owner Occupied	1,530		571		298		16,308		4,765		1,674,857		1,698,329		909		571		298		14,376		2,701		1,729,184		1,748,039
Multifamily Real Estate	500		—		—		2,047		—		364,710		367,257		—		—		—		77		—		368,609		368,686
Commercial & Industrial	1,652		113		55		751		4,281		561,750		568,602		1,558		255		101		625		1,252		550,731		554,522
Residential 1-4 Family	2,477		5,663		2,369		15,087		6,128		1,034,795		1,066,519		5,633		1,439		2,360		14,077		6,163		1,053,440		1,083,112
Auto	1,562		240		35		—		270		272,055		274,162		2,415		293		143		—		174		273,547		276,572
HELOC	1,405		964		544		1,156		2,059		528,960		535,088		1,400		628		709		982		1,791		529,936		535,446
Consumer and all other	1,891		1,242		185		218		133		569,641		573,310		3,469		1,445		188		210		165		581,614		587,091
Total loans held for investment	$	14,767	$	9,013	$	3,625	$	56,167	$	24,574	$	6,663,344	$	6,771,490	$	24,312	$	5,420	$	4,532	$	51,041	$	20,122	$	6,793,302	$	6,898,729

The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2016 (dollars in thousands):



	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	1,162	$	232	$	76	$	2,922	$	2,037	$	744,702	$	751,131
Commercial Real Estate - Owner Occupied	1,842		109		35		18,343		794		836,682		857,805
Commercial Real Estate - Non-Owner Occupied	2,369		—		—		17,303		—		1,544,623		1,564,295
Multifamily Real Estate	147		—		—		2,066		—		332,063		334,276
Commercial & Industrial	759		858		9		1,074		124		548,702		551,526
Residential 1-4 Family	7,038		534		2,048		16,200		5,279		998,448		1,029,547
Auto	2,570		317		111		—		169		258,904		262,071
HELOC	1,836		1,140		635		1,161		1,279		520,833		526,884
Consumer and all other	2,522		1,431		91		223		291		424,967		429,525
Total loans held for investment	$	20,245	$	4,621	$	3,005	$	59,292	$	9,973	$	6,209,924	$	6,307,060

The following table shows the PCI loan portfolios, by segment and their delinquency status, at ~~June~~September 30, 2017 (dollars in thousands):


	30-89 Days Past Due		Greater than 90 Days		Current		Total		30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	67	$	—	$	2,627	$	2,694	$	62	$	—	$	2,964	$	3,026
Commercial Real Estate - Owner Occupied	339		650		16,917		17,906		463		643		16,562		17,668
Commercial Real Estate - Non-Owner Occupied	1,195		76		15,037		16,308		318		1,032		13,026		14,376
Multifamily Real Estate	—		—		2,047		2,047		—		—		77		77
Commercial & Industrial	109		—		642		751		—		—		625		625
Residential 1-4 Family	1,138		903		13,046		15,087		949		1,125		12,003		14,077
HELOC	221		127		808		1,156		132		128		722		982
Consumer and all other	35		—		183		218		34		—		176		210
Total	$	3,104	$	1,756	$	51,307	$	56,167	$	1,958	$	2,928	$	46,155	$	51,041

The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, 2016 (dollars in thousands):



	30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	—	$	84	$	2,838	$	2,922
Commercial Real Estate - Owner Occupied	271		519		17,553		18,343
Commercial Real Estate - Non-Owner Occupied	409		126		16,768		17,303
Multifamily Real Estate	—		—		2,066		2,066
Commercial & Industrial	44		56		974		1,074
Residential 1-4 Family	1,298		945		13,957		16,200
HELOC	175		121		865		1,161
Consumer and all other	—		—		223		223
Total	$	2,197	$	1,851	$	55,244	$	59,292

The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans, by segment at ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	June 30, 2017						December 31, 2016						September 30, 2017						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans without a specific allowance
Construction and Land Development	$	10,097	$	10,109	$	—	$	13,877	$	14,353	$	—	$	13,889	$	13,981	$	—	$	13,877	$	14,353	$	—
Commercial Real Estate - Owner Occupied	5,810		5,981		—		5,886		6,042		—		5,238		5,378		—		5,886		6,042		—
Commercial Real Estate - Non-Owner Occupied	1,671		1,671		—		1,399		1,399		—		5,548		5,636		—		1,399		1,399		—
Commercial & Industrial	1,040		1,285		—		648		890		—		1,632		1,880		—		648		890		—
Residential 1-4 Family	9,144		10,208		—		8,496		9,518		—		9,510		10,523		—		8,496		9,518		—
HELOC	1,174		1,351		—		1,017		1,094		—		1,651		1,741		—		1,017		1,094		—
Consumer and all other	605		716		—		230		427		—		521		631		—		230		427		—
Total impaired loans without a specific allowance	$	29,541	$	31,321	$	—	$	31,553	$	33,723	$	—	$	37,989	$	39,770	$	—	$	31,553	$	33,723	$	—

Loans with a specific allowance
Construction and Land Development	$	5,136	$	5,331	$	720	$	1,395	$	1,404	$	107	$	1,347	$	1,444	$	113	$	1,395	$	1,404	$	107
Commercial Real Estate - Owner Occupied	631		631		3		646		646		4		2,118		2,132		157		646		646		4
Commercial Real Estate - Non-Owner Occupied	7,991		8,040		640		2,809		2,809		474		2,032		2,032		42		2,809		2,809		474
Commercial & Industrial	5,836		5,945		1,034		857		880		14		2,511		2,562		909		857		880		14
Residential 1-4 Family	3,834		4,071		424		3,335		3,535		200		4,421		4,543		249		3,335		3,535		200
Auto	270		393		1		169		235		1		174		235		1		169		235		1
HELOC	937		962		70		323		433		15		766		800		56		323		433		15
Consumer and all other	24		88		1		62		298		1		242		310		43		62		298		1
Total impaired loans with a specific allowance	$	24,659	$	25,461	$	2,893	$	9,596	$	10,240	$	816	$	13,611	$	14,058	$	1,570	$	9,596	$	10,240	$	816
Total impaired loans	$	54,200	$	56,782	$	2,893	$	41,149	$	43,963	$	816	$	51,600	$	53,828	$	1,570	$	41,149	$	43,963	$	816

The following tables show the average recorded investment and interest income recognized for the Company’s impaired loans, excluding PCI loans, by segment for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 (dollars in thousands):


	Three Months Ended June 30, 2017				Six Months Ended June 30, 2017				Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Construction and Land Development	$	15,111	$	119	$	14,939	$	235	$	15,654	$	128	$	15,378	$	368
Commercial Real Estate - Owner Occupied	6,471		61		6,507		122		7,354		62		7,407		245
Commercial Real Estate - Non-Owner Occupied	9,675		48		9,698		139		7,597		57		7,584		185
Commercial & Industrial	6,942		41		7,212		72		4,139		36		4,203		121
Residential 1-4 Family	13,311		43		13,372		108		14,218		94		14,358		261
Auto	347		2		368		2		192		—		223		2
HELOC	2,265		1		2,273		5		2,460		7		2,492		29
Consumer and all other	564		8		405		7		800		8		690		20
Total impaired loans	$	54,686	$	323	$	54,774	$	690	$	52,414	$	392	$	52,335	$	1,231


	Three Months Ended June 30, 2016				Six Months Ended June 30, 2016				Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Construction and Land Development	$	30,524	$	495	$	30,174	$	962	$	28,195	$	464	$	27,645	$	1,346
Commercial Real Estate - Owner Occupied	13,567		148		13,719		292		7,691		72		7,862		230
Commercial Real Estate - Non-Owner Occupied	4,215		43		4,216		79		3,777		33		3,759		98
Multifamily Real Estate	3,791		60		3,804		120
Commercial & Industrial	2,622		31		2,861		61		4,628		42		4,964		134
Residential 1-4 Family	14,189		90		14,365		183		13,106		89		13,439		267
Auto	162		—		183		—		271		—		289		4
HELOC	2,492		11		2,519		29		2,118		7		2,185		35
Consumer and all other	374		1		572		4		453		—		620		6
Total impaired loans	$	71,936	$	879	$	72,413	$	1,730	$	60,239	$	707	$	60,763	$	2,120

The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for loan loss methodology and are included in the preceding impaired loan tables. For the three and ~~six~~nine months ended ~~June~~September 30, 2017, the recorded investment in TDRs prior to modifications was not materially impacted by the modification.

The following table provides a summary, by segment, of TDRs that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	June 30, 2017					December 31, 2016					September 30, 2017					December 31, 2016
	No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment
Performing
Construction and Land Development	7	$	3,282	$	—	8	$	3,793	$	—	7	$	2,841	$	—	8	$	3,793	$	—
Commercial Real Estate - Owner Occupied	6	2,579		—		7	3,106		—		7	2,934		—		7	3,106		—
Commercial Real Estate - Non-Owner Occupied	2	1,631		—		2	2,390		—		3	2,196		—		2	2,390		—
Commercial & Industrial	13	2,194		—		3	533		—		12	2,112		—		3	533		—
Residential 1-4 Family	32	4,766		—		28	4,145		—		34	5,941		—		28	4,145		—
Consumer and all other	1	495		—		—	—		—		1	495		—		—	—		—
Total performing	61	$	14,947	$	—	48	$	13,967	$	—	64	$	16,519	$	—	48	$	13,967	$	—

Nonperforming
Construction and Land Development	5	$	502	$	—	2	$	215	$	—	5	$	400	$	—	2	$	215	$	—
Commercial Real Estate - Owner Occupied	3	616		—		2	156		—		2	142		—		2	156		—
Commercial Real Estate - Non-Owner Occupied	1	2,050		—		—	—		—
Commercial & Industrial	1	86		—		1	116		—		5	1,062		—		1	116		—
Residential 1-4 Family	10	1,200		—		8	948		—		8	1,095		—		8	948		—
Consumer and all other											1	26		—		—	—		—
Total nonperforming	20	$	4,454	$	—	13	$	1,435	$	—	21	$	2,725	$	—	13	$	1,435	$	—

Total performing and nonperforming	81	$	19,401	$	—	61	$	15,402	$	—	85	$	19,244	$	—	61	$	15,402	$	—

The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. The following table shows, by segment, TDRs that were identified by the Company as going into default during the period shown that were restructured in the prior twelve-month period (dollars in thousands):



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
	No. of Loans	Recorded Investment		No. of Loans	Recorded Investment
Construction and Land Development	—	$	—	2	$	198
Commercial Real Estate - Owner Occupied	—	—		1	469
Commercial & Industrial	1	350		1	350
Residential 1-4 Family	2	187		4	605
Total	3	$	537	8	$	1,622

During the three and ~~six~~nine months ended ~~June~~September 30, ~~2017,~~2016, the Company identified ~~five TDRs,~~one loan, totaling approximately ~~$1.1 million~~$23,000, that went into default that had been restructured in the twelve-month period prior to ~~default; these loans consisted~~the time of default. This loan was a commercial real estate - owner occupied ~~residential 1-4 family, and construction and land development loans. During the three and six months ended June 30, 2016, the Company did not identify any TDRs that went into default~~loan that had ~~been restructured in the twelve-month period prior to default.~~

a term modification at a market rate.

The following table shows, by segment and modification type, TDRs that occurred during the three and ~~six~~nine months ended ~~June~~September 30, 2017 (dollars in thousands):


	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017			Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
	No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End
Modified to interest only, at a market rate
Commercial & Industrial	—	$	—	5	$	661	3	$	936	8	$	1,596
Total interest only at market rate of interest	—	$	—	5	$	661	3	$	936	8	$	1,596

Term modification, at a market rate
Construction and Land Development	3	$	1,084	3	$	1,084	1	$	160	4	$	1,150
Commercial Real Estate - Owner Occupied							1	380		1	380
Commercial Real Estate - Non-Owner Occupied	—	—		2	1,631		1	571		3	2,196
Commercial & Industrial	2	157		4	973		—	—		4	969
Residential 1-4 Family	2	562		5	939		3	1,647		8	2,574
Consumer and all other	1	495		1	495		1	26		2	522
Total loan term extended at a market rate	8	$	2,298	15	$	5,122	7	$	2,784	22	$	7,791

Term modification, below market rate
Commercial Real Estate - Owner Occupied	1	$	844	1	$	844	—	$	—	1	$	841
Commercial & Industrial	1	85		3	195		—	—		3	179
Residential 1-4 Family	3	244		7	1,107		1	40		8	1,143
Total loan term extended at a below market rate	5	$	1,173	11	$	2,146	1	$	40	12	$	2,163

Total	13	$	3,471	31	$	7,929	11	$	3,760	42	$	11,550

The following table shows, by segment and modification type, TDRs that occurred during the three and ~~six~~nine months ended ~~June~~September 30, 2016 (dollars in thousands):


	Three Months Ended June 30, 2016			Six Months Ended June 30, 2016			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
	No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End
Term modification, at a market rate
Construction and Land Development	1	$	1,193	1	$	1,193	—	$	—	1	$	1,177
Commercial Real Estate - Owner Occupied	1	38		2	743		—	—		2	739
Commercial & Industrial							1	457		1	457
Residential 1-4 Family	1	100		2	476		—	—		2	474
Total loan term extended at a market rate	3	$	1,331	5	$	2,412	1	$	457	6	$	2,847

Term modification, below market rate
Residential 1-4 Family	1	$	37	1	$	37	—	$	—	1	$	36
Total loan term extended at a below market rate	1	$	37	1	$	37	—	$	—	1	$	36

Interest rate modification, below market rate
Commercial & Industrial	1	$	135	1	$	135	—	$	—	1	$	125
Total interest only at below market rate of interest	1	$	135	1	$	135	—	$	—	1	$	125

Total	5	$	1,503	7	$	2,584	1	$	457	8	$	3,008

The following table shows the allowance for loan loss activity, balances for allowance for loan losses, and loan balances based on impairment methodology by segment for the ~~six~~nine months ended and as of ~~June~~September 30, 2017. The table below includes the provision for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Allowance for loan losses												Allowance for loan losses
	Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period		Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period
Construction and Land Development	$	10,055	$	45	$	(253	)	$	(792	)	$	9,055	$	10,055	$	193	$	(2,115	)	$	535		$	8,668
Commercial Real Estate - Owner Occupied	3,801		65		—			(514		)	3,352		3,801		84		(46		)	(620		)	3,219
Commercial Real Estate - Non-Owner Occupied	6,622		1		(677		)	1,390			7,336		6,622		2		(1,181		)	1,825			7,268
Multifamily Real Estate	1,236		—		—			(117		)	1,119		1,236		—		—			(136		)	1,100
Commercial & Industrial	4,627		262		(557		)	1,282			5,614		4,627		451		(1,241		)	1,526			5,363
Residential 1-4 Family	6,399		266		(466		)	49			6,248		6,399		332		(815		)	(35		)	5,881
Auto	946		249		(586		)	311			920		946		352		(761		)	398			935
HELOC	1,328		202		(573		)	383			1,340		1,328		240		(861		)	675			1,382
Consumer and all other	2,178		582		(1,848		)	2,318			3,230		2,178		905		(2,929		)	3,192			3,346
Total	$	37,192	$	1,672	$	(4,960	)	$	4,310		$	38,214	$	37,192	$	2,559	$	(9,949	)	$	7,360		$	37,162


	Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total				Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	15,233	$	720	$	782,011	$	8,335	$	2,694	$	—	$	799,938	$	9,055	$	15,236	$	113	$	823,476	$	8,555	$	3,026	$	—	$	841,738	$	8,668
Commercial Real Estate - Owner Occupied	6,441		3		863,938		3,349		17,906		—		888,285		3,352		7,356		157		878,499		3,062		17,668		—		903,523		3,219
Commercial Real Estate - Non-Owner Occupied	9,662		640		1,672,359		6,696		16,308		—		1,698,329		7,336		7,580		42		1,726,083		7,226		14,376		—		1,748,039		7,268
Multifamily Real Estate	—		—		365,210		1,119		2,047		—		367,257		1,119		—		—		368,609		1,100		77		—		368,686		1,100
Commercial & Industrial	6,876		1,034		560,975		4,580		751		—		568,602		5,614		4,143		909		549,754		4,454		625		—		554,522		5,363
Residential 1-4 Family	12,978		424		1,038,454		5,824		15,087		—		1,066,519		6,248		13,931		249		1,055,104		5,632		14,077		—		1,083,112		5,881
Auto	270		1		273,892		919		—		—		274,162		920		174		1		276,398		934		—		—		276,572		935
HELOC	2,111		70		531,821		1,270		1,156		—		535,088		1,340		2,417		56		532,047		1,326		982		—		535,446		1,382
Consumer and all other	629		1		572,463		3,229		218		—		573,310		3,230		763		43		586,118		3,303		210		—		587,091		3,346
Total loans held for investment, net	$	54,200	$	2,893	$	6,661,123	$	35,321	$	56,167	$	—	$	6,771,490	$	38,214	$	51,600	$	1,570	$	6,796,088	$	35,592	$	51,041	$	—	$	6,898,729	$	37,162

The following table shows the allowance for loan loss activity, balances for allowance for loan losses, and loan balances based on impairment methodology by segment for the ~~six~~nine months ended and as of ~~June~~September 30, 2016. In addition, a ~~$100,000~~$175,000 provision was recognized during the ~~six~~nine months ended ~~June~~September 30, 2016 for unfunded loan commitments for which the reserves are recorded as a component of “Other Liabilities” on the Company’s Consolidated Balance Sheets. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Allowance for loan losses												Allowance for loan losses
	Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period		Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period
Construction and Land Development	$	6,040	$	97	$	(859	)	$	5,030		$	10,308	$	6,040	$	165	$	(869	)	$	5,464		$	10,800
Commercial Real Estate - Owner Occupied	4,614		62		(772		)	129			4,033		4,614		112		(772		)	(770		)	3,184
Commercial Real Estate - Non-Owner Occupied	6,929		—		—			(1,536		)	5,393		6,929		3		(1		)	(813		)	6,118
Multifamily Real Estate	1,606		—		—			(697		)	909		1,606		—		—			(658		)	948
Commercial & Industrial	3,163		355		(1,285		)	1,793			4,026		3,163		422		(1,301		)	3,119			5,403
Residential 1-4 Family	5,414		381		(295		)	600			6,100		5,414		466		(741		)	518			5,657
Auto	1,703		131		(525		)	(470		)	839		1,703		243		(815		)	(260		)	871
HELOC	2,934		132		(800		)	(948		)	1,318		2,934		229		(1,272		)	(534		)	1,357
Consumer and all other	1,644		330		(729		)	903			2,148		1,644		382		(957		)	1,135			2,204
Total	$	34,047	$	1,488	$	(5,265	)	$	4,804		$	35,074	$	34,047	$	2,022	$	(6,728	)	$	7,201		$	36,542


	Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total				Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	31,710	$	64	$	729,274	$	10,244	$	5,013	$	—	$	765,997	$	10,308	$	27,241	$	123	$	745,984	$	10,677	$	3,205	$	—	$	776,430	$	10,800
Commercial Real Estate - Owner Occupied	13,492		49		797,696		3,984		20,692		—		831,880		4,033		7,612		5		830,466		3,179		19,064		—		857,142		3,184
Commercial Real Estate - Non-Owner Occupied	4,260		1		1,348,188		5,392		18,297		—		1,370,745		5,393		3,792		1		1,432,895		6,117		18,141		—		1,454,828		6,118
Multifamily Real Estate	3,777		—		331,854		909		2,092		—		337,723		909		—		—		337,234		948		2,079		—		339,313		948
Commercial & Industrial	2,488		47		465,212		3,979		1,354		—		469,054		4,026		3,448		642		505,264		4,761		1,145		—		509,857		5,403
Residential 1-4 Family	13,945		345		960,707		5,755		17,805		—		992,457		6,100		12,673		115		969,860		5,542		16,828		—		999,361		5,657
Auto	140		1		244,435		838		—		—		244,575		839		231		1		254,957		870		—		—		255,188		871
HELOC	2,337		81		515,342		1,237		1,517		—		519,196		1,318		2,053		17		520,546		1,340		1,498		—		524,097		1,357
Consumer and all other	326		1		408,745		2,147		400		—		409,471		2,148		451		88		431,865		2,116		386		—		432,702		2,204
Total loans held for investment, net	$	72,475	$	589	$	5,801,453	$	34,485	$	67,170	$	—	$	5,941,098	$	35,074	$	57,501	$	992	$	6,029,071	$	35,550	$	62,346	$	—	$	6,148,918	$	36,542

The Company uses a risk rating system and past due status as the primary credit quality indicators for the loan categories. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for loan losses; on those loans without a risk rating, the Company uses past due status to determine risk level. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

•Risk rated 0 loans have little or no risk and are ~~generally secured by~~with General Obligation Municipal ~~Credits;~~Borrowers;

•Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

•Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

•Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

•Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater

degree of financial risk based on the type of business supporting the loan; or

•Loans that are not risk rated but that are 0 to 29 days past due.

Special Mention is determined by the following criteria:

•Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an

event occurring that may weaken the borrower’s ability to repay;

•Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if

not addressed could lead to inadequately protecting the Company’s credit position; or

•Loans that are not risk rated but that are 30 to 89 days past due.

Substandard is determined by the following criteria:

•Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity

of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt

with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected; or

•Loans that are not risk rated but that are 90 to 149 days past due.

Doubtful is determined by the following criteria:

•Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for

recovery, its classification as a loss is deferred until its more exact status is determined;

•Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as

bankable assets is not warranted; or

•Loans that are not risk rated but that are over 149 days past due.

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of ~~June~~September 30, 2017 (dollars in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	726,106	$	58,155	$	12,883	$	100	$	797,244	$	768,206	$	57,190	$	13,201	$	115	$	838,712
Commercial Real Estate - Owner Occupied	824,793		41,397		4,189		—		870,379		834,265		47,019		4,571		—		885,855
Commercial Real Estate - Non-Owner Occupied	1,648,876		23,666		9,479		—		1,682,021		1,702,500		23,764		7,399		—		1,733,663
Multifamily Real Estate	358,597		6,613		—		—		365,210		361,175		7,434		—		—		368,609
Commercial & Industrial	543,951		18,291		5,609		—		567,851		534,594		16,400		2,903		—		553,897
Residential 1-4 Family	1,021,053		22,903		4,995		2,481		1,051,432		1,045,736		15,878		4,480		2,941		1,069,035
Auto	271,701		2,254		77		130		274,162		273,446		2,910		143		73		276,572
HELOC	528,606		3,501		1,245		580		533,932		530,263		2,427		1,051		723		534,464
Consumer and all other	570,248		2,226		509		109		573,092		583,728		2,618		530		5		586,881
Total	$	6,493,931	$	179,006	$	38,986	$	3,400	$	6,715,323	$	6,633,913	$	175,640	$	34,278	$	3,857	$	6,847,688

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of December 31, 2016 (dollars in thousands):



	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	667,018	$	69,311	$	11,857	$	23	$	748,209
Commercial Real Estate - Owner Occupied	801,565		32,364		5,533		—		839,462
Commercial Real Estate - Non-Owner Occupied	1,505,153		37,631		4,208		—		1,546,992
Multifamily Real Estate	312,711		19,499		—		—		332,210
Commercial & Industrial	539,999		9,391		1,062		—		550,452
Residential 1-4 Family	986,973		18,518		4,813		3,043		1,013,347
Auto	258,188		3,648		135		100		262,071
HELOC	519,928		4,225		969		601		525,723
Consumer and all other	425,520		3,491		40		251		429,302
Total	$	6,017,055	$	198,078	$	28,617	$	4,018	$	6,247,768

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of ~~June~~September 30, 2017 (dollars in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,121	$	1,297	$	276	$	—	$	2,694	$	1,460	$	1,311	$	255	$	—	$	3,026
Commercial Real Estate - Owner Occupied	5,617		8,337		3,952		—		17,906		5,521		8,237		3,910		—		17,668
Commercial Real Estate - Non-Owner Occupied	12,807		2,230		1,271		—		16,308		10,676		2,435		1,265		—		14,376
Multifamily Real Estate	338		1,709		—		—		2,047		—		77		—		—		77
Commercial & Industrial	105		368		278		—		751		94		309		222		—		625
Residential 1-4 Family	7,735		4,624		1,850		878		15,087		7,498		4,227		1,577		775		14,077
HELOC	808		221		11		116		1,156		722		132		6		122		982
Consumer and all other	158		49		11		—		218		154		46		10		—		210
Total	$	28,689	$	18,835	$	7,649	$	994	$	56,167	$	26,125	$	16,774	$	7,245	$	897	$	51,041

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, 2016 (dollars in thousands):



	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,092	$	1,432	$	398	$	—	$	2,922
Commercial Real Estate - Owner Occupied	5,520		8,889		3,934		—		18,343
Commercial Real Estate - Non-Owner Occupied	10,927		4,638		1,738		—		17,303
Multifamily Real Estate	343		1,723		—		—		2,066
Commercial & Industrial	107		480		487		—		1,074
Residential 1-4 Family	8,557		4,455		2,672		516		16,200
HELOC	857		183		7		114		1,161
Consumer and all other	166		37		20		—		223
Total	$	27,569	$	21,837	$	9,256	$	630	$	59,292

Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows.

The following shows changes in the accretable yield for loans accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, for the periods presented (dollars in thousands):


	For the Six Months Ended June 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Balance at beginning of period	$	19,739		$	22,139		$	19,739		$	22,139
Accretion	(3,188		)	(2,792		)	(4,896		)	(4,232		)
Reclass of nonaccretable difference due to improvement in expected cash flows	2,072			3,450			2,175			3,580
Other, net ⁽¹⁾	(875		)	(2,139		)	(452		)	(1,149		)
Balance at end of period	$	17,748		$	20,658		$	16,566		$	20,338

(1) This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate PCI loans, and discounted payoffs that occurred in the quarter.

The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, totaled ~~$56.2~~$51.0 million at ~~June~~September 30, 2017 and $59.3 million at December 31, 2016. The outstanding balance of the Company’s PCI loan portfolio totaled ~~$68.9~~$62.8 million at ~~June~~September 30, 2017 and $73.6 million at December 31, 2016. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, totaled ~~$996.8~~$942.0 million at ~~June~~September 30, 2017 and $1.1 billion at December 31, 2016; the remaining discount on these loans totaled ~~$15.4~~$14.6 million at ~~June~~September 30, 2017 and $16.9 million at December 31, 2016.

4. INTANGIBLE ASSETS

The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 14 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 5 to 10 years, using a straight-line method.

In accordance with ASC 350, Intangibles-Goodwill and Other, the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. The Company performed its annual impairment testing in the second quarter of 2017 and determined that there was no impairment to its goodwill or intangible assets.

Amortization expense of core deposit intangibles for the three and ~~six~~nine months ended ~~June~~September 30, 2017 totaled $1.4 million and ~~$2.9~~$4.3 million, respectively; and the three and ~~six~~nine months ended ~~June~~September 30, 2016 totaled $1.7 million and ~~$3.6~~$5.3 million, respectively. Amortization expense of other intangibles for ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, 2017 totaled $120,000 and ~~$240,000,~~$360,000, respectively and $0$160,000 for the both three and ~~six~~nine months ended ~~June~~September 30, 2016. As of ~~June~~September 30, 2017, the estimated remaining amortization expense of intangibles is as follows (dollars in thousands):


For the remaining six months of 2017	$	2,890
For the remaining three months of 2017			$	1,420
For the year ending December 31, 2018	4,625		4,664
For the year ending December 31, 2019	3,573		3,599
For the year ending December 31, 2020	2,509		2,509
For the year ending December 31, 2021	1,481		1,481
Thereafter	2,344		2,344
Total estimated amortization expense	$	17,422	$	16,017

5. BORROWINGS

Short-term Borrowings

The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit. Also included in total short-term borrowings are securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold. Total short-term borrowings consist of the following as of ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	June 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Securities sold under agreements to repurchase	$	34,543		$	59,281		$	43,337		$	59,281
Other short-term borrowings(1)	602,000			517,500			574,000			517,500
Total short-term borrowings	$	636,543		$	576,781		$	617,337		$	576,781

Maximum month-end outstanding balance	$	696,529		$	678,262		$	696,529		$	678,262
Average outstanding balance during the period	586,476			590,074			606,441			590,074
Average interest rate (year-to-date)	0.81		%	0.49		%	0.93		%	0.49		%
Average interest rate at end of period	1.02		%	0.60		%	1.15		%	0.60		%

Other short-term borrowings:
FHLB	602,000			517,500
Other lines of credit	—			—

⁽¹⁾As of September 30, 2017 and December 31, 2016 , all other short-term borrowings were FHLB advances.

The Bank maintains federal funds lines with several correspondent banks; the remaining available balance was $185.0 million and $175.0 million at ~~both June~~September 30, 2017 and December 31, ~~2016.~~2016, respectively. The Company maintains an alternate line of credit at a correspondent bank; the available balance was $25.0 million at both ~~June~~September 30, 2017 and December 31, 2016. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with these covenants. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to ~~$2.6~~$2.7 billion and $2.4 billion at ~~June~~September 30, 2017 and December 31, 2016, respectively.

Long-term Borrowings

In connection with two bank acquisitions prior to 2006, the Company issued trust preferred capital notes to fund the cash portion of those acquisitions, collectively totaling $58.5 million. In connection with the acquisition of StellarOne, the Company acquired trust preferred capital notes totaling $32.0 million with a remaining fair value discount of ~~$6.6~~$6.5 million at ~~June~~September 30, 2017. The trust preferred capital notes currently qualify for Tier 1 capital of the Company for regulatory purposes.


	Trust Preferred Capital Securities ⁽¹⁾		Investment ⁽¹⁾		Spread to 3-Month LIBOR		Rate		Maturity	Trust Preferred Capital Securities ⁽¹⁾		Investment ⁽¹⁾		Spread to 3-Month LIBOR		Rate		Maturity
Trust Preferred Capital Note - Statutory Trust I	$	22,500,000	$	696,000	2.75	%	4.05	%	6/17/2034	$	22,500,000	$	696,000	2.75	%	4.08	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II	36,000,000		1,114,000		1.40	%	2.70	%	6/15/2036	36,000,000		1,114,000		1.40	%	2.73	%	6/15/2036
VFG Limited Liability Trust I Indenture	20,000,000		619,000		2.73	%	4.03	%	3/18/2034	20,000,000		619,000		2.73	%	4.06	%	3/18/2034
FNB Statutory Trust II Indenture	12,000,000		372,000		3.10	%	4.40	%	6/26/2033	12,000,000		372,000		3.10	%	4.43	%	6/26/2033
Total	$	90,500,000	$	2,801,000						$	90,500,000	$	2,801,000

(1)The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company's junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company's investment in the trusts is reported in "Other Assets" on the Consolidated Balance Sheets.

During the fourth quarter of 2016, the Company issued $150.0 million of fixed-to-floating rate subordinated notes with an initial fixed interest rate of 5.00% through December 15, 2021. The interest rate then changes to a floating rate of LIBOR

plus 3.175% through its maturity date in December 15, 2026. At ~~June~~September 30, 2017 and December 31, 2016, the carrying value of the subordinated debt was $150.0 million, with a remaining discount of ~~$1.9~~$1.8 million, respectively.

On August 23, 2012, the Company modified its fixed rate FHLB advances to floating rate advances, which resulted in reducing the Company’s FHLB borrowing costs. In connection with this modification, the Company incurred a prepayment penalty of $19.6 million on the original advances, which is included as a component of long-term borrowings on the Company’s Consolidated Balance Sheets. In accordance with ASC 470-50, Modifications and Extinguishments, the Company is amortizing this prepayment penalty over the term of the modified advances using the effective rate method. The amortization expense is included as a component of interest expense on long-term borrowings on the Company’s Consolidated Statements of Income. Amortization expense for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 was ~~$478,000~~$486,000 and ~~$947,000~~$1.4 million and ~~$466,000~~$474,000 and ~~$930,000,~~$1.4 million, respectively.

In connection with the StellarOne acquisition, the Company assumed $70.0 million in long-term borrowings with the FHLB of which there is $20.0 million remaining at ~~June~~September 30, 2017 that had a remaining fair value premium of ~~$336,000.~~$223,000.

As of ~~June~~September 30, 2017, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):


Long-term Type	Spread to 3-Month LIBOR		Interest Rate ⁽¹⁾		Maturity Date	Advance Amount		Spread to 3-Month LIBOR		Interest Rate ⁽¹⁾		Maturity Date	Advance Amount
Adjustable Rate Credit	0.44	%	1.74	%	8/23/2022	$	55,000	0.44	%	1.77	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	1.75	%	11/23/2022	65,000		0.45	%	1.79	%	11/23/2022	65,000
Adjustable Rate Credit	0.45	%	1.75	%	11/23/2022	10,000		0.45	%	1.79	%	11/23/2022	10,000
Adjustable Rate Credit	0.45	%	1.75	%	11/23/2022	10,000		0.45	%	1.79	%	11/23/2022	10,000
Fixed Rate	—		3.62	%	11/28/2017	10,000		—		3.62	%	11/28/2017	10,000
Fixed Rate	—		3.75	%	7/30/2018	5,000		—		3.75	%	7/30/2018	5,000
Fixed Rate	—		3.97	%	7/30/2018	5,000		—		3.97	%	7/30/2018	5,000
Fixed Rate Hybrid	—		0.99	%	10/19/2018	30,000		—		0.99	%	10/19/2018	30,000
Fixed Rate Hybrid	—		1.58	%	5/18/2020	20,000		—		1.58	%	5/18/2020	20,000
						$	210,000						$	210,000
(1)Interest rates calculated using non-rounded numbers.

As of December 31, 2016, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):



Long-term Type	Spread to 3-Month LIBOR		Interest Rate ⁽¹⁾		Maturity Date	Advance Amount

Adjustable Rate Credit	0.44	%	1.44	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	1.45	%	11/23/2022	65,000
Adjustable Rate Credit	0.45	%	1.45	%	11/23/2022	10,000
Adjustable Rate Credit	0.45	%	1.45	%	11/23/2022	10,000
Fixed Rate	—		3.62	%	11/28/2017	10,000
Fixed Rate	—		3.75	%	7/30/2018	5,000
Fixed Rate	—		3.97	%	7/30/2018	5,000
Fixed Rate Hybrid	—		0.99	%	10/19/2018	30,000
						$	190,000
(1)Interest rates calculated using non-rounded numbers.

For information on the carrying value of loans and securities pledged as collateral on FHLB advances as of ~~June~~September 30, 2017 and December 31, 2016, refer to Note 6 "Commitments and Contingencies".

As of ~~June~~September 30, 2017, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):


	Trust Preferred Capital Notes		Subordinated Debt		FHLB Advances		Fair Value Premium (Discount)			Prepayment Penalty			Total Long-term Borrowings			Trust Preferred Capital Notes		Subordinated Debt		FHLB Advances		Fair Value Premium (Discount)			Prepayment Penalty			Total Long-term Borrowings
For the remaining six months of 2017	$	—	$	—	$	10,000	$	(25	)	$	(974	)	$	9,001
For the remaining three months of 2017																$	—	$	—	$	10,000	$	(21	)	$	(488	)	$	9,491
2018	—		—		40,000		(343		)	(1,970		)	37,687			—		—		40,000		(343		)	(1,970		)	37,687
2019	—		—		—		(486		)	(2,018		)	(2,504		)	—		—		—		(486		)	(2,018		)	(2,504		)
2020	—		—		20,000		(501		)	(2,074		)	17,425			—		—		20,000		(501		)	(2,074		)	17,425
2021	—		—		—		(516		)	(2,119		)	(2,635		)	—		—		—		(516		)	(2,119		)	(2,635		)
Thereafter	93,301		150,000		140,000		(6,308		)	(1,707		)	375,286			93,301		150,000		140,000		(6,308		)	(1,707		)	375,286
Total Long-term borrowings	$	93,301	$	150,000	$	210,000	$	(8,179	)	$	(10,862	)	$	434,260		$	93,301	$	150,000	$	210,000	$	(8,175	)	$	(10,376	)	$	434,750

6. COMMITMENTS AND CONTINGENCIES

Litigation Matters

On September 7, 2017, Paul Parshall, a purported shareholder of Xenith, filed a putative class action lawsuit (the “Parshall Lawsuit”) in the United States District Court for the Eastern District of Virginia against Xenith, its current directors, and the Company on behalf of all public shareholders of Xenith. The plaintiff in the action alleged that the Company’s registration statement on Form S-4 filed with the SEC, as amended, relating to the Pending Merger omitted certain material information in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and further that the individual defendants were liable for those omissions under Section 20(a) of the Exchange Act. The relief sought in the lawsuit included preliminary and permanent injunction to prevent the completion of the Pending Merger, rescission or rescissory damages if the Pending Merger were completed, costs and attorneys’ fees. On November 6, 2017, Mr. Parshall filed a notice of voluntary dismissal, terminating the Parshall Lawsuit without prejudice.

On September 19, 2017, Shannon Rowe, a purported shareholder of Xenith, filed a putative class action lawsuit (the “Rowe Lawsuit”), also in the United States District Court for the Eastern District of Virginia, against Xenith and its current directors. The Company is not named as a defendant in the Rowe Lawsuit. The allegations in the Rowe Lawsuit are similar to the allegations in the Parshall Lawsuit.

At this time, it is not possible to predict the outcome of the proceeding in the Rowe Lawsuit or its impact on Xenith, the Company, or the Pending Merger. The Company believes that the claims in the Rowe Lawsuit are without merit and has been advised that Xenith and the Xenith board of directors also believe that the claims in the Rowe Lawsuit are without merit and that Xenith and the Xenith board of directors intend to defend vigorously against them.

In addition to the Rowe Lawsuit, in the ordinary course of its operations, the Company and its subsidiaries are parties to various other legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such other legal proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized on the Company’s Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet

financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss rates, current economic conditions, risk ratings, and past due status among other factors in the consideration of whether credit losses are inherent in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates. As of ~~June~~both September 30, 2017 and December 31, 2016, the Company's ~~reserve~~reserves for off-balance sheet credit risk ~~was $700,000~~ and ~~$725,000, respectively,~~indemnification were $1.1 million and isare reported as a component of "Other Liabilities" on the Company's Consolidated Balance Sheets.

Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

The following table presents the balances of commitments and contingencies (dollars in thousands):


	June 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Commitments with off-balance sheet risk:
Commitments to extend credit ⁽¹⁾	$	2,001,802	$	1,924,885	$	2,085,103	$	1,924,885
Standby letters of credit	117,949		84,212		119,977		84,212
Total commitments with off-balance sheet risk	$	2,119,751	$	2,009,097	$	2,205,080	$	2,009,097

(1) Includes unfunded overdraft protection.

The Company must maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. For the final weekly reporting period in the period ended ~~June~~September 30, 2017, the aggregate amount of daily average required reserves was approximately ~~$71.6~~$73.1 million and was satisfied by vault cash holdings and deposits maintained with the Federal Reserve Bank.

As of ~~June~~September 30, 2017, the Company had approximately ~~$42.4~~$45.4 million in deposits in other financial institutions, of which ~~$20.2~~$23.8 million served as collateral for cash flow and loan swap derivatives. The Company had approximately ~~$20.9~~$20.3 million in deposits in other financial institutions that were uninsured at ~~June~~September 30, 2017. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. See Note 7 “Derivatives” for additional information.

The Company records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates; as of June 30, 2017 and December 31, 2016, the Company’s indemnification reserve was approximately $334,000 and $379,000, respectively.

As part of the Company's liquidity management strategy, it pledges collateral to secure various financing and other activities that occur during the normal course of business. The following tables present the types of collateral pledged, at ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	Pledged Assets as of June 30, 2017										Pledged Assets as of September 30, 2017
	Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total		Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	224,984	$	209,235	$	—	$	434,219	$	—	$	224,153	$	206,878	$	—	$	431,031
Repurchase agreements	—		92,678		—		—		92,678		—		88,257		—		—		88,257
FHLB advances	—		1,162		—		2,239,193		2,240,355		—		1,022		—		2,404,355		2,405,377
Derivatives	20,177		4,074		—		—		24,251		23,831		3,898		—		—		27,729
Other purposes	—		16,109		—		—		16,109		—		15,580		—		—		15,580
Total pledged assets	$	20,177	$	339,007	$	209,235	$	2,239,193	$	2,807,612	$	23,831	$	332,910	$	206,878	$	2,404,355	$	2,967,974

(1) Balance represents market value.

(2) Balance represents book value.



	Pledged Assets as of December 31, 2016
	Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	210,546	$	197,889	$	—	$	408,435
Repurchase agreements	—		108,208		—		—		108,208
FHLB advances	—		1,475		—		1,959,929		1,961,404
Derivatives	33,595		4,376		—		—		37,971
Other purposes	—		17,499		—		—		17,499
Total pledged assets	$	33,595	$	342,104	$	197,889	$	1,959,929	$	2,533,517

(1) Balance represents market value.

(2) Balance represents book value.

7. DERIVATIVES

The Company is exposed to economic risks arising from its business operations and uses derivatives primarily to manage risk associated with changing interest rates, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge). The remaining are classified as free standing derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.

Cash Flow Hedges

The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate borrowings, such as trust preferred capital notes, FHLB borrowings, and prime commercial loans. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging a notional amount, equal to the principal amount of the borrowings, for fixed-rate interest based on benchmarked interest rates. The original terms and conditions of the interest rate swaps vary and range in length with a maximum hedging time through November 2022. Amounts receivable or payable are recognized as accrued under the terms of the agreements.

All swaps entered into with counterparties met the Company’s credit standards, and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.

The Company assesses the effectiveness of each hedging relationship on a periodic basis using statistical regression analysis. The Company also measures the ineffectiveness of each hedging relationship using the change in variable cash flows method which compares the cumulative changes in cash flows of the hedging instrument relative to cumulative changes in the hedged item’s cash flows. In accordance with ASC 815, Derivatives and Hedging, the effective portions of the derivatives’ unrealized gains or losses are recorded as a component of other comprehensive income. Based on the Company’s assessment, its cash flow hedges are highly effective, but to the extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.

On June 13, 2016, the Company terminated three interest rate swaps designated as cash flow hedges prior to their respective maturity dates. The unrealized gain of $1.3 million within Accumulated Other Comprehensive Income will be reclassified into earnings over a three year period using the effective interest method. The estimated net amount of gains expected to be reclassified into earnings by ~~June~~September 30, 2018 is ~~$391,000.~~$395,000.

Fair Value Hedge

Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates. During the normal course of business, the Company enters into interest rate swaps to convert certain long-term fixed-rate loans to floating rates to hedge the Company’s exposure to interest rate risk. The Company pays a fixed interest rate to the counterparty and receives a floating rate from the same counterparty calculated on the aggregate notional amount. At ~~June~~September 30, 2017 and December 31, 2016, the aggregate notional amount of the related hedged items totaled ~~$79.6~~$82.0 million and $65.9 million, respectively, and the fair value of the related hedged items was an unrealized loss of ~~$547,000~~$597,000 and $890,000, respectively.

The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging, and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded on the Company’s Consolidated Statements of Income. Statistical regression analysis is used to assess hedge effectiveness, both at inception of the hedging relationship and on an ongoing basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against the periodic changes in fair value of the asset being hedged due to changes in the hedged risk. The Company’s fair value hedges continue to be highly effective and had no material impact on the Consolidated Statements of Income, but if any ineffectiveness exists, portions of the unrealized gains or losses would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.

Loan Swaps

During the normal course of business, the Company enters into interest rate swap loan relationships (“loan swaps”) with borrowers to meet their financing needs. Upon entering into the loan swaps, the Company enters into offsetting positions with a third party in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values as reported in “Other Assets” and “Other Liabilities” on the Company’s Consolidated Balance Sheets.

Interest Rate Lock Commitments

During the normal course of business, the Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (“rate lock commitments”). Rate lock commitments on mortgage loans that are intended to be sold in the secondary market are considered to be derivatives. The period of time between issuance of a loan

commitment, closing, and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. The correlation between the rate lock commitments and the best efforts contracts is high due to their similarity.

The market values of rate lock commitments and best efforts forward delivery commitments is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset, while taking into consideration the probability that the rate lock commitments will close. The fair value of the rate lock commitments is reported as a component of “Other Assets” on the Company’s Consolidated Balance Sheets; the fair value of the Company’s best efforts forward delivery commitments is recorded as a component of “Other Liabilities” on the Company’s Consolidated Balance Sheets. Any impact to income is recorded in current period earnings as a component of “Mortgage banking income, net” on the Company’s Consolidated Statements of Income.

The following table summarizes key elements of the Company’s derivative instruments as of ~~June~~September 30, 2017 and December 31, 2016, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):


	June 30, 2017							December 31, 2016							September 30, 2017							December 31, 2016
			Derivative ⁽²⁾							Derivative⁽²⁾							Derivative ⁽²⁾							Derivative⁽²⁾
	Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities		Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities		Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities		Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Cash flow hedges	$	152,500		$	153	$	9,995	$	188,500		$	211	$	9,619	$	152,500		$	120	$	9,460	$	188,500		$	211	$	9,619
Fair value hedges	79,560			1,282		368		65,920			1,437		296		81,965			1,253		371		65,920			1,437		296
Derivatives not designated as accounting hedges:
Loan Swaps
Pay fixed - receive floating interest rate swaps	492,158			2,770		—		373,355			—		1,005		506,056			3,051		—		373,355			—		1,005
Pay floating - receive fixed interest rate swaps	492,158			—		2,770		373,355			1,005		—		506,056			—		3,051		373,355			1,005		—
Other contracts:
Interest rate lock commitments	55,062			724		—		48,743			610		—		50,311			685		—		48,743			610		—
Best efforts forward delivery commitments	94,853			235		—		85,400			1,469		—		80,307			245		—		85,400			1,469		—

(1) Notional amounts are not recorded on the balance sheet and are generally used only as a basis on which interest and other payments are determined.

(2) Balances represent fair value of derivative financial instruments.

For information regarding collateral pledged on derivative instruments, see Note 6 “Commitments and Contingencies.”

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The change in accumulated other comprehensive income (loss) for the three and ~~six~~nine months ended ~~June~~September 30, 2017 is summarized as follows, net of tax (dollars in thousands):


	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Unrealized Gains (Losses) on BOLI			Total			Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Unrealized Gains (Losses) on BOLI			Total
Balance - March 31, 2017	$	2,782		$	3,193		$	(5,030	)	$	(1,356	)	$	(411	)
Balance - June 30, 2017																$	7,733		$	3,033		$	(5,487	)	$	(1,271	)	$	4,008
Other comprehensive income (loss)	5,027			—			(775		)	—			4,252			(2,729		)	—			41			—			(2,688		)
Amounts reclassified from accumulated other comprehensive income	(76		)	(160		)	318			85			167			(119		)	(163		)	189			84			(9		)
Net current period other comprehensive income (loss)	4,951			(160		)	(457		)	85			4,419			(2,848		)	(163		)	230			84			(2,697		)
Balance - June 30, 2017	$	7,733		$	3,033		$	(5,487	)	$	(1,271	)	$	4,008
Balance - September 30, 2017																$	4,885		$	2,870		$	(5,257	)	$	(1,187	)	$	1,311


	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Unrealized Gains (Losses) on BOLI			Total			Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Unrealized Gains (Losses) on BOLI			Total
Balance - December 31, 2016	$	(542	)	$	3,377		$	(5,179	)	$	(1,465	)	$	(3,809	)	$	(542	)	$	3,377		$	(5,179	)	$	(1,465	)	$	(3,809	)
Other comprehensive income (loss)	8,664			—			(807		)	—			7,857			5,935			—			(766		)	—			5,169
Amounts reclassified from accumulated other comprehensive income	(389		)	(344		)	499			194			(40		)	(508		)	(507		)	688			278			(49		)
Net current period other comprehensive income (loss)	8,275			(344		)	(308		)	194			7,817			5,427			(507		)	(78		)	278			5,120
Balance - June 30, 2017	$	7,733		$	3,033		$	(5,487	)	$	(1,271	)	$	4,008
Balance - September 30, 2017																$	4,885		$	2,870		$	(5,257	)	$	(1,187	)	$	1,311

The change in accumulated other comprehensive income (loss) for the three and ~~six~~nine months ended ~~June~~September 30, 2016 is summarized as follows, net of tax (dollars in thousands):


	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Total			Unrealized Gains (Losses) on AFS Securities		Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Total
Balance - March 31, 2016	$	10,716		$	4,140		$	(8,497	)	$	6,359
Balance - June 30, 2016													$	14,412	$	3,853		$	(9,366	)	$	8,899
Other comprehensive income (loss)	3,698			—			(1,007		)	2,691			1,121		—			(78		)	1,043
Amounts reclassified from accumulated other comprehensive income	(2		)	(287		)	138			(151		)	—		(237		)	154			(83		)
Net current period other comprehensive income (loss)	$	3,696		$	(287	)	$	(869	)	$	2,540		$	1,121	$	(237	)	$	76		$	960
Balance - June 30, 2016	$	14,412		$	3,853		$	(9,366	)	$	8,899
Balance - September 30, 2016													$	15,533	$	3,616		$	(9,290	)	$	9,859


	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Total			Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Total
Balance - December 31, 2015	$	7,777		$	4,432		$	(5,957	)	$	6,252		$	7,777		$	4,432		$	(5,957	)	$	6,252
Other comprehensive income (loss)	6,730			—			(3,688		)	3,042			7,851			—			(3,766		)	4,085
Amounts reclassified from accumulated other comprehensive income	(95		)	(579		)	279			(395		)	(95		)	(816		)	433			(478		)
Net current period other comprehensive income (loss)	6,635			(579		)	(3,409		)	2,647			7,756			(816		)	(3,333		)	3,607
Balance - June 30, 2016	$	14,412		$	3,853		$	(9,366	)	$	8,899
Balance - September 30, 2016													$	15,533		$	3,616		$	(9,290	)	$	9,859

Reclassifications of unrealized gains (losses) on available for sale securities are reported on the Company’s Consolidated Statements of Income as “Gains on securities transactions, net” with the corresponding income tax effect being reflected as a component of income tax expense. The Company reported gains of ~~$117,000~~$184,000 and ~~$598,000~~$782,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, and ~~$3,000~~$0 and ~~$146,000~~$145,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively, related to the sale of securities. The tax effects of these transactions during the three and ~~six~~nine months ended ~~June~~September 30, 2017 were ~~$41,000~~$64,000 and ~~$209,000,~~$274,000, respectively, and were ~~$1,000~~$0 and $51,000 during the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively, which amounts were included as a component of income tax expense.

During the second quarter of 2015, the Company transferred securities, which it intends and has the ability to hold until maturity, with a fair value of $201.8 million on the date of transfer, from securities available for sale to securities held to maturity. The securities included net pre-tax unrealized gains of $8.1 million at the date of transfer. Reclassifications of the unrealized gains on transferred securities are reported over time as accretion within interest income on the Company's Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense. The Company recorded accretion of ~~$246,000~~$251,000 and ~~$529,000~~$780,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, and ~~$442,000~~$365,000 and ~~$891,000~~$1.3 million for the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively. The tax effect of these transactions during the three and ~~six~~nine months ended ~~June~~September 30, 2017 were ~~$86,000~~$88,000 and ~~$185,000,~~$273,000, respectively, and were ~~$155,000~~$128,000 and ~~$312,000~~$439,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively, which were included as a component of income tax expense.

Reclassifications of the change in fair value of cash flow hedges are reported in interest income and interest expense on the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense. The Company reported net interest expense of ~~$489,000~~$291,000 and ~~$768,000~~$1.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, and ~~$212,000~~$237,000 and ~~$429,000~~$666,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively. The tax effects of these transactions during the three and ~~six~~nine months ended ~~June~~September 30, 2017 were ~~$171,000~~$102,000 and ~~$269,000,~~$370,000, respectively, and were ~~$74,000~~$83,000 and ~~$150,000~~$233,000 during the three and ~~six~~nine months ended ~~June~~September 30, 2016, which were included as a component of income tax expense.

Reclassifications of unrealized losses on BOLI are reported in salaries and benefits expense on the Company's Consolidated Statements of Income. The Company reported expenses of ~~$85,000~~$84,000 and ~~$194,000~~$278,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, and $0 for the both three and ~~six~~nine months ended ~~June~~September 30, 2016.

9. FAIR VALUE MEASUREMENTS

The Company follows ASC 820, Fair Value Measurements and Disclosures, to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:



Level 1		Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2		Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.

Level 3		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Derivative instruments

As discussed in Note 7 “Derivatives”, the Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third party valuations are validated by the Company using Bloomberg Valuation Service’s derivative pricing functions. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

During the ordinary course of business, the Company enters into interest rate lock commitments related to the origination of mortgage loans held for sale, as well as best effort forward delivery commitments to mitigate interest rate risk; these instruments are recorded at estimated fair value based on the value of the underlying loan, which in turn is based on quoted prices for similar loans in the secondary market. This value, however, is adjusted by a pull-through rate, which considers the likelihood that the loan in a lock position will ultimately close. The pull-through rate is derived from the Company’s internal data and is adjusted using significant management judgment. The pull-through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. As such, interest rate lock commitments are classified as Level 3. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments, while a decrease in the pull-through rate will result in a negative fair value adjustment. The Company’s weighted average pull-through rate was approximately 80% as of ~~June~~September 30, 2017 and December 31, 2016. The interest rate lock commitments are recorded as a component of “Other Assets” on the Company’s Consolidated Balance Sheets.

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is Interactive Data Corporation (“IDC”), which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.

The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of ~~June~~September 30, 2017 and December 31, 2016.

The carrying value of restricted Federal Reserve Bank and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table.

Loans held for sale

Loans held for sale are carried at fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded within the mortgage segment and are reported on a separate line item on the Company’s Consolidated Statements of Income.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	Fair Value Measurements at June 30, 2017 using								Fair Value Measurements at September 30, 2017 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
ASSETS
Securities available for sale:
Obligations of states and political subdivisions	$	—	$	278,540	$	—	$	278,540	$	—	$	292,199	$	—	$	292,199
Corporate and other bonds	—		116,418		—		116,418		—		115,422		—		115,422
Mortgage-backed securities	—		551,751		—		551,751		—		546,904		—		546,904
Other securities	—		13,828		—		13,828		—		13,836		—		13,836
Loans held for sale	—		41,135		—		41,135		—		30,896		—		30,896
Derivatives:
Interest rate swap	—		2,770		—		2,770		—		3,051		—		3,051
Cash flow hedges	—		153		—		153		—		120		—		120
Fair value hedges	—		1,282		—		1,282		—		1,253		—		1,253
Interest rate lock commitments	—		—		724		724		—		—		685		685
Best efforts forward delivery commitments	—		—		235		235		—		—		245		245

LIABILITIES
Derivatives:
Interest rate swap	$	—	$	2,770	$	—	$	2,770	$	—	$	3,051	$	—	$	3,051
Cash flow hedges	—		9,995		—		9,995		—		9,460		—		9,460
Fair value hedges	—		368		—		368		—		371		—		371



	Fair Value Measurements at December 31, 2016 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Securities available for sale:
Obligations of states and political subdivisions	$	—	$	275,890	$	—	$	275,890
Corporate and other bonds	—		121,780		—		121,780
Mortgage-backed securities	—		535,286		—		535,286
Other securities	—		13,808		—		13,808
Loans held for sale	—		36,487		—		36,487
Derivatives:
Interest rate swap	—		1,005		—		1,005
Cash flow hedges	—		211		—		211
Fair value hedges	—		1,437		—		1,437
Interest rate lock commitments	—		—		610		610
Best efforts forward delivery commitments	—		—		1,469		1,469

LIABILITIES
Derivatives:
Interest rate swap	$	—	$	1,005	$	—	$	1,005
Cash flow hedges	—		9,619		—		9,619
Fair value hedges	—		296		—		296

Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is solely from the underlying value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. When evaluating the fair value, management may discount the appraisal further if, based on their understanding of the market conditions, it is determined the collateral is further impaired below the appraised value (Level 3). At ~~June~~September 30, 2017 and December 31, 2016, the Level 3 weighted average adjustments related to impaired loans were ~~3.2%~~3.3% and 1.5%, respectively. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Collateral dependent impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Company’s Consolidated Statements of Income.

Other real estate owned

OREO is evaluated for impairment at least quarterly by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment and included as a component of noninterest expense. Fair values of OREO are carried at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When an appraised value is not available or management determines the

fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as Level 3 valuation. At ~~June~~September 30, 2017 and December 31, 2016, the Level 3 weighted average adjustments related to OREO were approximately ~~25.3%~~25.1% and 25.1%, respectively.

Total valuation expenses related to OREO properties for the three months ended ~~June~~September 30, 2017 and 2016 totaled ~~$19,000~~$588,000 and ~~$274,000,~~$479,000, respectively. Total valuation expenses related to OREO properties for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 totaled ~~$257,000~~$845,000 and ~~$400,000,~~$879,000, respectively.

The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis at ~~June~~September 30, 2017 and December 31, 2016 (dollars in thousands):


	Fair Value Measurements at June 30, 2017 using								Fair Value Measurements at September 30, 2017 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	—	$	—	$	18,320	$	18,320	$	—	$	—	$	7,143	$	7,143
Other real estate owned	—		—		9,482		9,482		—		—		8,764		8,764



	Fair Value Measurements at December 31, 2016 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	—	$	—	$	4,344	$	4,344
Other real estate owned	—		—		10,084		10,084

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and cash equivalents

For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Held to Maturity Securities

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

Loans

The fair value of performing loans is estimated by discounting expected future cash flows using a yield curve that is constructed by adding a loan spread to a market yield curve. Loan spreads are based on spreads currently observed in the market for loans of similar type and structure. Fair value for impaired loans and their respective level within the fair value hierarchy, are described in the previous disclosure related to fair value measurements of assets that are measured on a nonrecurring basis.

~~Bank owned~~Bank-owned life insurance

The carrying value of ~~bank owned life insurance~~BOLI approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Borrowings

The carrying value of the Company’s repurchase agreements is a reasonable estimate of fair value. Other borrowings are discounted using the current yield curve for the same type of borrowing. For borrowings with embedded optionality, a third party source is used to value the instrument. The Company validates all third party valuations for borrowings with optionality using Bloomberg Valuation Service’s derivative pricing functions.

Accrued interest

The carrying amounts of accrued interest approximate fair value.

The carrying values and estimated fair values of the Company’s financial instruments at ~~June~~September 30, 2017 and December 31, 2016 are as follows (dollars in thousands):


			Fair Value Measurements at June 30, 2017 using										Fair Value Measurements at September 30, 2017 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance		Carrying Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	181,910	$	181,910	$	—	$	—	$	181,910	$	176,961	$	176,961	$	—	$	—	$	176,961
Securities available for sale	960,537		—		960,537		—		960,537		968,361		—		968,361		—		968,361
Held to maturity securities	205,630		—		211,446		—		211,446		204,801		—		209,835		—		209,835
Restricted stock	69,631		—		69,631		—		69,631		68,441		—		68,441		—		68,441
Loans held for sale	41,135		—		41,135		—		41,135		30,896		—		30,896		—		30,896
Net loans	6,733,276		—		—		6,745,405		6,745,405		6,861,567		—		—		6,873,609		6,873,609
Derivatives:
Interest rate swap	2,770		—		2,770		—		2,770		3,051		—		3,051		—		3,051
Cash flow hedge	153		—		153		—		153		120		—		120		—		120
Fair value hedge	1,282		—		1,282		—		1,282		1,253		—		1,253		—		1,253
Interest rate lock commitments	724		—		—		724		724		685		—		—		685		685
Best efforts forward delivery commitments	235		—		—		235		235		245		—		—		245		245
Accrued interest receivable	23,801		—		23,801		—		23,801		25,279		—		25,279		—		25,279
Bank owned life insurance	180,110		—		180,110		—		180,110		181,451		—		181,451		—		181,451

LIABILITIES
Deposits	$	6,764,434	$	—	$	6,756,022	$	—	$	6,756,022	$	6,881,826	$	—	$	6,873,124	$	—	$	6,873,124
Borrowings	1,070,803		—		1,051,143		—		1,051,143		1,052,087		—		1,031,983		—		1,031,983
Accrued interest payable	2,196		—		2,196		—		2,196		4,372		—		4,372		—		4,372
Derivatives:
Interest rate swap	2,770		—		2,770		—		2,770		3,051		—		3,051		—		3,051
Cash flow hedges	9,995		—		9,995		—		9,995		9,460		—		9,460		—		9,460
Fair value hedges	368		—		368		—		368		371		—		371		—		371



			Fair Value Measurements at December 31, 2016 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	179,237	$	179,237	$	—	$	—	$	179,237
Securities available for sale	946,764		—		946,764		—		946,764
Held to maturity securities	201,526		—		202,315		—		202,315
Restricted stock	60,782		—		60,782		—		60,782
Loans held for sale	36,487		—		36,487		—		36,487
Net loans	6,269,868		—		—		6,265,443		6,265,443
Derivatives:
Interest rate swap	1,005		—		1,005		—		1,005
Cash flow hedges	211		—		211		—		211
Fair value hedges	1,437		—		1,437		—		1,437
Interest rate lock commitments	610		—		—		610		610
Best efforts forward delivery commitments	1,469		—		—		1,469		1,469
Accrued interest receivable	23,448		—		23,448		—		23,448
Bank owned life insurance	179,318		—		179,318		—		179,318

LIABILITIES
Deposits	$	6,379,489	$	—	$	6,370,457	$	—	$	6,370,457
Borrowings	990,089		—		970,195		—		970,195
Accrued interest payable	2,320		—		2,230		—		2,230
Derivatives:
Interest rate swap	1,005		—		1,005		—		1,005
Cash flow hedges	9,619		—		9,619		—		9,619
Fair value hedges	296		—		296		—		296

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Borrowers with fixed rate obligations, however, are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

10. EARNINGS PER SHARE

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock awards.

There were approximately 102,984 and 407 shares underlying anti-dilutive awards for the three months ended June 30, 2017 and 2016, respectively, and there were approximately 72,951 and 1,116 shares underlying anti-dilutive awards for the six months ended June 30, 2017 and 2016, respectively. Anti-dilutive awards were excluded from the calculation of diluted EPS.

The following is a reconciliation of the denominators of the basic and diluted EPS computations for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 ~~(in~~(dollars in thousands except per share data):


	Net Income Available to Common Shareholders (Numerator)		Weighted Average Common Shares (Denominator)	Per Share Amount		Net Income Available to Common Stockholders (Numerator)		Weighted Average Common Shares (Denominator)	Per Share Amount
Three months ended June 30, 2017
Net income, basic	$	17,956	43,693	$	0.41
Three months ended September 30, 2017
Basic						20,658		43,707	$	0.47
Add: potentially dilutive common shares - stock awards	—		91	—		—		85	—
Diluted	$	17,956	43,784	$	0.41	$	20,658	43,792	$	0.47
Three months ended June 30, 2016
Net income, basic	$	19,337	43,747	$	0.44
Three months ended September 30, 2016
Basic						20,401		43,566	$	0.47
Add: potentially dilutive common shares - stock awards	—		77	—		—		189	—
Diluted	$	19,337	43,824	$	0.44	$	20,401	43,755	$	0.47
Six months ended June 30, 2017
Net income, basic	$	37,080	43,674	$	0.85
Nine months ended September 30, 2017
Basic						57,737		43,685	$	1.32
Add: potentially dilutive common shares - stock awards	—		81	—		—		83	—
Diluted	$	37,080	43,755	$	0.85	$	57,737	43,768	$	1.32
Six months ended June 30, 2016
Net income, basic	$	36,298	43,999	$	0.82
Nine months ended September 30, 2016
Basic						56,699		43,854	$	1.29
Add: potentially dilutive common shares - stock awards	—		77	—		—		114	—
Diluted	$	36,298	44,076	$	0.82	$	56,699	43,968	$	1.29

11. SEGMENT REPORTING DISCLOSURES

The Company has two reportable segments: a traditional full service community bank segment and a mortgage loan origination business segment. The community bank segment includes one subsidiary bank, the Bank, which provides loan, deposit, investment, and trust services to retail and commercial customers throughout its ~~112~~111 retail locations in Virginia as of ~~June~~September 30, 2017. The mortgage segment includes UMG, which provides a variety of mortgage loan products principally in Virginia, North Carolina, Maryland, and the Washington D.C. metro area. These loans are originated and sold primarily in the secondary market through purchase commitments from investors, which serves to mitigate the Company’s exposure to interest rate risk.

Profit and loss is measured by net income after taxes including realized gains and losses on the Company’s investment portfolio. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process.

Both of the Company’s reportable segments are service-based. The mortgage segment's business is a primarily fee-based business, while the community bank segment is driven principally by net interest income. The community bank segment provides a distribution and referral network through its customers for the mortgage loan origination business. The mortgage segment offers a more limited referral network for the bank segment.

The community bank segment provides the mortgage segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest. The interest rate on the warehouse line of credit for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 was the three month LIBOR rate plus 0.15% with no floor. These transactions are eliminated in the consolidation process.

A management fee for operations and administrative support services is charged to all subsidiaries and eliminated in the consolidated totals.

Information about reportable segments and reconciliation of such information to the consolidated financial statements for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 is as follows (dollars in thousands):

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION


	Community Bank		Mortgage			Eliminations			Consolidated		Community Bank		Mortgage			Eliminations			Consolidated
Three Months Ended June 30, 2017
Three Months Ended September 30, 2017
Net interest income	$	68,580	$	419		$	—		$	68,999	$	70,718	$	480		$	—		$	71,198
Provision for credit losses	2,184		(11		)	—			2,173		3,056		(6		)	—			3,050
Net interest income after provision for credit losses	66,396		430			—			66,826		67,662		486			—			68,148
Noninterest income	15,203		2,993			(140		)	18,056		15,121		2,527			(112		)	17,536
Noninterest expenses	57,496		2,574			(140		)	59,930		55,133		2,475			(112		)	57,496
Income before income taxes	24,103		849			—			24,952		27,650		538			—			28,188
Income tax expense	6,698		298			—			6,996		7,339		191			—			7,530
Net income	$	17,405	$	551		$	—		$	17,956	$	20,311	$	347		$	—		$	20,658
Total assets	$	8,904,819	$	105,429		$	(95,061	)	$	8,915,187	$	9,020,486	$	97,154		$	(88,204	)	$	9,029,436

Three Months Ended June 30, 2016
Three Months Ended September 30, 2016
Net interest income	$	65,478	$	298		$	—		$	65,776	$	66,605	$	423		$	—		$	67,028
Provision for credit losses	2,260		40			—			2,300		2,455		17			—			2,472
Net interest income after provision for credit losses	63,218		258			—			63,476		64,150		406			—			64,556
Noninterest income	14,940		3,207			(154		)	17,993		15,589		3,501			(140		)	18,950
Noninterest expenses	52,766		2,639			(154		)	55,251		54,353		2,700			(140		)	56,913
Income before income taxes	25,392		826			—			26,218		25,386		1,207			—			26,593
Income tax expense	6,594		287			—			6,881		5,770		422			—			6,192
Net income	$	18,798	$	539		$	—		$	19,337	$	19,616	$	785		$	—		$	20,401
Total assets	$	8,094,176	$	75,802		$	(69,417	)	$	8,100,561	$	8,251,351	$	90,692		$	(83,813	)	$	8,258,230

Six Months Ended June 30, 2017
Nine Months Ended September 30, 2017
Net interest income	$	134,816	$	751		$	—		$	135,567	$	205,534	$	1,231		$	—		$	206,765
Provision for credit losses	4,288		7			—			4,295		7,344		1			—			7,345
Net interest income after provision for credit losses	130,528		744			—			131,272		198,190		1,230			—			199,420
Noninterest income	31,959		5,216			(281		)	36,894		47,080		7,743			(393		)	54,430
Noninterest expenses	112,510		5,096			(281		)	117,325		167,643		7,571			(393		)	174,821
Income before income taxes	49,977		864			—			50,841		77,627		1,402			—			79,029
Income tax expense	13,452		309			—			13,761		20,791		501			—			21,292
Net income	$	36,525	$	555		$	—		$	37,080	$	56,836	$	901		$	—		$	57,737
Total assets	$	8,904,819	$	105,429		$	(95,061	)	$	8,915,187	$	9,020,486	$	97,154		$	(88,204	)	$	9,029,436

Six Months Ended June 30, 2016
Nine Months Ended September 30, 2016
Net interest income	$	128,903	$	604		$	—		$	129,507	$	195,508	$	1,027		$	—		$	196,535
Provision for credit losses	4,760		144			—			4,904		7,215		161			—			7,376
Net interest income after provision for credit losses	124,143		460			—			124,603		188,293		866			—			189,159
Noninterest income	28,548		5,684			(325		)	33,907		44,137		9,185			(465		)	52,857
Noninterest expenses	104,610		5,238			(325		)	109,523		158,964		7,937			(465		)	166,436
Income before income taxes	48,081		906			—			48,987		73,466		2,114			—			75,580
Income tax expense	12,376		313			—			12,689		18,145		736			—			18,881
Net income	$	35,705	$	593		$	—		$	36,298	$	55,321	$	1,378		$	—		$	56,699
Total assets	$	8,094,176	$	75,802		$	(69,417	)	$	8,100,561	$	8,251,351	$	90,692		$	(83,813	)	$	8,258,230

Review Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors of Union Bankshares Corporation

We have reviewed the consolidated balance sheet of Union Bankshares Corporation (the “Company”) as of ~~June~~September 30, 2017, and the related consolidated statements of income and comprehensive income for the three and ~~six-month~~nine-month periods ended ~~June~~September 30, 2017 and 2016, and the consolidated statements of changes in stockholders’ equity and cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2017 and 2016. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, not presented herein, and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 28, 2017. In our opinion, the accompanying consolidated balance sheet of the Company as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Richmond, Virginia

~~August 8,~~November 7, 2017

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Union Bankshares Corporation and its subsidiaries (collectively, the “Company”). This discussion and analysis should be read with the consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s ~~Annual Report on~~2016 Form 10-K, ~~and~~including management’s discussion and ~~analysis for the year ended December 31, 2016.~~analysis. Highlighted in the discussion are material changes from prior reporting periods and any identifiable trends affecting the Company. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation ~~purposes while~~purposes; however, some of the percentages presented are computed based on unrounded amounts.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact, are based on certain assumptions as of the time they are made, and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance, or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of or changes in:

the possibility that any of the anticipated benefits of the acquisition of Xenith pursuant to a definitive merger agreement between the Company and Xenith, dated as of May 19, 2017 (the “Pending Merger”) with Xenith will not be realized or will not be realized within the expected time period, the businesses of the Company and Xenith may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, the expected revenue synergies and cost savings from the Pending Merger may not be fully realized or realized within the expected time frame, revenues following the Pending Merger may be lower than expected, customer and employee relationships and business operations may be disrupted by the Pending Merger, or ~~obtaining required regulatory and shareholder approvals, or~~ completing the Pending Merger on the expected timeframe, may be more difficult, time-consuming or costly than expected,

changes in interest rates,

general economic and financial market conditions,

the Company’s ability to manage its growth or implement its growth strategy,

the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets,

levels of unemployment in the Bank’s lending area,

real estate values in the Bank’s lending area,

an insufficient ALL,

the quality or composition of the loan or investment portfolios,

concentrations of loans secured by real estate, particularly commercial real estate,

the effectiveness of the Company’s credit processes and management of the Company’s credit risk,

demand for loan products and financial services in the Company’s market area,

the Company’s ability to compete in the market for financial services,

technological risks and developments, and cyber attacks or events,

performance by the Company’s counterparties or vendors,

deposit flows,

the availability of financing and the terms thereof,

the level of prepayments on loans and mortgage-backed securities,

legislative or regulatory changes and requirements,

monetary and fiscal policies of the U.S. government including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System, and

accounting principles and guidelines.

More information on risk factors that could affect the Company’s forward-looking statements is available on the Company’s website, http://investors.bankatunion.com, or the Company's Annual Report on Form 10-K for the year ended December 31, 2016, this Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2017, and other reports filed with the ~~SEC.~~SEC, including without limitation the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. The information on the Company’s website is not a part of this Form 10-Q. All risk factors and uncertainties described in those documents should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors.

The critical accounting and reporting policies include the Company’s accounting for the allowance for loan losses, acquired loans, and goodwill and intangible assets. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 "Financial Statements and Supplementary Data" of the Company’s ~~Annual Report on~~2016 Form ~~10-K for the year ended December 31, 2016.~~10-K.

The Company provides additional information on its critical accounting policies and estimates listed above under “Management's Discussion &and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in its 2016 Form 10-K.

ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Union Bankshares Corporation is the largest community banking organization headquartered in Virginia and operates in all major banking markets of the Commonwealth. Union Bankshares Corporation is the holding company for Union Bank & Trust, which provides banking, trust, and wealth management services and has a statewide presence of ~~112~~111 bank branches and approximately 173 ATMs. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products; Union Insurance Group, LLC, which offers various lines of insurance products; and Old Dominion Capital Management, Inc., which provides investment advisory services.

Shares of the Company’s common stock are traded on the NASDAQ Global Select Market under the symbol UBSH. Additional information is available on the Company’s website at http://investors.bankatunion.com. The information contained on the Company’s website is not a part of or incorporated into this report.

RESULTS OF OPERATIONS

Executive Overview

For the quarter ended ~~June~~September 30, 2017, the Company reported net income of ~~$18.0~~$20.7 million and earnings per share of ~~$0.41.~~$0.47. Excluding after-tax ~~acquisition and conversion~~merger-related costs of ~~$2.4 million,~~$661,000, net operating earnings⁽¹⁾ were ~~$20.3~~$21.3 million and operating earnings per share⁽¹⁾ were ~~$0.46~~$0.49 for the ~~second~~third quarter of 2017. The Company's net operating earnings and operating earnings per share for the ~~second~~third quarter of 2017 represent an increase of ~~$977,000,~~$918,000, or ~~5.1%~~4.5%, over net income and an increase of $0.02, or ~~4.5%~~4.3%, over earnings per share, in each case compared to the ~~second~~third quarter of 2016. ~~This increase is~~These increases are primarily attributable to increases in net interest income, driven by higher average loan ~~and investment balances.~~balances partially offset by the impact of the decline in net interest margin.

For the ~~six~~nine months ended ~~June~~September 30, 2017, the Company reported net income of ~~$37.1~~$57.7 million and earnings per share of ~~$0.85.~~$1.32. Excluding after-tax ~~acquisition and conversion~~merger-related costs of ~~$2.4~~$3.0 million, net operating earnings⁽¹⁾ were ~~$39.4~~$60.8 million and operating earnings per share⁽¹⁾ were ~~$0.90~~$1.39 for the first ~~six~~nine months of 2017. The Company's net operating earnings and operating earnings per share for the first ~~six~~nine months of 2017 represent an increase of ~~$3.1~~$4.1 million, or ~~8.7%~~7.2%, over net income and an increase of ~~$0.08,~~$0.10, or ~~9.8%~~7.8%, over earnings per share, in each case compared to the first ~~six~~nine months of 2016. ~~This increase is~~These increases are primarily

attributable to increases in net interest income, driven by higher average loan balances, as well as higher overall noninterest income.

Select highlights for the third quarter of 2017 include:

The Company entered into a definitive merger agreement during the second quarter of 2017 to acquire Xenith in the Pending Merger, which is expected to close in early January ~~2018, subject~~2018. On October 17, 2017, the Company and Xenith

jointly announced the receipt of regulatory approval from the Federal Reserve Bank and from the Virginia State Corporation Commission to ~~customary closing conditions, including regulatory~~move forward with the Pending Merger. On October 26, 2017, the Company and ~~shareholder approvals.~~Xenith jointly announced that stockholders of both Union and Xenith, at separate special meetings, approved the Pending Merger of Xenith with and into Union.

•

Net income for the community bank segment was ~~$17.4~~$20.3 million, or ~~$0.40~~$0.46 per share, for the ~~second~~third quarter of 2017 compared to ~~$18.8~~$19.6 million, or ~~$0.43~~$0.45 per share, for the ~~second~~third quarter of 2016. Net operating earnings⁽¹⁾ for the community bank segment were ~~$19.8~~$21.0 million, or ~~$0.45~~$0.48 per share, for the ~~second~~third quarter of 2017.

•

Net income for the community bank segment was ~~$36.5~~$56.8 million, or ~~$0.84~~$1.30 per share, for the ~~six~~nine months ended ~~June~~September 30, 2017 compared to ~~$35.7~~$55.3 million, or ~~$0.81~~$1.26 per share, for the ~~six~~nine months ended ~~June~~September 30, 2016. Net operating earnings⁽¹⁾ for the community bank segment were ~~$38.9~~$59.9 million, or ~~$0.89~~$1.37 per share, for the ~~six~~nine months ended ~~June~~September 30, 2017.

The mortgage segment reported net income of ~~$551,000~~$347,000 for the ~~second~~third quarter of 2017 compared to net income of ~~$539,000~~$785,000 in the ~~second~~third quarter of 2016. The mortgage segment reported net income of ~~$555,000~~$901,000 for the ~~six~~nine months ended ~~June~~September 30, 2017 compared to ~~$593,000~~$1.4 million for the ~~six~~nine months ended ~~June~~September 30, 2016.

•

ROA was ~~0.82%~~0.91% for the quarter ended ~~June~~September 30, 2017 compared to ~~0.98%~~1.00% for the ~~second~~third quarter of 2016. Operating ROA⁽¹⁾ for the quarter ended ~~June~~September 30, 2017 was ~~0.93%~~0.94%. ROA was ~~0.87%~~0.88% for the ~~six~~nine months ended ~~June~~September 30, 2017 compared to ~~0.93%~~0.95% for the ~~six~~nine months ended ~~June~~September 30, 2016. Operating ROA⁽¹⁾ for the ~~six~~nine months ended ~~June~~September 30, 2017 was ~~0.92%~~0.93%.

•

ROE was ~~7.02%~~7.90% for the quarter ended ~~June~~September 30, 2017 compared to ~~7.88%~~8.14% for the ~~second~~third quarter of 2016. Operating ROE⁽¹⁾ for the quarter ended ~~June~~September 30, 2017 was ~~7.94%~~8.15%. ROE was ~~7.34%~~7.53% for the ~~six~~nine months ended ~~June~~September 30, 2017 compared to ~~7.39%~~7.64% for the ~~six~~nine months ended ~~June~~September 30, 2016. Operating ROE⁽¹⁾ for the ~~six~~nine months ended ~~June~~September 30, 2017 was ~~7.81%~~7.93%.

•

ROTCE was ~~10.15%~~11.34% for the quarter ended ~~June~~September 30, 2017 compared to ~~11.60%~~12.00% for the ~~second~~third quarter of 2016. Operating ROTCE⁽¹⁾ for the quarter ended ~~June~~September 30, 2017 was ~~11.48%~~11.70%. ROTCE was ~~10.66%~~10.90% for the ~~six~~nine months ended ~~June~~September 30, 2017 compared to ~~10.86%~~11.25% for the ~~six~~nine months ended ~~June~~September 30, 2016. Operating ROTCE⁽¹⁾ for the ~~six~~nine months ended ~~June~~September 30, 2017 was ~~11.34%~~11.47%.

Loans held for investment grew ~~$464.4~~$591.7 million, or ~~14.7%~~12.5% (annualized), from December 31, 2016. Quarterly average loans held for investment increased ~~$765.0~~$788.8 million, or ~~13.0%~~13.1%, compared to the quarter ended ~~June~~September 30, 2016.

Deposits grew ~~$384.9~~$502.3 million, or ~~12.1%~~10.5% (annualized), from December 31, 2016. Quarterly average deposits increased ~~$612.2~~$592.9 million, or ~~10.2%~~9.6%, compared to the quarter ended ~~June~~September 30, 2016.

(1)For a reconciliation of the non-GAAP operating measures that exclude ~~acquisition and conversion~~merger-related costs unrelated to the Company’s normal operations, refer to “Non-GAAP Measures” section inwithin this Item 2 of this Form 10-Q. Such costs were only incurred during the second and third quarter of 2017; thus each of these operating measures is equivalent to the corresponding GAAP financial measure for the three and nine months ended September 30, 2016.

Net Interest Income


	For the Three Months Ended June 30,										For the Three Months Ended September 30,
	2017			2016			Change				2017			2016			Change
	(Dollars in thousands)										(Dollars in thousands)
Average interest-earning assets	$	7,934,405		$	7,153,627		$	780,778			$	8,167,919		$	7,354,684		$	813,235
Interest income	$	81,221		$	72,781		$	8,440			$	84,850		$	74,433		$	10,417
Interest income (FTE) ⁽¹⁾	$	83,869		$	75,232		$	8,637			$	87,498		$	76,860		$	10,638
Yield on interest-earning assets	4.11		%	4.09		%	2			bps	4.12		%	4.03		%	9			bps
Yield on interest-earning assets (FTE) ⁽¹⁾	4.24		%	4.23		%	1			bps	4.25		%	4.16		%	9			bps
Average interest-bearing liabilities	$	6,203,373		$	5,523,926		$	679,447			$	6,382,452		$	5,681,102		$	701,350
Interest expense	$	12,222		$	7,005		$	5,217			$	13,652		$	7,405		$	6,247
Cost of interest-bearing liabilities	0.79		%	0.51		%	28			bps	0.85		%	0.52		%	33			bps
Cost of funds	0.62		%	0.39		%	23			bps	0.66		%	0.40		%	26			bps
Net interest income	$	68,999		$	65,776		$	3,223			$	71,198		$	67,028		$	4,170
Net interest income (FTE) ⁽¹⁾	$	71,647		$	68,227		$	3,420			$	73,846		$	69,455		$	4,391
Net interest margin	3.49		%	3.70		%	(21		)	bps	3.46		%	3.63		%	(17		)	bps
Net interest margin (FTE) ⁽¹⁾	3.62		%	3.84		%	(22		)	bps	3.59		%	3.76		%	(17		)	bps
Core net interest margin (FTE) ⁽¹⁾⁽²⁾	3.54		%	3.76		%	(22		)	bps

(1) Refer to the “Non-GAAP Measures” section inwithin this Item 2 of this Form 10-Q for more information about this non-GAAP financial measure.

~~(2)~~ ~~Core net interest margin (non-GAAP) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.~~

For the ~~second~~third quarter of 2017, net interest income was ~~$69.0~~$71.2 million, an increase of ~~$3.2~~$4.2 million from the ~~second~~third quarter of 2016. For the ~~second~~third quarter of 2017, tax-equivalent net interest income was ~~$71.6~~$73.8 million, an increase of ~~$3.4~~$4.4 million from the ~~second~~third quarter of 2016. The increases in both net interest income and tax-equivalent net interest income were primarily driven by higher average loan ~~and investment~~ balances. Net accretion related to acquisition accounting increased ~~$215,000~~$190,000 from the ~~second~~third quarter of 2016 to ~~$1.6~~$1.7 million in the ~~second~~third quarter of 2017. In the ~~second~~third quarter of 2017, both net interest margin ~~decreased 21 basis points to 3.49% from 3.70% in the second quarter of 2016, while~~and tax-equivalent net interest margin decreased ~~by 22~~17 basis points ~~to 3.62%~~ compared to ~~3.84% for~~ the same periods. Core tax-equivalent net interest margin (which excludes the 8 basis point impact of acquisition accounting accretion in both the second quarters of 2017 and 2016) decreased by 22 basis points to 3.54% in the second quarter of 2017 from 3.76% in the secondthird quarter of 2016. The net decreases in net interest margin and tax-equivalent net interest margin measures were primarily driven by the 26 basis point increase in cost of funds, ~~slightly~~ offset by the 9 basis point increase in interest-earning asset yields. The increase in the cost of funds was primarily attributable to subordinated debt that the Company issued in the fourth quarter of 2016 as well as increased interest-bearing deposit and short-term borrowing rates.


	For the Six Months Ended June 30,										For the Nine Months Ended September 30,
	2017			2016			Change				2017			2016			Change
	(Dollars in thousands)										(Dollars in thousands)
Average interest-earning assets	$	7,798,427		$	7,061,307		$	737,120			$	7,922,944		$	7,159,813		$	763,131
Interest income	$	157,861		$	143,530		$	14,331			$	242,712		$	217,964		$	24,748
Interest income (FTE) ⁽¹⁾	$	163,049		$	148,471		$	14,578			$	250,548		$	225,331		$	25,217
Yield on interest-earning assets	4.08		%	4.09		%	(1		)	bps	4.10		%	4.07		%	3			bps
Yield on interest-earning assets (FTE) ⁽¹⁾	4.22		%	4.23		%	(1		)	bps	4.23		%	4.20		%	3			bps
Average interest-bearing liabilities	$	6,102,228		$	5,451,862		$	650,366			$	6,196,663		$	5,528,833		$	667,830
Interest expense	$	22,294		$	14,023		$	8,271			$	35,947		$	21,429		$	14,518
Cost of interest-bearing liabilities	0.74		%	0.52		%	22			bps	0.78		%	0.52		%	26			bps
Cost of funds	0.58		%	0.40		%	18			bps	0.61		%	0.40		%	21			bps
Net interest income	$	135,567		$	129,507		$	6,060			$	206,765		$	196,535		$	10,230
Net interest income (FTE) ⁽¹⁾	$	140,755		$	134,448		$	6,307			$	214,601		$	203,902		$	10,699
Net interest margin	3.51		%	3.69		%	(18		)	bps	3.49		%	3.67		%	(18		)	bps
Net interest margin (FTE) ⁽¹⁾	3.64		%	3.83		%	(19		)	bps	3.62		%	3.80		%	(18		)	bps
Core net interest margin (FTE) ⁽¹⁾⁽²⁾	3.56		%	3.76		%	(20		)	bps

(1) Refer to the “Non-GAAP Measures” section inwithin this Item 2 of this Form 10-Q for more information about this non-GAAP financial measure.

~~(2)~~ ~~Core net interest margin (non-GAAP) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.~~

For the first ~~six~~nine months of 2017, net interest income was ~~$135.6~~$206.8 million, an increase of ~~$6.1~~$10.2 million from the first ~~six~~nine months of 2016. For the first ~~six~~nine months of 2017, tax-equivalent net interest income was ~~$140.8~~$214.6 million, an increase of ~~$6.3~~$10.7 million from the first ~~six~~nine months of 2016. The increases in both net interest income and tax-equivalent net interest income were primarily driven by higher average loan balances. Net accretion related to acquisition accounting increased ~~$562,000~~$752,000 from the first ~~six~~nine months of 2016 to ~~$3.1~~$4.8 million in the first ~~six~~nine months of 2017. In the first ~~six~~nine months of 2017, both net interest margin and tax-equivalent net interest margin decreased 18 basis points ~~to 3.51% from 3.69% in~~compared the first six months of 2016, while tax-equivalent net interest margin decreased by 19 basis points to 3.64% compared to 3.83% for the same periods. Core tax-equivalent net interest margin (which excludes the 8 basis point impact of acquisition accounting accretion in the first six months of 2017 and 7 basis points the first six months of 2016) decreased by 20 basis points to 3.56% in the first six months of 2017 from 3.76% in the first sixnine months of 2016. The net decreases in net interest margin and tax-equivalent net interest margin measures were ~~primarily~~ driven by the 21 basis point increase in cost of funds, ~~which~~offset by the 3 basis point increase in interest-earning asset yields. The increase in the cost of funds was primarily attributable to subordinated debt that the Company issued in the fourth quarter of 2016 as well as increased interest-bearing deposit and short-term borrowing rates.

The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated:

AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)


	For the Three Months Ended June 30,														For the Three Months Ended September 30,
	2017							2016							2017							2016
	Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾
	(Dollars in thousands)														(Dollars in thousands)
Assets:
Securities:
Taxable	$	768,648		$	4,982	2.60	%	$	755,655		$	4,510	2.40	%	$	774,513		$	5,175	2.65	%	$	768,608		$	4,732	2.45	%
Tax-exempt	460,945			5,403		4.70	%	447,117			5,321		4.79	%	469,391			5,455		4.61	%	449,944			5,302		4.69	%
Total securities	1,229,593			10,385		3.39	%	1,202,772			9,831		3.29	%	1,243,904			10,630		3.39	%	1,218,552			10,034		3.28	%
Loans, net ^{(3) (4)}	6,628,011			73,073		4.42	%	5,863,007			65,115		4.47	%	6,822,498			76,333		4.44	%	6,033,723			66,397		4.38	%
Other earning assets	76,801			411		2.15	%	87,848			286		1.31	%	101,517			535		2.09	%	102,409			429		1.67	%
Total earning assets	7,934,405			$	83,869	4.24	%	7,153,627			$	75,232	4.23	%	8,167,919			$	87,498	4.25	%	7,354,684			$	76,860	4.16	%
Allowance for loan losses	(38,577		)					(35,282		)					(38,138		)					(35,995		)
Total non-earning assets	851,549							831,231							844,183							835,262
Total assets	$	8,747,377						$	7,949,576						$	8,973,964						$	8,153,951
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	3,367,008		$	2,729	0.33	%	$	2,882,468		$	1,448	0.20	%	$	3,457,279		$	3,491	0.40	%	$	3,016,337		$	1,682	0.22	%
Regular savings	563,948			152		0.11	%	595,870			224		0.15	%	555,153			151		0.11	%	598,232			207		0.14	%
Time deposits	1,248,818			3,219		1.03	%	1,164,561			2,525		0.87	%	1,289,794			3,592		1.10	%	1,181,936			2,663		0.90	%
Total interest-bearing deposits	5,179,774			6,100		0.47	%	4,642,899			4,197		0.36	%	5,302,226			7,234		0.54	%	4,796,505			4,552		0.38	%
Other borrowings ⁽⁵⁾	1,023,599			6,122		2.40	%	881,027			2,808		1.28	%	1,080,226			6,418		2.36	%	884,597			2,853		1.28	%
Total interest-bearing liabilities	6,203,373			$	12,222	0.79	%	5,523,926			$	7,005	0.51	%	6,382,452			$	13,652	0.85	%	5,681,102			$	7,405	0.52	%
Noninterest-bearing liabilities:
Demand deposits	1,457,968							1,382,646							1,495,614							1,408,453
Other liabilities	59,888							55,857							58,106							67,728
Total liabilities	7,721,229							6,962,429							7,936,172							7,157,283
Stockholders' equity	1,026,148							987,147							1,037,792							996,668
Total liabilities and stockholders' equity	$	8,747,377						$	7,949,576						$	8,973,964						$	8,153,951
Net interest income				$	71,647						$	68,227						$	73,846						$	69,455
Interest rate spread						3.45	%						3.72	%						3.40	%						3.64	%
Cost of funds						0.62	%						0.39	%						0.66	%						0.40	%
Net interest margin ⁽⁶⁾						3.62	%						3.84	%						3.59	%						3.76	%

(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.

(2) Rates and yields are annualized and calculated from actual, not rounded, amounts in thousands, which appear above.

(3) Nonaccrual loans are included in average loans outstanding.

(4) Interest income on loans includes ~~$1.6~~$1.7 million and $1.3 million for the three months ended ~~June~~September 30, 2017 and 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5) Interest expense on borrowings includes $47,000 and ~~$143,000~~$181,000 for the three months ended ~~June~~September 30, 2017 and 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.

~~(6)~~ Core net interest margin excludes purchase accounting adjustments and was 3.54% and 3.76% for the three months ended June 30, 2017 and 2016, respectively. Refer to the “Non-GAAP Measures” section in this Item 2 of this Form 10-Q for more information about this non-GAAP financial measure.

AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)


	For the Six Months Ended June 30,														For the Nine Months Ended September 30,
	2017							2016							2017							2016
	Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾
	(Dollars in thousands)														(Dollars in thousands)
Assets:
Securities:
Taxable	$	757,565		$	9,905	2.64	%	$	749,690		$	8,826	2.37	%	$	763,276		$	15,081	2.64	%	$	756,042		$	13,558	2.40	%
Tax-exempt	461,176			10,883		4.76	%	445,271			10,612		4.79	%	463,944			16,338		4.71	%	446,840			15,914		4.76	%
Total securities	1,218,741			20,788		3.44	%	1,194,961			19,438		3.27	%	1,227,220			31,419		3.42	%	1,202,882			29,472		3.27	%
Loans, net ^{(3) (4)}	6,506,632			141,576		4.39	%	5,786,502			128,442		4.46	%	6,613,078			217,910		4.41	%	5,869,511			194,839		4.43	%
Other earning assets	73,054			685		1.89	%	79,844			591		1.49	%	82,646			1,219		1.97	%	87,420			1,020		1.56	%
Total earning assets	7,798,427			$	163,049	4.22	%	7,061,307			$	148,471	4.23	%	7,922,944			$	250,548	4.23	%	7,159,813			$	225,331	4.20	%
Allowance for loan losses	(38,240		)					(35,158		)					(38,205		)					(35,439		)
Total non-earning assets	847,038							831,054							846,076							832,467
Total assets	$	8,607,225						$	7,857,203						$	8,730,815						$	7,956,841
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	3,286,795		$	4,698	0.29	%	$	2,846,214		$	2,841	0.20	%	$	3,344,248		$	8,189	0.33	%	$	2,903,336		$	4,523	0.21	%
Regular savings	580,164			343		0.12	%	588,397			442		0.15	%	571,735			493		0.12	%	591,699			649		0.15	%
Time deposits	1,230,045			6,135		1.01	%	1,168,267			5,110		0.88	%	1,250,180			9,728		1.04	%	1,172,856			7,773		0.89	%
Total interest-bearing deposits	5,097,004			11,176		0.44	%	4,602,878			8,393		0.37	%	5,166,163			18,410		0.48	%	4,667,891			12,945		0.37	%
Other borrowings ⁽⁵⁾	1,005,224			11,118		2.23	%	848,984			5,630		1.33	%	1,030,500			17,537		2.28	%	860,942			8,484		1.32	%
Total interest-bearing liabilities	6,102,228			$	22,294	0.74	%	5,451,862			$	14,023	0.52	%	6,196,663			$	35,947	0.78	%	5,528,833			$	21,429	0.52	%
Noninterest-bearing liabilities:
Demand deposits	1,426,144							1,359,597							1,449,555							1,376,001
Other liabilities	60,576							57,463							59,744							60,910
Total liabilities	7,588,948							6,868,922							7,705,962							6,965,744
Stockholders' equity	1,018,277							988,281							1,024,853							991,097
Total liabilities and stockholders' equity	$	8,607,225						$	7,857,203						$	8,730,815						$	7,956,841
Net interest income				$	140,755						$	134,448						$	214,601						$	203,902
Interest rate spread						3.48	%						3.71	%						3.45	%						3.68	%
Cost of funds						0.58	%						0.40	%						0.61	%						0.40	%
Net interest margin ⁽⁶⁾						3.64	%						3.83	%						3.62	%						3.80	%

(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.

(2) Rates and yields are annualized and calculated from actual, not rounded, amounts in thousands, which appear above.

(3) Nonaccrual loans are included in average loans outstanding.

(4) Interest income on loans includes ~~$3.0~~$4.7 million and ~~$2.3~~$3.7 million for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5) Interest expense on borrowings includes ~~$95,000~~$142,000 and ~~$205,000~~$386,000 for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.

~~(6)~~ Core net interest margin excludes purchase accounting adjustments and was 3.56% and 3.76% for the six months ended June 30, 2017 and 2016, respectively. Refer to the “Non-GAAP Measures” section in this Item 2 of this Form 10-Q for more information about this non-GAAP financial measure.

The Volume Rate Analysis table below presents changes in interest income and interest expense and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate). Changes attributable to both volume and rate have been allocated proportionally. Results, on a taxable equivalent basis, are as follows (dollars in thousands):


	Three Months Ended June 30, 2017 vs. June 30, 2016 Increase (Decrease) Due to Change in:									Six Months Ended June 30, 2017 vs. June 30, 2016 Increase (Decrease) Due to Change in:									Three Months Ended September 30, 2017 vs. September 30, 2016 Increase (Decrease) Due to Change in:									Nine Months Ended September 30, 2017 vs. September 30, 2016 Increase (Decrease) Due to Change in:
	Volume			Rate			Total			Volume			Rate			Total			Volume			Rate			Total			Volume			Rate			Total
Earning Assets:
Securities:
Taxable	$	78		$	394		$	472		$	93		$	986		$	1,079		$	37		$	406		$	443		$	131		$	1,392		$	1,523
Tax-exempt	163			(81		)	82			376			(105		)	271			226			(73		)	153			603			(179		)	424
Total securities	241			313			554			469			881			1,350			263			333			596			734			1,213			1,947
Loans, net ⁽¹⁾	8,437			(479		)	7,958			15,712			(2,578		)	13,134			8,809			1,127			9,936			24,512			(1,441		)	23,071
Other earning assets	(40		)	165			125			(53		)	147			94			(3		)	109			106			(58		)	257			199
Total earning assets	$	8,638		$	(1	)	$	8,637		$	16,128		$	(1,550	)	$	14,578		$	9,069		$	1,569		$	10,638		$	25,188		$	29		$	25,217
Interest-Bearing Liabilities:
Interest-bearing deposits:
Transaction and money market accounts	$	275		$	1,006		$	1,281		$	490		$	1,367		$	1,857		$	276		$	1,533		$	1,809		$	769		$	2,897		$	3,666
Regular savings	(11		)	(61		)	(72		)	(6		)	(93		)	(99		)	(14		)	(42		)	(56		)	(21		)	(135		)	(156		)
Time Deposits	192			502			694			280			745			1,025			259			670			929			537			1,418			1,955
Total interest-bearing deposits	456			1,447			1,903			764			2,019			2,783			521			2,161			2,682			1,285			4,180			5,465
Other borrowings ⁽²⁾	516			2,798			3,314			1,186			4,302			5,488			742			2,823			3,565			1,930			7,123			9,053
Total interest-bearing liabilities	972			4,245			5,217			1,950			6,321			8,271			1,263			4,984			6,247			3,215			11,303			14,518
Change in net interest income	$	7,666		$	(4,246	)	$	3,420		$	14,178		$	(7,871	)	$	6,307		$	7,806		$	(3,415	)	$	4,391		$	21,973		$	(11,274	)	$	10,699

(1) The rate-related change in interest income on loans includes the impact of higher accretion of the acquisition-related fair market value adjustments of ~~$311,000~~$324,000 and ~~$672,000~~$996,000 for the three- and ~~six-month~~nine-month change, respectively.

(2) The rate-related change in interest expense on other borrowings includes the impact of lower accretion of the acquisition-related fair market value adjustments of ~~$96,000~~$134,000 and ~~$110,000~~$244,000 for the three- and ~~six-month~~nine-month change, respectively.

The Company’s fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments. The impact of net accretion for the first ~~and second~~three quarters of 2017 as well as the remaining estimated net accretion are reflected in the following table (dollars in thousands):


	Loan Accretion		Borrowings Accretion (Amortization)			Total		Loan Accretion		Borrowings Accretion (Amortization)			Total
For the quarter ended March 31, 2017	$	1,445	$	48		$	1,493	$	1,445	$	48		$	1,493
For the quarter ended June 30, 2017	1,570		47			1,617		1,570		47			1,617
For the remaining six months of 2017 (estimated) ⁽¹⁾	2,886		75			2,961
For the quarter ended September 30, 2017								1,662		47			1,709
For the remaining three months of 2017 (estimated) ⁽¹⁾								1,358		28			1,386
For the years ending (estimated) ⁽¹⁾:
2018	4,911		(143		)	4,768		4,842		(143		)	4,699
2019	3,518		(286		)	3,232		3,483		(286		)	3,197
2020	2,678		(301		)	2,377		2,689		(301		)	2,388
2021	2,112		(316		)	1,796		2,187		(316		)	1,871
2022	1,766		(332		)	1,434		1,767		(332		)	1,435
Thereafter	6,653		(4,974		)	1,679		6,589		(4,974		)	1,615

⁽¹⁾ Estimated accretion only includes accretion for previously executed acquisitions. The effects of the Pending Merger are not included in the information above.

Noninterest Income


	For the Three Months Ended											For the Three Months Ended
	June 30,						Change					September 30,						Change
	2017			2016			$			%		2017			2016			$			%
	(Dollars in thousands)											(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	4,963		$	4,754		$	209		4.4	%	$	5,153		$	4,965		$	188		3.8	%
Other service charges and fees	4,637			4,418			219			5.0	%	4,529			4,397			132			3.0	%
Fiduciary and asset management fees	2,725			2,333			392			16.8	%	2,794			2,844			(50		)	(1.8	)%
Mortgage banking income, net	2,793			2,972			(179		)	(6.0	)%	2,305			3,207			(902		)	(28.1	)%
Gains on securities transactions, net	117			3			114			NM		184			—			184			NM
Bank owned life insurance income	1,335			1,361			(26		)	(1.9	)%	1,377			1,389			(12		)	(0.9	)%
Loan-related interest rate swap fees	1,031			1,091			(60		)	(5.5	)%	416			1,303			(887		)	(68.1	)%
Other operating income	455			1,061			(606		)	(57.1	)%	778			845			(67		)	(7.9	)%
Total noninterest income	$	18,056		$	17,993		$	63		0.4	%	$	17,536		$	18,950		$	(1,414	)	(7.5	)%

Community bank segment	$	15,203		$	14,940		$	263		1.8	%	$	15,121		$	15,589		$	(468	)	(3.0	)%
Mortgage segment	2,993			3,207			(214		)	(6.7	)%	2,527			3,501			(974		)	(27.8	)%
Intercompany eliminations	(140		)	(154		)	14			9.1	%	(112		)	(140		)	28			20.0	%
Total noninterest income	$	18,056		$	17,993		$	63		0.4	%	$	17,536		$	18,950		$	(1,414	)	(7.5	)%

NM - Not meaningful

Noninterest income ~~was $18.1~~declined $1.4 million, or 7.5%, to $17.5 million for the quarter ended ~~June~~September 30, 2017 ~~relatively flat~~ compared to the ~~second~~quarter ended September 30, 2016. The decline was primarily due to lower mortgage banking income of $902,000, driven by declines in mortgage loan originations compared to the third quarter of 2016 and unrealized losses on mortgage banking derivatives in the third quarter of 2017 compared to unrealized gains on mortgage banking derivatives in the third quarter of 2016. Loan-related swap fees also declined $887,000 in the third quarter of 2017 compared to the third quarter of 2016. Customer-related fee income increased ~~$428,000~~$320,000 primarily related to increases in overdraft and debit card interchange fees, and gains on sales of securities were $184,000 higher, in each case as compared to the third quarter of 2016.



	For the Nine Months Ended
	September 30,						Change
	2017			2016			$			%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	14,945		$	14,454		$	491		3.4	%
Other service charges and fees	13,575			12,971			604			4.7	%
Fiduciary and asset management fees	8,313			7,315			998			13.6	%
Mortgage banking income, net	7,123			8,324			(1,201		)	(14.4	)%
Gains on securities transactions, net	782			145			637			NM
Bank owned life insurance income	4,837			4,122			715			17.3	%
Loan-related interest rate swap fees	2,627			3,056			(429		)	(14.0	)%
Other operating income	2,228			2,470			(242		)	(9.8	)%
Total noninterest income	$	54,430		$	52,857		$	1,573		3.0	%

Community bank segment	$	47,080		$	44,137		$	2,943		6.7	%
Mortgage segment	7,743			9,185			(1,442		)	(15.7	)%
Intercompany eliminations	(393		)	(465		)	72			15.5	%
Total noninterest income	$	54,430		$	52,857		$	1,573		3.0	%

NM - Not meaningful

Noninterest income increased $1.6 million, or 3.0%, to $54.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. For the first nine months of 2017, customer-related fee income increased $1.1 million primarily related to increases in overdraft and debit card interchange fees; fiduciary and asset management fees were ~~$392,000~~$998,000 higher due to the acquisition of ODCM in the second quarter of 2016; and gains on sales of securities were $114,000 higher, in each case as compared to the second quarter of 2016. Other operating income decreased $606,000 primarily related to insurance-related income recognition timing differences. Mortgage banking income decreased $179,000 primarily related to declines in mortgage loan originations and unrealized losses on mortgage banking derivatives in the second quarter of 2017 compared to unrealized gains on mortgage banking derivatives in the second quarter of 2016.

For the Six Months Ended
June 30, Change
2017 2016 $ %
(Dollars in thousands)
Noninterest income:

Service charges on deposit accounts $ 9,792
$ 9,488
$ 304
3.2 %
Other service charges and fees 9,045
8,574
471
5.5 %
Fiduciary and asset management fees 5,519
4,471
1,048
23.4 %
Mortgage banking income, net 4,818
5,117
(299 ) (5.8 )%
Gains on securities transactions, net 598
146
452
309.6 %
Bank owned life insurance income 3,460
2,734
726
26.6 %
Loan-related interest rate swap fees 2,211
1,753
458
26.1 %
Other operating income 1,451
1,624
(173 ) (10.7 )%
Total noninterest income $ 36,894
$ 33,907
$ 2,987
8.8 %

Community bank segment $ 31,959
$ 28,548
$ 3,411
11.9 %
Mortgage segment 5,216
5,684
(468 ) (8.2 )%
Intercompany eliminations (281 ) (325 ) 44
13.5 %
Total noninterest income $ 36,894
$ 33,907
$ 2,987
8.8 %

Noninterest income increased $3.0 million, or 8.8%, to $36.9 million for the six months ended June 30, 2017 from $33.9 million for the six months ended June 30, 2016. For the first six months of 2017, fiduciary and asset management fees were $1.0 million higher due to the acquisition of ODCM in the second quarter of 2016; customer-related fee income increased $775,000 primarily related to increases in overdraft and debit card interchange fees; bank owned life insurance income increased ~~$726,000~~$715,000 primarily related to death benefit proceeds received in 2017; ~~loan-related swap fees increased $458,000;~~ and gains on sales of securities were ~~$452,000~~$637,000 higher, in each case as compared to the first ~~six~~nine months of 2016. Mortgage banking income decreased ~~$299,000~~$1.2 million primarily related to declines in mortgage loan originations and lower unrealized gains on mortgage banking derivatives in the first ~~six~~nine months of 2017 compared to the first ~~six~~nine months of 2016.

Noninterest expense


	For the Three Months Ended											For the Three Months Ended
	June 30,						Change					September 30,						Change
	2017			2016			$			%		2017			2016			$			%
	(Dollars in thousands)											(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	30,561		$	28,519		$	2,042		7.2	%	$	29,769		$	30,493		$	(724	)	(2.4	)%
Occupancy expenses	4,718			4,809			(91		)	(1.9	)%	4,939			4,841			98			2.0	%
Furniture and equipment expenses	2,720			2,595			125			4.8	%	2,559			2,635			(76		)	(2.9	)%
Printing, postage, and supplies	1,406			1,280			126			9.8	%	1,154			1,147			7			0.6	%
Communications expense	872			927			(55		)	(5.9	)%	798			948			(150		)	(15.8	)%
Technology and data processing	3,927			3,608			319			8.8	%	4,232			3,917			315			8.0	%
Professional services	2,092			2,548			(456		)	(17.9	)%	1,985			1,895			90			4.7	%
Marketing and advertising expense	2,279			1,924			355			18.5	%	1,944			1,975			(31		)	(1.6	)%
FDIC assessment premiums and other insurance	947			1,379			(432		)	(31.3	)%	1,141			1,262			(121		)	(9.6	)%
Other taxes	2,022			1,607			415			25.8	%	2,022			639			1,383			216.4	%
Loan-related expenses	1,281			1,229			52			4.2	%	1,349			1,531			(182		)	(11.9	)%
OREO and credit-related expenses	342			894			(552		)	(61.7	)%	1,139			503			636			126.4	%
Amortization of intangible assets	1,544			1,745			(201		)	(11.5	)%	1,480			1,843			(363		)	(19.7	)%
Training and other personnel costs	1,043			905			138			15.2	%	887			863			24			2.8	%
Acquisition and conversion costs	2,744			—			2,744			NM
Merger-related costs												732			—			732			NM
Other expenses	1,432			1,282			150			11.7	%	1,366			2,421			(1,055		)	(43.6	)%
Total noninterest expense	$	59,930		$	55,251		$	4,679		8.5	%	$	57,496		$	56,913		$	583		1.0	%

Community bank segment	$	57,496		$	52,766		$	4,730		9.0	%	$	55,133		$	54,353		$	780		1.4	%
Mortgage segment	2,574			2,639			(65		)	(2.5	)%	2,475			2,700			(225		)	(8.3	)%
Intercompany eliminations	(140		)	(154		)	14			9.1	%	(112		)	(140		)	28			20.0	%
Total noninterest expense	$	59,930		$	55,251		$	4,679		8.5	%	$	57,496		$	56,913		$	583		1.0	%

NM - Not meaningful

Noninterest expense increased ~~$4.7 million,~~$583,000, or ~~8.5%~~1.0%, to ~~$59.9~~$57.5 million for the quarter ended ~~June~~September 30, 2017 ~~from $55.3~~compared to $56.9 million infor the ~~second~~third quarter of 2016. Excluding ~~acquisition and conversion~~merger-related costs of ~~$2.7 million,~~$732,000, noninterest expense for the quarter ended ~~June~~September 30, 2017 ~~increased $1.9 million,~~declined $149,000, or ~~3.5%~~0.3%, compared to the ~~second~~third quarter of 2016. Salaries and benefits expenses declined by $724,000 primarily related to decreases in benefits and incentive compensation, offset by increases related to annual merit adjustments. Declines in other expenses primarily related to lower fraud-related and other losses of $364,000 as well as $400,000 in nonrecurring branch closing costs recognized in the third quarter of 2016. These decreases were partially offset by a nonrecurring reduction in expenses of approximately $900,000 in other taxes related to historic tax credits realized in the third quarter of 2016 related to the Company's investment in a historic rehabilitation project that was completed in that quarter and increased OREO and credit-related expenses due to losses on sales of OREO property in the third quarter of 2017 compared to gains on sales of OREO property in the third quarter of 2016 as well as higher valuation adjustments compared to the third quarter of 2016.



	For the Nine Months Ended
	September 30,						Change
	2017			2016			$			%
	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	92,499		$	87,061		$	5,438		6.2	%
Occupancy expenses	14,560			14,627			(67		)	(0.5	)%
Furniture and equipment expenses	7,882			7,867			15			0.2	%
Printing, postage, and supplies	3,710			3,566			144			4.0	%
Communications expense	2,580			2,964			(384		)	(13.0	)%
Technology and data processing	12,059			11,340			719			6.3	%
Professional services	5,734			6,432			(698		)	(10.9	)%
Marketing and advertising expense	5,963			5,838			125			2.1	%
FDIC assessment premiums and other insurance	2,793			4,003			(1,210		)	(30.2	)%
Other taxes	6,065			3,864			2,201			57.0	%
Loan-related expenses	3,959			3,638			321			8.8	%
OREO and credit-related expenses	2,023			1,965			58			3.0	%
Amortization of intangible assets	4,661			5,468			(807		)	(14.8	)%
Training and other personnel costs	2,900			2,512			388			15.4	%
Merger-related costs	3,476			—			3,476			NM
Other expenses	3,957			5,291			(1,334		)	(25.2	)%
Total noninterest expense	$	174,821		$	166,436		$	8,385		5.0	%

Community bank segment	$	167,643		$	158,964		$	8,679		5.5	%
Mortgage segment	7,571			7,937			(366		)	(4.6	)%
Intercompany eliminations	(393		)	(465		)	72			15.5	%
Total noninterest expense	$	174,821		$	166,436		$	8,385		5.0	%

NM - Not meaningful

Noninterest expense increased $8.4 million, or 5.0%, to $174.8 million for the nine months ended September 30, 2017 compared to $166.4 million for the first nine month of 2016. Excluding merger-related costs of $3.5 million, noninterest expense for the nine months ended September 30, 2017 increased $4.9 million, or 2.9%, compared to the first nine months of 2016. Salaries and benefits expenses increased by ~~$2.0~~$5.4 million primarily related to annual merit adjustments; increases in benefits and ~~incentive~~equity-based compensation; and increased expenses related to investments in the Company's growth, including the acquisition of ODCM. ~~This~~The increase in other taxes was partially offset by ~~lower OREO~~the decrease in FDIC expenses, including assessment premiums and ~~credit-related~~other insurance, due to the impact of the issuance of subordinated debt in the fourth quarter of 2016. The remaining increase in other taxes was primarily related to a nonrecurring reduction in expenses of ~~$552,000,~~approximately $900,000 related to the Company's investment in a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016. Technology and data processing costs increased $719,000, mostly due to higher software maintenance and online banking costs due to increased customer activity compared to the nine months ended September 30, 2016. These increases were partially offset by lower intangible amortization expense of $807,000, declines in professional fees of ~~$456,000~~$698,000 due to lower legal and consulting fees, and ~~lower FDIC~~declines in fraud-related and other ~~insurance expenses~~losses of ~~$432,000.~~

For the Six Months Ended
June 30, Change
2017 2016 $ %
(Dollars in thousands)
Noninterest expense:

Salaries and benefits $ 62,730
$ 56,567
$ 6,163
10.9 %
Occupancy expenses 9,621
9,785
(164 ) (1.7 )%
Furniture and equipment expenses 5,323
5,232
91
1.7 %
Printing, postage, and supplies 2,556
2,419
137
5.7 %
Communications expense 1,782
2,016
(234 ) (11.6 )%
Technology and data processing 7,827
7,422
405
5.5 %
Professional services 3,750
4,537
(787 ) (17.3 )%
Marketing and advertising expense 4,019
3,863
156
4.0 %
FDIC assessment premiums and other insurance 1,652
2,741
(1,089 ) (39.7 )%
Other taxes 4,043
3,225
818
25.4 %
Loan-related expenses 2,610
2,107
503
23.9 %
OREO and credit-related expenses 884
1,463
(579 ) (39.6 )%
Amortization of intangible assets 3,180
3,625
(445 ) (12.3 )%
Training and other personnel costs 2,012
1,649
363
22.0 %
Acquisition and conversion costs 2,744
—
2,744
NM
Other expenses 2,592
2,872
(280 ) (9.7 )%
Total noninterest expense $ 117,325
$ 109,523
$ 7,802
7.1 %

Community bank segment $ 112,510
$ 104,610
$ 7,900
7.6 %
Mortgage segment 5,096
5,238
(142 ) (2.7 )%
Intercompany eliminations (281 ) (325 ) 44
13.5 %
Total noninterest expense $ 117,325
$ 109,523
$ 7,802
7.1 %

~~NM - Not meaningful~~

Noninterest expense increased $7.8 million, or 7.1%, to $117.3 million for the six months ended June 30, 2017 from $109.5 million in the first six month of 2016. Excluding acquisition and conversion costs of $2.7 million, noninterest expense for the six months ended June 30, 2017 increased $5.1 million, or 4.6%, compared to the first six months of 2016. Salaries and benefits expenses increased by $6.2 million primarily related to annual merit adjustments; increases in benefits and incentive compensation; and increased expenses related to investments in the Company's growth, including the acquisition of ODCM. This increase was partially offset by lower FDIC and other insurance expenses of $1.1 million, declines in professional fees of $787,000 due to lower legal and consulting fees, lower OREO and credit-related expenses of $579,000, and lower intangible amortization expense of $445,000,$371,000 in each case as compared to the first ~~six~~nine months of 2016.

SEGMENT INFORMATION

Community Bank Segment

For the three months ended ~~June~~September 30, 2017, the community bank segment reported net income of ~~$17.4~~$20.3 million, which was ~~a decrease~~an increase of ~~$1.4 million~~$695,000 compared to the ~~second~~third quarter of 2016. Excluding after-tax ~~acquisition and conversion~~merger-related costs of ~~$2.4 million,~~$661,000, net operating earnings for the community bank segment for the quarter ended ~~June~~September 30, 2017 were ~~$19.8~~$21.0 million, which was an increase of $965,000 compared to the net income for the second quarter of 2016. Net interest income increased $3.1 million year-over-year to $68.6 million for the quarter ended June 30, 2017, primarily driven by higher average loan and investment balances. The provision for credit losses for the quarter ended June 30, 2017 was $2.2 million, which was relatively consistent with the provision for credit losses for the quarter ended June 30, 2016.

Noninterest income increased $263,000, or 1.8%, from $14.9 million in the second quarter of 2016 to $15.2 million in the second quarter of 2017. Customer-related fee income increased $428,000 primarily related to increases in overdraft and debit

card interchange fees; fiduciary and asset management fees were $392,000 higher due to the acquisition of ODCM in the middle of the second quarter of 2016; and gains on sales of securities were $114,000 higher, in each case as compared to the second quarter of 2016. Other operating income decreased $599,000 primarily related to declines in insurance-related income.

Noninterest expense increased $4.7 million, or 9.0%, from $52.8 million for the second quarter of 2016 to $57.5 million for the quarter ended June 30, 2017. Excluding acquisition and conversion costs of $2.7 million, noninterest expense for the quarter ended June 30, 2017 increased $2.0 million, or 3.8%, compared to the second quarter of 2016. Salaries and benefits expenses increased by $2.1 million primarily related to annual merit adjustments; increases in benefits and incentive compensation; and increased expenses related to the Company's acquisition of ODCM in the second quarter of 2016. This increase was partially offset by lower OREO and credit-related expenses of $552,000, declines in professional fees of $492,000 due to lower legal and consulting fees, and lower FDIC and other insurance expenses of $432,000.

For the six months ended June 30, 2017, the community bank segment reported net income of $36.5 million, which was an increase of $820,000 compared to the first six months of 2016. Excluding after-tax acquisition and conversion costs of $2.4 million, net operating earnings for the community bank segment for the six months ended June 30, 2017 were $38.9 million, which was an increase of $3.2$1.4 million compared to the net income for the ~~first six months~~third quarter of 2016. Net interest income increased ~~$5.9~~$4.1 million

year-over-year to ~~$134.8~~$70.7 million for the ~~six months~~quarter ended ~~June~~September 30, 2017, primarily driven by higher average loan balances. The provision for credit losses for the ~~six months~~quarter ended ~~June~~September 30, 2017 was ~~$4.3~~$3.1 million, which was ~~a decline~~an increase of ~~$472,000~~$601,000 compared to the provision for credit losses for the ~~six months~~quarter ended ~~June~~September 30, 2016, driven by higher loan balances and higher levels of charge-offs in the third quarter of 2017.

Noninterest income decreased $468,000, or 3.0%, from $15.6 million in the third quarter of 2016 to $15.1 million in the third quarter of 2017. The decline was primarily due to lower ~~historical loss rates~~loan-related swap fees of $887,000 compared to the third quarter of 2016. Customer-related fee income increased $320,000 primarily related to increases in overdraft and debit card interchange fees, and gains on sales of securities were $184,000 higher, in each case as compared to the third quarter of 2016.

Noninterest expense increased $780,000, or 1.4%, from $54.4 million for the third quarter of 2016 to $55.1 million for the quarter ended September 30, 2017. Excluding pre-tax merger-related costs of $732,000, noninterest expense for the quarter ended September 30, 2017 remained relatively flat compared to the third quarter of 2016. Salaries and benefits expenses declined by $623,000 primarily related to decreases in benefits and incentive compensation, offset by increases related to annual merit adjustments. Declines in other expenses primarily related to lower ~~charge-off levels.~~fraud-related and other losses of $364,000 as well as $400,000 in nonrecurring branch closing costs recognized in the third quarter of 2016. These decreases were partially offset by a nonrecurring reduction in expenses of approximately $900,000 related to the Company's investment in a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016 and increased OREO and credit-related expenses due to losses on sales of OREO property in the third quarter of 2017 compared to gains on sales of OREO property in the third quarter of 2016 as well as higher valuation adjustments compared to the third quarter of 2016.

For the nine months ended September 30, 2017, the community bank segment reported net income of $56.8 million, which was an increase of $1.5 million compared to the first nine months of 2016. Excluding after-tax merger-related costs of $3.0 million, net operating earnings for the community bank segment for the nine months ended September 30, 2017 were $59.9 million, which was an increase of $4.5 million compared to the net income for the first nine months of 2016. Net interest income increased $10.0 million year-over-year to $205.5 million for the nine months ended September 30, 2017, primarily driven by higher average loan balances. The provision for credit losses for the nine months ended September 30, 2017 was $7.3 million, which was an increase of $129,000 compared to the provision for credit losses for the nine months ended September 30, 2016, primarily driven by higher loan balances and higher levels of charge-offs during 2017.

Noninterest income increased ~~$3.4~~$3.0 million, or ~~11.9%~~6.7%, from ~~$28.5~~$44.1 million in the first ~~six~~nine months of 2016 to ~~$32.0~~$47.1 million in the first ~~six~~nine months of 2017. For the first ~~six~~nine months of 2017, customer-related fee income increased $1.1 million primarily related to increases in overdraft and debit card interchange fees; fiduciary and asset management fees were ~~$1.0 million~~$998,000 higher due to the acquisition of ODCM in the second quarter of 2016; ~~customer-related fee income increased $775,000 primarily related to increases in overdraft and debit card interchange fees;~~ bank owned life insurance income increased ~~$726,000~~$715,000 primarily related to death benefit proceeds received in 2017; ~~loan-related swap fees increased $458,000;~~ and gains on sales of securities were ~~$452,000~~$637,000 higher, in each case as compared to the first ~~six~~nine months of 2016.

Noninterest expense increased ~~$7.9~~$8.6 million, or ~~7.6%~~5.5%, from ~~$104.6~~$159.0 million for the first ~~six~~nine months of 2016 to ~~$112.5~~$167.6 million for the ~~six~~nine months ended ~~June~~September 30, 2017. Excluding ~~acquisition and conversion~~merger-related costs of ~~$2.7~~$3.5 million, noninterest expense for the ~~six~~nine months ended ~~June~~September 30, 2017 increased $5.2 million, or ~~4.9%~~3.3%, compared to the first ~~six~~nine months of 2016. Salaries and benefits expenses increased by ~~$6.2~~$5.6 million primarily related to annual merit adjustments; increases in benefits and ~~incentive~~equity-based compensation; and increased expenses related to investments in the Company's growth, including the acquisition of ~~ODCM~~ODCM. The net increase in ~~2016. This increase was partially offset by lower~~ FDIC and other insurance expenses and other taxes was primarily related to a nonrecurring reduction in expenses of ~~$1.1 million,~~approximately $900,000 related to the Company's investment in a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016. Technology and data processing costs increased $708,000, mostly due to higher software maintenance and online banking costs due to increased customer activity compared to the nine months ended September 30, 2016. These increases were partially offset by lower intangible amortization expense of $807,000, declines in professional fees of ~~$853,000~~$792,000 due to lower legal and consulting fees, ~~lower OREO~~ and ~~credit-related expenses~~declines in fraud-related and other losses of ~~$579,000, and lower intangible amortization expense of $445,000,~~$371,000 in each case as compared to the first ~~six~~nine months of 2016.

Mortgage Segment

The mortgage segment reported net income of ~~$551,000~~$347,000 for the ~~second~~third quarter of 2017, compared to net income of ~~$539,000~~$785,000 in the ~~second~~third quarter of 2016. Mortgage banking income, net of commissions, decreased ~~$179,000,~~$902,000, primarily related to declines in mortgage loan originations and unrealized losses on mortgage banking derivatives in the ~~second~~third quarter of 2017 compared to unrealized gains on mortgage banking derivatives in the ~~second~~third quarter of 2016. Mortgage loan originations decreased ~~$3.5~~$29.4 million, or ~~2.5%~~18.7%, from ~~$140.1~~$156.7 million for the quarter ended ~~June~~September 30, 2016 to ~~$136.6~~$127.3 million for the quarter ended ~~June~~

September 30, 2017. Noninterest expense decreased ~~$65,000~~$225,000, or 8.3%, when comparing the ~~second~~third quarter of 2017 to the ~~second~~third quarter of 2016, largely a result of declines in personnel-related costs and equipment-related ~~expenses and volume-driven loan costs.~~expenses.

The mortgage segment reported net income of ~~$555,000~~$901,000 for the first ~~six~~nine months of 2017, compared to net income of ~~$593,000~~$1.4 million for the first ~~six~~nine months of 2016. Mortgage banking income, net of commissions, decreased ~~$299,000~~$1.2 million, primarily related to declines in mortgage loan originations and lower unrealized gains on mortgage banking derivatives in the first ~~six~~nine months of 2017 compared to the first ~~six~~nine months of 2016. Mortgage loan originations decreased ~~$1.5~~$30.8 million, or ~~0.6%~~7.8%, from ~~$238.3~~$394.9 million for the ~~six~~nine months ended ~~June~~September 30, 2016 to ~~$236.8~~$364.1 million for the ~~six~~nine months ended ~~June~~September 30, 2017. Noninterest expense decreased ~~$142,000,~~$366,000, largely a result of declines in personnel-related costs and equipment-related ~~expenses and personnel-related costs.~~expenses.

Income Taxes

The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial

reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of temporary differences, projected future taxable income, and tax planning strategies. Management continues to believe that it is not likely that the Company will realize its deferred tax asset related to net operating losses generated at the state level and accordingly has established a valuation allowance. The Company’s bank subsidiary is not subject to a state income tax in its primary place of business (Virginia). The Company’s other subsidiaries are subject to state income taxes and have generated losses on a consolidated basis for state income tax purposes which the Company is currently unable to utilize. State net operating loss carryovers will begin to expire after 2026.

The effective tax rate for the three months ended ~~June~~September 30, 2017 and 2016 was ~~28.0%~~26.7% and ~~26.2%~~23.3%, respectively; the effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 was ~~27.1%~~26.9% and ~~25.9%~~25.0%, respectively. The increase in the effective tax rate is primarily related to tax-exempt interest and bank owned life insurance income being a smaller percentage of pre-tax income in 2017 compared to 2016 as well as the impact of nondeductible acquisition-related expenses recognized in 2017. Additionally, the Company's effective tax rate in 2016 was lower due to historic tax credits realized in the third quarter of 2016 related to the Company's investment in a historic rehabilitation project that was completed in such quarter.

BALANCE SHEET

Assets

At ~~June~~September 30, 2017, total assets were ~~$8.9~~$9.0 billion, an increase of ~~$488.4~~$602.6 million, or ~~11.6%~~9.6% (annualized), from $8.4 billion at December 31, 2016. The increase in assets was mostly related to loan growth.

Loans held for investment, net of deferred fees and costs, were ~~$6.8~~$6.9 billion at ~~June~~September 30, 2017, an increase of ~~$464.4~~$591.7 million, or ~~14.7%~~12.5% (annualized), from December 31, 2016. Loan growth occurred across all categories. Quarterly average loans increased ~~$765.0~~$788.8 million, or ~~13.0%~~13.1%, for the quarter ended ~~June~~September 30, 2017 compared to the quarter ended ~~June~~September 30, 2016. For additional information on the Company’s loan activity, please refer to “Loan Portfolio” ~~below~~within this Item 2 or Note 3 “Loans and Allowance for Loan Losses” in Part I, Item 1 ~~– Financial Statements,~~“Financial Statements” of this report.

Liabilities and Stockholders’ Equity

At ~~June~~September 30, 2017, total liabilities were ~~$7.9~~$8.0 billion, an increase of ~~$458.6~~$562.3 million from December 31, 2016.

Total deposits were ~~$6.8~~$6.9 billion at ~~June~~September 30, 2017, an increase of ~~$384.9~~$502.3 million, or ~~12.1%~~10.5% (annualized), from December 31, 2016. Deposits increased in all categories with the exception of savings accounts when compared to year-end 2016, but was primarily driven by increases in demand and interest-bearing deposits consisting of NOW and money market accounts. Quarterly average deposits increased ~~$612.2~~$592.9 million, or ~~10.2%~~9.6%, for the quarter ended ~~June~~September 30, 2017 compared to the quarter ended ~~June~~September 30, 2016. For further discussion on this topic, see “Deposits” ~~below.~~within this Item 2.

At ~~June~~September 30, 2017, stockholders’ equity was $1.0 billion, an increase of ~~$29.8~~$40.3 million from December 31, 2016. The Company’s capital ratios continue to exceed the minimum capital requirements for regulatory purposes but have decreased from prior periods primarily due to asset growth. The total risk-based capital ratios at ~~June~~September 30, 2017 and December 31, 2016 were ~~13.00%~~12.94% and 13.56%, respectively. The Tier 1 risk-based capital ratios were ~~10.57%~~10.56% and 10.97% at ~~June~~September 30, 2017 and December 31, 2016, respectively. The common equity Tier 1 risk-based capital ratios were ~~9.39%~~9.40% and 9.72% at ~~June~~September 30, 2017 and December 31, 2016, respectively. The Company’s common equity to total asset ratios at ~~June~~September 30, 2017 and December 31, 2016 were ~~11.56%~~11.53% and 11.88%, respectively, while its tangible common equity to tangible assets ratios were ~~8.32%~~8.34% and 8.41%, respectively, at the same dates.

Also, the Company declared and paid a cash dividend of $0.20 per share during the ~~second~~third quarter of 2017, an increase of $0.01 per share, or 5.3%, compared to the dividend paid during the same quarter in the prior year. Dividends for the ~~six~~nine months ended ~~June~~September 30, 2017 were ~~$0.40~~$0.60 compared to ~~$0.38~~$0.57 for the ~~six~~nine months ended ~~June~~September 30, 2016.

Securities

At ~~June~~September 30, 2017, the Company had total investments in the amount of $1.2 billion, or ~~13.9~~13.8 % of total assets, as compared to $1.2 billion, or 14.3% of total assets, at December 31, 2016. The Company seeks to diversify its portfolio to minimize risk. It focuses on purchasing mortgage-backed securities for cash flow and reinvestment opportunities and securities issued by states and political subdivisions due to the tax benefits and the higher yield offered from these securities. The majority of the

Company’s mortgage-backed securities are investment grade. The investment portfolio has a high percentage of municipals and mortgage-backed securities; therefore the Company earns a higher taxable equivalent yield ~~exists~~ on ~~the~~its portfolio as compared to many of its peers. The Company does not engage in structured derivative or hedging activities within the investment portfolio.

The table below sets forth a summary of the securities available for sale, securities held to maturity, and restricted stock ~~for~~as of the ~~following periods~~dates indicated (dollars in thousands):


	June 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Available for Sale:
Obligations of states and political subdivisions	$	278,540	$	275,890	$	292,199	$	275,890
Corporate and other bonds	116,418		121,780		115,422		121,780
Mortgage-backed securities	551,751		535,286		546,904		535,286
Other securities	13,828		13,808		13,836		13,808
Total securities available for sale, at fair value	960,537		946,764		968,361		946,764

Held to Maturity:
Obligations of states and political subdivisions, at carrying value	205,630		201,526		204,801		201,526

Federal Reserve Bank stock	27,559		23,808		27,559		23,808
Federal Home Loan Bank stock	42,072		36,974		40,882		36,974
Total restricted stock, at cost	69,631		60,782		68,441		60,782
Total investments	$	1,235,798	$	1,209,072	$	1,241,603	$	1,209,072

During each quarter and at year end, the Company conducts an assessment of the securities portfolio for OTTI consideration. No OTTI was recognized during the three and ~~six~~nine months ended ~~June~~September 30, 2017. For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000. During the quarter ended March 31, 2016, the municipal security was sold. As a result, the Company recognized an additional loss on sale of the previously written down security. The Company monitors the portfolio, which is subject to liquidity needs, market rate changes, and credit risk changes, to determine whether adjustments are needed. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following table summarizes the contractual maturity of securities available for sale at fair value and their weighted average yields as of ~~June~~September 30, 2017 (dollars in thousands):


	1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total			1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total
Mortgage backed securities:
Amortized cost	$	129		$	62,931		$	147,114		$	338,055		$	548,229		$	197		$	82,828		$	121,469		$	341,544		$	546,038
Fair value	130			63,250			148,224			340,147			551,751			202			83,072			121,515			342,115			546,904
Weighted average yield ⁽¹⁾	3.62		%	2.02		%	2.23		%	2.41		%	2.32		%	3.08		%	2.16		%	2.19		%	2.43		%	2.34		%

Obligations of states and political subdivisions:
Amortized cost	12,006			56,640			72,217			129,343			270,206			11,795			44,929			82,296			146,901			285,921
Fair value	12,146			58,723			75,560			132,111			278,540			11,968			46,531			85,491			148,209			292,199
Weighted average yield ⁽¹⁾	5.80		%	4.69		%	4.57		%	3.83		%	4.30		%	5.69		%	4.92		%	4.34		%	3.80		%	4.21		%

Corporate bonds and other securities:
Amortized cost	11,392			506			56,938			61,368			130,204			11,395			504			63,727			53,261			128,887
Fair value	11,334			506			57,804			60,602			130,246			11,340			504			64,824			52,590			129,258
Weighted average yield ⁽¹⁾	0.60		%	0.72		%	4.37		%	2.43		%	3.11		%	0.93		%	1.04		%	4.46		%	2.31		%	3.24		%

Total securities available for sale:
Amortized cost	23,527			120,077			276,269			528,766			948,639			23,387			128,261			267,492			541,706			960,846
Fair value	23,610			122,479			281,588			532,860			960,537			23,510			130,107			271,830			542,914			968,361
Weighted average yield ⁽¹⁾	3.27		%	3.28		%	3.28		%	2.76		%	2.99		%	3.35		%	3.12		%	3.39		%	2.79		%	3.01		%

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.

The following table summarizes the contractual maturity of securities held to maturity at carrying value and their weighted average yields as of ~~June~~September 30, 2017 (dollars in thousands):


	1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total			1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total
Obligations of states and political subdivisions:
Carrying Value	$	4,797		$	34,383		$	63,538		$	102,912		$	205,630		$	5,879		$	41,196		$	65,893		$	91,833		$	204,801
Fair value	4,826			35,020			65,281			106,319			211,446			5,902			41,959			67,444			94,530			209,835
Weighted average yield ⁽¹⁾	2.87		%	2.73		%	3.15		%	3.75		%	3.37		%	2.96		%	2.78		%	3.21		%	3.78		%	3.37		%

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.

As of ~~June~~September 30, 2017, the Company maintained a diversified municipal bond portfolio with approximately ~~74%~~75% of its holdings in general obligation issues and the majority of the remainder backed by revenue bonds. Issuances within the State of ~~Washington and the State of~~ Texas ~~both~~ represented 12% and issuances within the State of Washington and the Commonwealth of Virginia both represented 11% of the municipal portfolio; no other state had a concentration above 10%. Substantially all municipal holdings are considered investment grade. When purchasing municipal securities, the Company focuses on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the purchase of brokered certificates of deposit, and a corporate line of credit with a large correspondent bank. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

As of ~~June~~September 30, 2017, liquid assets totaled ~~$2.7~~$2.6 billion, or ~~30.0%~~29.2%, of total assets, and liquid earning assets totaled $2.5 billion, or ~~31.4%~~30.6% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of ~~June~~September 30, 2017, approximately $2.3 billion, or ~~33.9%~~32.9% of total loans, are scheduled to mature within one year based on contractual maturity, adjusted for expected prepayments, and approximately ~~$161.7~~$156.3 million, or ~~13.1%~~12.6% of total securities, are scheduled to mature within one year.

Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary. For additional information and the available balances on various lines of credit, please refer to Note 5 “Borrowings” in Part I, Item 1 ~~- Financial Statements~~“Financial Statements” of this report. In addition to lines of credit, the Bank may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. For additional information and outstanding balances on purchased certificates of deposits, please refer to “Deposits” ~~above.~~within this Item 2.

Loan Portfolio

Loans held for investment, net of deferred fees and costs, were ~~$6.8~~$6.9 billion at ~~June~~September 30, 2017, $6.3 billion at December 31, 2016, and ~~$5.9~~$6.1 billion at ~~June~~September 30, 2016, respectively. Commercial real estate - non-owner occupied loans continue to represent the Company’s largest category, comprising ~~25.1%~~25.3% of the total loan portfolio at ~~June~~September 30, 2017.

The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of the quarter ended (dollars in thousands):


	June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016				June 30, 2016				September 30, 2017				June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016
Construction and Land Development	$	799,938	11.8	%	$	770,287	11.8	%	$	751,131	11.9	%	$	776,430	12.6	%	$	765,997	12.9	%	$	841,738	12.2	%	$	799,938	11.8	%	$	770,287	11.8	%	$	751,131	11.9	%	$	776,430	12.6	%
Commercial Real Estate - Owner Occupied	888,285		13.1	%	870,559		13.3	%	857,805		13.6	%	857,142		13.9	%	831,880		14.0	%	903,523		13.1	%	888,285		13.1	%	870,559		13.3	%	857,805		13.6	%	857,142		13.9	%
Commercial Real Estate - Non-Owner Occupied	1,698,329		25.1	%	1,631,767		24.9	%	1,564,295		24.8	%	1,454,828		23.7	%	1,370,745		23.1	%	1,748,039		25.3	%	1,698,329		25.1	%	1,631,767		24.9	%	1,564,295		24.8	%	1,454,828		23.7	%
Multifamily Real Estate	367,257		5.4	%	353,769		5.4	%	334,276		5.3	%	339,313		5.5	%	337,723		5.7	%	368,686		5.4	%	367,257		5.4	%	353,769		5.4	%	334,276		5.3	%	339,313		5.5	%
Commercial & Industrial	568,602		8.4	%	576,567		8.8	%	551,526		8.7	%	509,857		8.3	%	469,054		7.9	%	554,522		8.0	%	568,602		8.4	%	576,567		8.8	%	551,526		8.7	%	509,857		8.3	%
Residential 1-4 Family	1,066,519		15.8	%	1,057,439		16.1	%	1,029,547		16.3	%	999,361		16.3	%	992,457		16.7	%	1,083,112		15.7	%	1,066,519		15.8	%	1,057,439		16.1	%	1,029,547		16.3	%	999,361		16.3	%
Auto	274,162		4.0	%	271,466		4.1	%	262,071		4.2	%	255,188		4.2	%	244,575		4.1	%	276,572		4.0	%	274,162		4.0	%	271,466		4.1	%	262,071		4.2	%	255,188		4.2	%
HELOC	535,088		7.9	%	527,863		8.1	%	526,884		8.4	%	524,097		8.5	%	519,196		8.7	%	535,446		7.8	%	535,088		7.9	%	527,863		8.1	%	526,884		8.4	%	524,097		8.5	%
Consumer and all other	573,310		8.5	%	494,329		7.5	%	429,525		6.8	%	432,702		7.0	%	409,471		6.9	%	587,091		8.5	%	573,310		8.5	%	494,329		7.5	%	429,525		6.8	%	432,702		7.0	%
Total loans held for investment	$	6,771,490	100.0	%	$	6,554,046	100.0	%	$	6,307,060	100.0	%	$	6,148,918	100.0	%	$	5,941,098	100.0	%	$	6,898,729	100.0	%	$	6,771,490	100.0	%	$	6,554,046	100.0	%	$	6,307,060	100.0	%	$	6,148,918	100.0	%

The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed), as of ~~June~~September 30, 2017 (dollars in thousands):


					Variable Rate						Fixed Rate										Variable Rate						Fixed Rate
	Total Maturities		Less than 1 year		Total		1-5 years		More than 5 years		Total		1-5 years		More than 5 years		Total Maturities		Less than 1 year		Total		1-5 years		More than 5 years		Total		1-5 years		More than 5 years
Construction and Land Development	$	799,938	$	460,535	$	207,662	$	159,704	$	47,958	$	131,741	$	104,541	$	27,200	$	841,738	$	481,566	$	220,078	$	170,885	$	49,193	$	140,094	$	102,639	$	37,455
Commercial Real Estate - Owner Occupied	888,285		90,754		256,025		29,694		226,331		541,506		379,226		162,280		903,523		106,283		252,090		31,982		220,108		545,150		384,557		160,593
Commercial Real Estate - Non-Owner Occupied	1,698,329		159,192		576,860		191,035		385,825		962,277		675,795		286,482		1,748,039		173,965		601,345		198,386		402,959		972,729		693,236		279,493
Multifamily Real Estate	367,257		34,851		142,779		27,629		115,150		189,627		165,277		24,350		368,686		29,313		145,063		37,143		107,920		194,310		169,340		24,970
Commercial & Industrial	568,602		182,407		164,342		122,073		42,269		221,853		146,810		75,043		554,522		165,346		153,500		111,836		41,664		235,676		157,121		78,555
Residential 1-4 Family	1,066,519		68,400		342,798		12,950		329,848		655,321		364,857		290,464		1,083,112		76,215		337,860		11,569		326,291		669,037		370,497		298,540
Auto	274,162		2,207		—		—		—		271,955		132,620		139,335		276,572		2,188		—		—		—		274,384		135,387		138,997
HELOC	535,088		35,431		497,355		43,347		454,008		2,302		1,856		446		535,446		39,610		493,368		46,379		446,989		2,468		2,025		443
Consumer and all other	573,310		51,133		70,441		13,357		57,084		451,736		191,406		260,330		587,091		54,890		70,097		11,524		58,573		462,104		193,576		268,528
Total loans held for investment	$	6,771,490	$	1,084,910	$	2,258,262	$	599,789	$	1,658,473	$	3,428,318	$	2,162,388	$	1,265,930	$	6,898,729	$	1,129,376	$	2,273,401	$	619,704	$	1,653,697	$	3,495,952	$	2,208,378	$	1,287,574

The Company remains committed to originating soundly underwritten loans to qualifying borrowers within its markets. The Company is focused on providing community-based financial services and discourages the origination of portfolio loans outside of its principal trade areas. As reflected in the loan table, at ~~June~~September 30, 2017, the largest components of the Company’s loan portfolio consisted of commercial real estate loans, residential 1-4 family loans, and construction and land development loans. The risks attributable to these concentrations are mitigated by the Company’s credit underwriting and monitoring processes, including oversight by a centralized credit administration function and credit policy and risk management committee, as well as seasoned bankers focusing their lending to borrowers with proven track records in markets with which the Company is familiar. UMG primarily serves as a secondary mortgage banking operation, selling the majority of its loan production in the secondary market or selling loans to meet the Bank’s current asset/liability management needs.

Asset Quality

Overview

~~During the second quarter of~~At September 30, 2017, the Company had higher levels of NPAs compared to December 31, 2016 and ~~June~~September 30, 2016, due to the increase in nonaccrual loan levels, primarily related to three unrelated credit ~~relationships.~~relationships that were classified as nonaccrual during the first and second quarters of 2017. Partially offsetting

this increase, OREO balances declined compared to the same periods. ~~During the second quarter of 2017, the~~The Company experienced ~~declines~~increases in past due ~~loans as a percentage of total loans~~loan levels compared to December 31, 2016 and ~~June~~September 30, ~~2016.~~ 2016 due to performing loans not being renewed prior to quarter end. As the Company's NPAs and past due loan

levels have been at historic lows over the last several quarters, certain changes from quarter to quarter might stand out in comparison to one another but have an insignificant impact on the Company's overall asset quality position.

Net charge-offs ~~and the provision for loan losses declined~~increased for the ~~six~~nine months ended ~~June~~September 30, 2017 compared to the ~~six~~nine months ended ~~June~~September 30, ~~2016.~~2016, as some of the nonaccrual additions earlier in 2017 were charged off during the third quarter of 2017. The provision for loan losses also increased for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, as a result of the increased charge-offs and loan growth during 2017. The allowance for loan ~~loss increased from~~losses at September 30, 2017 was consistent with December 31, ~~2016 due to loan growth and increased specific reserves related to increases in nonaccrual loans.~~2016.

All nonaccrual and past due loan metrics discussed below exclude PCI loans totaling ~~$56.2~~$51.0 million (net of fair value mark of ~~$12.7~~$11.7 million) at ~~June~~September 30, 2017.

Troubled Debt Restructurings

The total recorded investment in TDRs as of ~~June~~September 30, 2017 was ~~$19.4~~$19.2 million, an increase of ~~$4.0~~$3.8 million, or ~~26.0%~~24.9%, from $15.4 million at December 31, 2016 and an increase of $5.9 million, or ~~43.3%~~45.0%, from ~~$13.5~~$13.3 million at ~~June~~September 30, 2016. Of the ~~$19.4~~$19.2 million of TDRs at ~~June~~September 30, 2017, ~~$14.9~~$16.5 million, or ~~77.0%~~85.8%, were considered performing while the remaining ~~$4.5~~$2.7 million were considered nonperforming.

Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring. These loans have performed in accordance with their modified terms for twelve consecutive months and were no longer considered impaired. Loans removed from TDR status are collectively evaluated for impairment; due to the significant improvement in the expected future cash flows, these loans are grouped based on their primary risk characteristics, which is included in the Company's general reserve. Impairment is measured based on historical loss experience taking into consideration environmental factors. The significant majority of these loans have been subject to new credit decisions due to the improvement in the expected future cash flows, the financial condition of the borrower, and other factors considered during re-underwriting. The TDR activity during the quarter did not have a material impact on the Company’s allowance for loan losses, financial condition, or results of operations.

Nonperforming Assets

At ~~June~~September 30, 2017, NPAs totaled ~~$34.1~~$28.9 million, an increase of ~~$14.0~~$8.8 million, or ~~69.8%~~44.0%, from December 31, 2016 and an increase of ~~$9.8~~$5.6 million, or ~~40.5%~~24.2%, from ~~June~~September 30, 2016. In addition, NPAs as a percentage of total outstanding loans increased 1810 basis points to ~~0.50%~~0.42% at ~~June~~September 30, 2017 from 0.32% at December 31, 2016 and increased 94 basis points from ~~0.41%~~0.38% at ~~June~~September 30, 2016. These increases are due to the higher levels of nonaccrual loans at September 30, 2017 compared to the prior periods.

The following table shows a summary of asset quality balances and related ratios as of and for the quarters ended (dollars in thousands):


	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
Nonaccrual loans, excluding PCI loans	$	24,574		$	22,338		$	9,973		$	12,677		$	10,861		$	20,122		$	24,574		$	22,338		$	9,973		$	12,677
Foreclosed properties	6,828			6,951			7,430			7,927			10,076			6,449			6,828			6,951			7,430			7,927
Former bank premises	2,654			2,654			2,654			2,654			3,305			2,315			2,654			2,654			2,654			2,654
Total nonperforming assets	34,056			31,943			20,057			23,258			24,242			28,886			34,056			31,943			20,057			23,258
Loans past due 90 days and accruing interest	3,625			2,323			3,005			3,529			3,533			4,532			3,625			2,323			3,005			3,529
Total nonperforming assets and loans past due 90 days and accruing interest	$	37,681		$	34,266		$	23,062		$	26,787		$	27,775		$	33,418		$	37,681		$	34,266		$	23,062		$	26,787

Performing TDRs	$	14,947		$	14,325		$	13,967		$	11,824		$	11,885		$	16,519		$	14,947		$	14,325		$	13,967		$	11,824
PCI loans	56,167			57,770			59,292			62,346			67,170			51,041			56,167			57,770			59,292			62,346

Balances
Allowance for loan losses	$	38,214		$	38,414		$	37,192		$	36,542		$	35,074		$	37,162		$	38,214		$	38,414		$	37,192		$	36,542
Average loans, net of deferred fees and costs	6,628,011			6,383,905			6,214,084			6,033,723			5,863,007			6,822,498			6,628,011			6,383,905			6,214,084			6,033,723
Loans, net of deferred fees and costs	6,771,490			6,554,046			6,307,060			6,148,918			5,941,098			6,898,729			6,771,490			6,554,046			6,307,060			6,148,918

Ratios
NPAs to total loans	0.50		%	0.49		%	0.32		%	0.38		%	0.41		%	0.42		%	0.50		%	0.49		%	0.32		%	0.38		%
NPAs & loans 90 days past due to total loans	0.56		%	0.52		%	0.37		%	0.44		%	0.47		%	0.48		%	0.56		%	0.52		%	0.37		%	0.44		%
NPAs to total loans & OREO	0.50		%	0.49		%	0.32		%	0.38		%	0.41		%	0.42		%	0.50		%	0.49		%	0.32		%	0.38		%
NPAs & loans 90 days past due and accruing to total loans & OREO	0.56		%	0.52		%	0.37		%	0.43		%	0.47		%	0.48		%	0.56		%	0.52		%	0.37		%	0.43		%
ALL to nonaccrual loans	155.51		%	171.97		%	372.93		%	288.25		%	322.94		%	184.68		%	155.51		%	171.97		%	372.93		%	288.25		%
ALL to nonaccrual loans & loans 90 days past due and accruing	135.52		%	155.77		%	286.58		%	225.48		%	243.67		%	150.73		%	135.52		%	155.77		%	286.58		%	225.48		%

NPAs at ~~June~~September 30, 2017 included ~~$24.6~~$20.1 million in nonaccrual loans, a net increase of ~~$14.6~~$10.1 million, or ~~146.4%~~101.8%, from December 31, 2016 and a net increase of ~~$13.7~~$7.4 million, or ~~126.3%~~58.7%, from ~~June~~September 30, 2016. The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands):


	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
Beginning Balance	$	22,338		$	9,973		$	12,677		$	10,861		$	13,092		$	24,574		$	22,338		$	9,973		$	12,677		$	10,861
Net customer payments	(1,498		)	(1,068		)	(1,451		)	(1,645		)	(2,859		)	(4,642		)	(1,498		)	(1,068		)	(1,451		)	(1,645		)
Additions	5,979			13,557			1,094			4,359			2,568			4,114			5,979			13,557			1,094			4,359
Charge-offs	(2,004		)	(97		)	(1,216		)	(660		)	(1,096		)	(3,376		)	(2,004		)	(97		)	(1,216		)	(660		)
Loans returning to accruing status	(134		)	(27		)	(1,039		)	(23		)	(396		)	—			(134		)	(27		)	(1,039		)	(23		)
Transfers to OREO	(107		)	—			(92		)	(215		)	(448		)	(548		)	(107		)	—			(92		)	(215		)
Ending Balance	$	24,574		$	22,338		$	9,973		$	12,677		$	10,861		$	20,122		$	24,574		$	22,338		$	9,973		$	12,677

The majority of nonaccrual additions during 2017 ~~primarily~~ relate to three unrelated credit relationships, comprised of commercial real estate - non-owner occupied loans, commercial & industrial loans, and constructions loans.

The following table presents the composition of nonaccrual loans at the quarters ended (dollars in thousands):


	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016
Construction and Land Development	$	5,659	$	6,545	$	2,037	$	2,301	$	1,604	$	5,671	$	5,659	$	6,545	$	2,037	$	2,301
Commercial Real Estate - Owner Occupied	1,279		1,298		794		1,609		1,661		2,205		1,279		1,298		794		1,609
Commercial Real Estate - Non-owner Occupied	4,765		2,798		—		—		—		2,701		4,765		2,798		—		—
Commercial & Industrial	4,281		3,245		124		1,344		263		1,252		4,281		3,245		124		1,344
Residential 1-4 Family	6,128		5,856		5,279		5,279		5,448		6,163		6,128		5,856		5,279		5,279
Auto	270		393		169		231		140		174		270		393		169		231
HELOC	2,059		1,902		1,279		1,464		1,495		1,791		2,059		1,902		1,279		1,464
Consumer and all other	133		301		291		449		250		165		133		301		291		449
Total	$	24,574	$	22,338	$	9,973	$	12,677	$	10,861	$	20,122	$	24,574	$	22,338	$	9,973	$	12,677

NPAs at ~~June~~September 30, 2017 also included ~~$9.5~~$8.8 million in OREO, a decline of ~~$602,000,~~$1.3 million, or ~~6.0%~~13.1%, from December 31, 2016 and a decline of ~~$3.9~~$1.8 million, or ~~29.1%~~17.2%, from ~~June~~September 30, 2016. The following table shows the activity in OREO for the quarters ended (dollars in thousands):


	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
Beginning Balance	$	9,605		$	10,084		$	10,581		$	13,381		$	14,246		$	9,482		$	9,605		$	10,084		$	10,581		$	13,381
Additions of foreclosed property	132			—			859			246			501			621			132			—			859			246
Valuation adjustments	(19		)	(238		)	(138		)	(479		)	(274		)	(588		)	(19		)	(238		)	(138		)	(479		)
Proceeds from sales	(272		)	(277		)	(1,282		)	(2,844		)	(1,086		)	(648		)	(272		)	(277		)	(1,282		)	(2,844		)
Gains (losses) from sales	36			36			64			277			(6		)	(103		)	36			36			64			277
Ending Balance	$	9,482		$	9,605		$	10,084		$	10,581		$	13,381		$	8,764		$	9,482		$	9,605		$	10,084		$	10,581

The following table presents the composition of the OREO portfolio at the quarter ended (dollars in thousands):


	June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016
Land	$	3,205	$	3,328	$	3,328	$	3,440	$	4,759	$	2,755	$	3,205	$	3,328	$	3,328	$	3,440
Land Development	2,050		2,111		2,379		2,320		2,416		1,993		2,050		2,111		2,379		2,320
Residential Real Estate	1,399		1,338		1,549		1,806		2,412		1,562		1,399		1,338		1,549		1,806
Commercial Real Estate	174		174		174		361		489		139		174		174		174		361
Former Bank Premises ⁽¹⁾	2,654		2,654		2,654		2,654		3,305		2,315		2,654		2,654		2,654		2,654
Total	$	9,482	$	9,605	$	10,084	$	10,581	$	13,381	$	8,764	$	9,482	$	9,605	$	10,084	$	10,581

(1) Includes closed branch property and land previously held for branch sites.

Past Due Loans

At ~~June~~September 30, 2017, total accruing past due loans were ~~$27.4~~$34.3 million, or ~~0.40%~~0.50% of total loans, compared to $27.9 million, or 0.44%, of total loans, at December 31, 2016 and ~~$25.3~~$26.9 million, or ~~0.43%,~~0.44% of total loans, at ~~June~~September 30, 2016. ~~At June~~Of the total past due loans still accruing interest at September 30, 2017, $4.5 million, or 0.07% of total loans, were past due 90 days or more, ~~and accruing interest totaled $3.6~~compared to $3.0 million, or 0.05% of total loans, ~~compared to $3.0 million, or 0.05%,~~ at December 31, 2016 and $3.5 million, or 0.06%, of total loans, at ~~June~~September 30, 2016. As the Company's past due loan levels have been at historic lows over the last several quarters, certain changes from quarter to quarter might stand out in comparison to one another but have an insignificant impact on the Company's overall asset quality position.

Net Charge-offs

For the quarter ended ~~June~~September 30, 2017, net charge-offs were ~~$2.5~~$4.1 million, or ~~0.15%~~0.24% of average loans on an annualized basis, compared to ~~$1.6 million,~~$929,000, or ~~0.11%~~0.06%, for the quarter ended ~~June~~September 30, 2016. Of the net charge-offs in the ~~second~~third quarter of 2017, ~~approximately half~~the majority were ~~specifically reserved for in the prior quarter.~~previously considered impaired. For the ~~six~~nine months ended ~~June~~September 30, 2017, net charge-offs were ~~$3.3~~$7.4 million, or ~~0.10%~~0.15% of total average loans on annualized basis, compared to ~~$3.8~~$4.7 million, or ~~0.13%~~0.11%, for the same period in 2016. Of the net charge-offs during 2017, the majority were previously considered impaired.

Provision for Loan Losses

The provision for loan losses for the quarter ended ~~June~~September 30, 2017 was ~~$2.3~~$3.1 million, ~~consistent~~an increase of $653,000 compared with the quarter ended ~~June~~September 30, 2016. The provision for loan losses for the ~~six~~nine months ended ~~June~~September 30, 2017 was ~~$4.3~~$7.4 million compared to ~~$4.8~~$7.2 million for the ~~six~~nine months ended ~~June~~September 30, 2016. ~~Despite the loan growth that has occurred during 2017, the~~The provision for loan losses ~~declined~~

increased in the first ~~six~~nine months of 2017 compared to the same period in 2016, primarily ~~due to lower historical loss rates~~driven by higher loan balances and ~~lower~~higher charge-off levels.

Allowance for Loan Losses

~~The allowance for loan losses of $38.2 million at June~~At both September 30, 2017 ~~is an increase of $1.0 million compared to~~and December 31, 2016, the allowance for loan losses ~~at December 31, 2016, primarily related to loan growth and increases in specific reserves related to nonaccrual loans.~~was $37.2 million. The current level of the allowance for loan losses reflects specific reserves related to nonperforming loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers important in assessing the adequacy of the allowance for loan losses. The allowance for loan losses as a percentage of the total loan portfolio was 0.54% at September 30, 2017 compared to 0.59% at both December 31, 2016 and September 30, 2016. The decline is primarily related to lower specific reserves as well as declining historical loss factors.

The following table summarizes activity in the allowance for loan losses during the quarters ended (dollars in thousands):


	June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016
Balance, beginning of period	$	38,414		$	37,192		$	36,542		$	35,074		$	34,399		$	38,214		$	38,414		$	37,192		$	36,542		$	35,074
Loans charged-off:
Commercial	316			241			620			16			668			684			316			241			620			16
Real estate	1,595			374			469			929			1,299			3,049			1,595			374			469			929
Consumer	1,416			1,018			738			518			318			1,256			1,416			1,018			738			518
Total loans charged-off	3,327			1,633			1,827			1,463			2,285			4,989			3,327			1,633			1,827			1,463
Recoveries:
Commercial	123			139			61			67			117			189			123			139			61			67
Real estate	306			273			806			303			281			272			306			273			806			303
Consumer	398			433			136			164			262			426			398			433			136			164
Total recoveries	827			845			1,003			534			660			887			827			845			1,003			534
Net charge-offs	2,500			788			824			929			1,625			4,102			2,500			788			824			929
Provision for loan losses	2,300			2,010			1,474			2,397			2,300			3,050			2,300			2,010			1,474			2,397
Balance, end of period	$	38,214		$	38,414		$	37,192		$	36,542		$	35,074		$	37,162		$	38,214		$	38,414		$	37,192		$	36,542

ALL to loans	0.56		%	0.59		%	0.59		%	0.59		%	0.59		%	0.54		%	0.56		%	0.59		%	0.59		%	0.59		%
Net charge-offs to average loans	0.15		%	0.05		%	0.05		%	0.06		%	0.11		%	0.24		%	0.15		%	0.05		%	0.05		%	0.06		%
Provision to average loans	0.14		%	0.13		%	0.09		%	0.16		%	0.16		%	0.18		%	0.14		%	0.13		%	0.09		%	0.16		%

The following table shows both an allocation of the allowance for loan losses among loan categories based upon the loan portfolio’s composition and the ratio of the related outstanding loan balances to total loans as of the quarters ended (dollars in thousands):


	June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016				June 30, 2016				September 30, 2017				June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016
	$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾
Commercial	$	5,614	8.4	%	$	5,279	8.8	%	$	4,627	8.7	%	$	5,403	8.3	%	$	4,026	7.9	%	$	5,363	8.0	%	$	5,614	8.4	%	$	5,279	8.8	%	$	4,627	8.7	%	$	5,403	8.3	%
Real estate	28,450		79.1	%	29,356		79.6	%	29,441		80.3	%	28,064		81.0	%	28,061		81.6	%	27,518		79.5	%	28,450		79.1	%	29,356		79.6	%	29,441		80.3	%	28,064		81.0	%
Consumer	4,150		12.5	%	3,779		11.6	%	3,124		11.0	%	3,075		10.7	%	2,987		10.5	%	4,281		12.5	%	4,150		12.5	%	3,779		11.6	%	3,124		11.0	%	3,075		10.7	%
Total	$	38,214	100.0	%	$	38,414	100.0	%	$	37,192	100.0	%	$	36,542	100.0	%	$	35,074	100.0	%	$	37,162	100.0	%	$	38,414	100.0	%	$	38,414	100.0	%	$	37,192	100.0	%	$	36,542	100.0	%

(1) The percent represents the loan balance divided by total loans.

Deposits

As of ~~June~~September 30, 2017, total deposits were ~~$6.8~~$6.9 billion, an increase of ~~$384.9~~$502.3 million, or ~~12.1%~~10.5% (annualized), from December 31, 2016. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of $1.3 billion accounted for ~~24.0%~~24.7% of total interest-bearing deposits at ~~June~~September 30, 2017.

The following table presents the deposit balances by major categories as of the quarters ended (dollars in thousands):


	June 30, 2017				December 31, 2016				September 30, 2017				December 31, 2016
Deposits:	Amount		% of total deposits		Amount		% of total deposits		Amount		% of total deposits		Amount		% of total deposits
Non-interest bearing	$	1,501,570	22.2	%	$	1,393,625	21.8	%	$	1,535,149	22.3	%	$	1,393,625	21.8	%
NOW accounts	1,882,287		27.8	%	1,765,956		27.7	%	1,851,327		26.9	%	1,765,956		27.7	%
Money market accounts	1,559,895		23.1	%	1,435,591		22.5	%	1,621,443		23.6	%	1,435,591		22.5	%
Savings accounts	558,472		8.2	%	591,742		9.3	%	553,082		8.0	%	591,742		9.3	%
Time deposits of $100,000 and over	580,962		8.6	%	530,275		8.3	%	621,070		9.0	%	530,275		8.3	%
Other time deposits	681,248		10.1	%	662,300		10.4	%	699,755		10.2	%	662,300		10.4	%
Total Deposits	$	6,764,434	100.0	%	$	6,379,489	100.0	%	$	6,881,826	100.0	%	$	6,379,489	100.0	%

The Company may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. The Company utilizes this funding source when rates are more favorable than other funding sources. As of ~~June~~September 30, 2017 and December 31, 2016, there were ~~$7.1~~$19.4 million and $0, respectively, purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance Sheets. Maturities of time deposits as of ~~June~~September 30, 2017 were as follows (dollars in thousands):


	Within 3 Months		3 - 12 Months		Over 12 Months		Total		Within 3 Months		3 - 12 Months		Over 12 Months		Total
Maturities of time deposits of $100,000 and over	$	55,342	$	160,853	$	364,767	$	580,962	$	57,493	$	201,742	$	361,835	$	621,070
Maturities of other time deposits	62,478		240,630		378,140		681,248		62,724		273,340		363,691		699,755
Total time deposits	$	117,820	$	401,483	$	742,907	$	1,262,210	$	120,217	$	475,082	$	725,526	$	1,320,825

Capital Resources

Capital resources represent funds, earned or obtained, over which financial institutions can exercise greater or longer control in comparison with deposits and borrowed funds. The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company’s resources and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allow management to effectively leverage its capital to maximize return to ~~shareholders.~~stockholders.

In July 2013, the Federal Reserve issued final rules to include technical changes to its market risk capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Company and the Bank to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). These capital requirements will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

Beginning January 1, 2016, the capital conservation buffer requirement began to be phased in at 0.625% of risk-weighted assets, and will increase by the same amount each year until fully implemented at 2.5% on January 1, 2019. As of ~~June~~September 30, 2017, the capital conservation buffer was 1.25% of risk-weighted assets. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The table summarizes the Company’s regulatory capital and related ratios for the periods presented (dollars in thousands):


	June 30, 2017			December 31, 2016			June 30, 2016			September 30, 2017			December 31, 2016			September 30, 2016
Common equity Tier 1 capital	$	720,805		$	699,728		$	674,608		$	734,892		$	699,728		$	685,329
Tier 1 capital	811,305			790,228			765,108			825,392			790,228			775,829
Tier 2 capital	187,014			185,917			35,496			186,012			185,917			37,032
Total risk-based capital	998,319			976,145			800,604			1,011,404			976,145			812,861
Risk-weighted assets	7,676,620			7,200,778			6,789,054			7,817,079			7,200,778			7,010,112

Capital ratios:
Common equity Tier 1 capital ratio	9.39		%	9.72		%	9.94		%	9.40		%	9.72		%	9.78		%
Tier 1 capital ratio	10.57		%	10.97		%	11.27		%	10.56		%	10.97		%	11.07		%
Total capital ratio	13.00		%	13.56		%	11.79		%	12.94		%	13.56		%	11.60		%
Leverage ratio (Tier 1 capital to average assets)	9.61		%	9.87		%	10.01		%	9.52		%	9.87		%	9.89		%
Capital conservation buffer ratio ⁽¹⁾	4.57		%	4.97		%	3.49		%	4.56		%	4.97		%	3.60		%
Common equity to total assets	11.56		%	11.88		%	12.21		%	11.53		%	11.88		%	12.12		%
Tangible common equity to tangible assets	8.32		%	8.41		%	8.59		%	8.34		%	8.41		%	8.57		%

(1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company's actual ratio results for Common equity, Tier 1, and Total risk based capital. The lowest of the three measures represents the Company's capital conservation buffer ratio.

NON-GAAP MEASURES

In reporting the results of ~~June~~September 30, 2017, the Company has provided supplemental performance measures on a tax-equivalent, ~~core,~~ tangible, and/or operating basis. These measures are a supplement to GAAP used to prepare the Company's financial statements and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies.

Net interest income (FTE), which is used in computing net interest margin (FTE), provides valuable additional insight into the net interest margin by adjusting for differences in tax treatment of interest income sources.

Core net interest income (FTE), which is used in computing core net interest margin (FTE), provides valuable additional insight into the net interest margin by adjusting for differences in tax treatment of interest income sources as well as the net accretion of acquisition-related fair value marks.

The Company believes tangible common equity is an important indication of its ability to grow organically and through business combinations as well as its ability to pay dividends and to engage in various capital management strategies. Tangible common equity is used in the calculation of certain profitability, capital, and per share ratios. These ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

Operating measures exclude ~~acquisition and conversion~~merger-related costs unrelated to the Company’s normal operations. Such costs were only incurred during the second ~~quarter~~and third quarters of 2017; thus each of these operating measures is equivalent to the corresponding GAAP financial measure for the three and ~~six~~nine months ended ~~June~~September 30, 2016. The Company believes these measures are useful to investors as they exclude certain costs resulting from acquisition activity and allow investors to more clearly see the combined economic results of the organization's operations.

The following table reconciles these non-GAAP measures from their respective U.S. GAAP basis measures for each of the periods presented (dollars in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016			2017			2016
Interest Income (FTE)
Interest Income (GAAP)	$	81,221		$	72,781		$	157,891		$	143,530		$	84,850		$	74,433		$	242,712		$	217,964
FTE adjustment	2,648			2,451			5,188			4,941			2,648			2,427			7,836			7,367
Interest Income FTE (non-GAAP)	$	83,869		$	75,232		$	163,079		$	148,471		$	87,498		$	76,860		$	250,548		$	225,331
Average earning assets	$	7,934,405		$	7,153,627		$	7,798,427		$	7,061,307		$	8,167,919		$	7,354,684		$	7,922,944		$	7,159,813
Yield on interest-earning assets (GAAP)	4.11		%	4.09		%	4.08		%	4.09		%	4.12		%	4.03		%	4.10		%	4.07		%
Yield on interest-earning assets (FTE) (non-GAAP)	4.24		%	4.23		%	4.22		%	4.23		%	4.25		%	4.16		%	4.23		%	4.20		%
Net Interest Income (FTE) & Core Net Interest Income (FTE)
Net Interest Income (FTE)
Net Interest Income (GAAP)	$	68,999		$	65,776		$	135,567		$	129,507		$	71,198		$	67,028		$	206,765		$	196,535
FTE adjustment	2,648			2,451			5,188			4,941			2,648			2,427			7,836			7,367
Net Interest Income FTE (non-GAAP)	71,647			68,227			140,755			134,448			73,846			69,455			214,601			203,902
Less: Net accretion of acquisition fair value marks	1,617			1,402			3,110			2,548
Core Net Interest Income FTE (non-GAAP)	$	70,030		$	66,825		$	137,645		$	131,900
Average earning assets	$	7,934,405		$	7,153,627		$	7,798,427		$	7,061,307		$	8,167,919		$	7,354,684		$	7,922,944		$	7,159,813
Net interest margin (GAAP)	3.49		%	3.70		%	3.51		%	3.69		%	3.46		%	3.63		%	3.49		%	3.67		%
Net interest margin (FTE) (non-GAAP)	3.62		%	3.84		%	3.64		%	3.83		%	3.59		%	3.76		%	3.62		%	3.80		%
Core net interest margin (FTE) (non-GAAP)	3.54		%	3.76		%	3.56		%	3.76		%
Tangible Assets
Ending Assets (GAAP)	$	8,915,187		$	8,100,561		$	8,915,187		$	8,100,561		$	9,029,436		$	8,258,230		$	9,029,436		$	8,258,230
Less: Ending goodwill	298,191			297,659			298,191			297,659			298,191			298,191			298,191			298,191
Less: Ending amortizable intangibles	17,422			23,449			17,422			23,449			16,017			22,343			16,017			22,343
Ending tangible assets (non-GAAP)	$	8,599,574		$	7,779,453		$	8,599,574		$	7,779,453		$	8,715,228		$	7,937,696		$	8,715,228		$	7,937,696
Tangible Common Equity
Ending Equity (GAAP)	$	1,030,869		$	989,201		$	1,030,869		$	989,201		$	1,041,371		$	1,000,964		$	1,041,371		$	1,000,964
Less: Ending goodwill	298,191			297,659			298,191			297,659			298,191			298,191			298,191			298,191
Less: Ending amortizable intangibles	17,422			23,449			17,422			23,449			16,017			22,343			16,017			22,343
Ending tangible common equity (non-GAAP)	$	715,256		$	668,093		$	715,256		$	668,093		$	727,163		$	680,430		$	727,163		$	680,430
Average equity (GAAP)	$	1,026,148		$	987,147		$	1,018,277		$	988,281		$	1,037,792		$	996,668		$	1,024,853		$	991,097
Less: Average goodwill	298,191			294,886			298,191			294,204			298,191			297,707			298,191			295,380
Less: Average amortizable intangibles	18,164			21,758			18,948			22,044			16,681			22,653			18,184			22,249
Average tangible common equity (non-GAAP)	$	709,793		$	670,503		$	701,138		$	672,033		$	722,920		$	676,308		$	708,478		$	673,468
ROE (GAAP)	7.02		%	7.88		%	7.34		%	7.39		%	7.90		%	8.14		%	7.53		%	7.64		%
ROTCE (non-GAAP)	10.15		%	11.60		%	10.66		%	10.86		%	11.34		%	12.00		%	10.90		%	11.25		%
Common equity to assets (GAAP)	11.56		%	12.21		%	11.56		%	12.21		%	11.53		%	12.12		%	11.53		%	12.12		%
Tangible common equity to tangible assets (non-GAAP)	8.32		%	8.59		%	8.32		%	8.59		%	8.34		%	8.57		%	8.34		%	8.57		%


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016			2017			2016
Operating Measures
Net income (GAAP)	$	17,956		$	19,337		$	37,080		$	36,298		$	20,658		$	20,401		$	57,737		$	56,699
Acquisition and conversion costs, net of tax	2,358			—			2,358			—
Merger-related costs, net of tax													661			—			3,020			—
Net operating earnings (non-GAAP)	$	20,314		$	19,337		$	39,438		$	36,298		$	21,319		$	20,401		$	60,757		$	56,699

Weighted average common shares outstanding, diluted	43,783,952			43,824,183			43,755,045			44,075,706			43,792,058			43,754,915			43,767,502			43,967,725
Earnings per common share, diluted (GAAP)	$	0.41		$	0.44		$	0.85		$	0.82		$	0.47		$	0.47		$	1.32		$	1.29
Operating earnings per common share, diluted (non-GAAP)	$	0.46		$	0.44		$	0.90		$	0.82		$	0.49		$	0.47		$	1.39		$	1.29

Average assets (GAAP)	$	8,747,377		$	7,949,576		$	8,607,225		$	7,857,203		$	8,973,964		$	8,153,951		$	8,730,815		$	7,956,841
ROA (GAAP)	0.82		%	0.98		%	0.87		%	0.93		%	0.91		%	1.00		%	0.88		%	0.95		%
Operating ROA (non-GAAP)	0.93		%	0.98		%	0.92		%	0.93		%	0.94		%	1.00		%	0.93		%	0.95		%

Average common equity (GAAP)	$	1,026,148		$	987,147		$	1,018,277		$	988,281		$	1,037,792		$	996,668		$	1,024,853		$	991,097
ROE (GAAP)	7.02		%	7.88		%	7.34		%	7.39		%	7.90		%	8.14		%	7.53		%	7.64		%
Operating ROE (non-GAAP)	7.94		%	7.88		%	7.81		%	7.39		%	8.15		%	8.14		%	7.93		%	7.64		%

Average tangible common equity (non-GAAP)	$	709,793		$	670,503		$	701,138		$	672,033		$	722,920		$	676,308		$	708,478		$	673,468
ROTCE (non-GAAP)	10.15		%	11.60		%	10.66		%	10.86		%	11.34		%	12.00		%	10.90		%	11.25		%
Operating ROTCE (non-GAAP)	11.48		%	11.60		%	11.34		%	10.86		%	11.70		%	12.00		%	11.47		%	11.25		%

Noninterest expense (GAAP)	$	59,930		$	55,251		$	117,325		$	109,523		$	57,496		$	56,913		$	174,821		$	166,436
Less: Acquisition and conversion costs	2,744			—			2,744			—
Less: Merger-related costs													732			—			3,476			—
Operating noninterest expense (non-GAAP)	$	57,186		$	55,251		$	114,581		$	109,523		$	56,764		$	56,913		$	171,345		$	166,436

Net interest income (GAAP)	$	68,999		$	65,776		$	135,567		$	129,507		$	71,198		$	67,028		$	206,765		$	196,535
Net interest income (FTE) (non-GAAP)	71,647			68,227			140,755			134,448			73,846			69,455			214,601			203,902
Noninterest income (GAAP)	18,056			17,993			36,894			33,907			17,536			18,950			54,430			52,857

Efficiency ratio (GAAP)	68.84		%	65.96		%	68.03		%	67.02		%	64.80		%	66.19		%	66.93		%	66.74		%
Efficiency ratio (FTE) (non-GAAP)	66.81		%	64.08		%	66.04		%	65.06		%	62.92		%	64.38		%	64.98		%	64.82		%
Operating efficiency ratio (FTE) (non-GAAP)	63.75		%	64.08		%	64.50		%	65.06		%	62.12		%	64.38		%	63.69		%	64.82		%

Community Bank Segment Operating Measures
Community bank segment net income (GAAP)	$	17,405		$	18,798		$	36,525		$	35,705		$	20,311		$	19,616		$	56,836		$	55,321
Acquisition and conversion costs, net of tax	2,358			—			2,358			—
Merger-related costs, net of tax													661			—			3,020			—
Community bank segment net operating earnings (non-GAAP)	$	19,763		$	18,798		$	38,883		$	35,705		$	20,972		$	19,616		$	59,856		$	55,321

Weighted average common shares outstanding, diluted	43,783,952			43,824,183			43,755,045			44,075,706			43,792,058			43,754,915			43,767,502			43,967,725
Earnings per common share, diluted (GAAP)	$	0.40		$	0.43		$	0.84		$	0.81		$	0.46		$	0.45		$	1.30		$	1.26
Operating earnings per common share, diluted (non-GAAP)	$	0.45		$	0.43		$	0.89		$	0.81		$	0.48		$	0.45		$	1.37		$	1.26

Community bank segment noninterest expense (GAAP)	$	57,496		$	52,766		$	112,510		$	104,610		$	55,133		$	54,353		$	167,643		$	158,964
Less: Acquisition and conversion costs	2,744			—			2,744			—
Less: Merger-related costs													732			—			3,476			—
Community bank segment operating noninterest expense (non-GAAP)	$	54,752		$	52,766		$	109,766		$	104,610		$	54,401		$	54,353		$	164,167		$	158,964

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk. The ALCO of the Company is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to

monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

Interest rate risk is monitored through the use of three complementary modeling tools: static gap analysis, earnings simulation modeling, and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk models has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Static gap, which measures aggregate re-pricing values, is less utilized because it does not effectively measure the options risk impact on the Company and is not addressed here. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.

The Company determines the overall magnitude of interest sensitivity risk and then formulates policies and practices governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the states of the national, regional, and local economies, and other financial and business risk factors. The Company uses simulation modeling to measure and monitor the effect of various interest rate scenarios and business strategies on net interest income. This modeling reflects interest rate changes and the related impact on net interest income and net income over specified time horizons.

EARNINGS SIMULATION ANALYSIS

Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis discussed above.

Assumptions used in the model are derived from historical trends and management’s outlook and include loan and deposit growth rates and projected yields and rates. These assumptions may not materialize and unanticipated events and circumstances may occur. The model also does not take into account any future actions of management to mitigate the impact of interest rate changes. Such assumptions are monitored by management and periodically adjusted as appropriate. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.

The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates. The analysis assesses the impact on net interest income over a 12 month time horizon after an immediate increase or “shock” in rates, of 100 basis points up to 300 basis points. The shock down 200 or 300 basis points analysis is not as meaningful as interest rates across most of the yield curve are near historic lows and cannot decrease another 200 or 300 basis points. The model, under all scenarios, does not drop the index below zero.

The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled for balances as of ~~June~~September 30, 2017 and 2016 (dollars in thousands):


	Change In Net Interest Income June 30,								Change In Net Interest Income September 30,
	2017				2016				2017				2016
	%		$		%		$		%		$		%		$
Change in Yield Curve:
+300 basis points	10.49		31,679		9.81		27,312		7.65		23,401		11.25		31,821
+200 basis points	7.18		21,674		6.73		18,723		5.24		16,034		7.65		21,636
+100 basis points	3.76		11,368		3.59		9,997		2.82		8,634		3.91		11,051
Most likely rate scenario	—		—		—		—		—		—		—		—
-100 basis points	(4.25	)	(12,841	)	(2.40	)	(6,690	)	(3.21	)	(9,828	)	(3.30	)	(9,338	)
-200 basis points	(8.10	)	(24,475	)	(3.22	)	(8,977	)	(6.69	)	(20,459	)	(4.66	)	(13,197	)
-300 basis points	(8.47	)	(25,589	)	(3.32	)	(9,244	)	(7.04	)	(21,528	)	(4.76	)	(13,464	)

Asset sensitivity indicates that in a rising interest rate environment the Company’s net interest income would increase and in a decreasing interest rate environment the Company’s net interest income would decrease. Liability sensitivity indicates that in a rising interest rate environment the Company’s net interest income would decrease and in a decreasing interest rate environment the Company’s net interest income would increase.

As of ~~June~~September 30, 2017, the Company was ~~more~~less asset sensitive in a rising interest rate environment scenario when compared to ~~June~~September 30, 2016 in part due to the composition of the balance sheet and in part due to the market characteristics of certain deposit products. The Company would expect net interest income to increase with an immediate increase or shock in market rates. In the decreasing interest rate environments, the Company would expect a decline in net interest income as interest-earning assets re-price at lower rates and interest-bearing deposits remain at or near their floors. It should be noted that although net interest income simulation results are presented through the down 300 basis points interest rate environments, the Company does not believe the down 200 and 300 basis point scenarios are plausible given the current level of interest rates.

ECONOMIC VALUE SIMULATION

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.

The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly periods ended ~~June~~September 30, 2017 and 2016 (dollars in thousands):


	Change In Economic Value of Equity June 30,								Change In Economic Value of Equity September 30,
	2017				2016				2017				2016
	%		$		%		$		%		$		%		$
Change in Yield Curve:
+300 basis points	1.31		18,820		1.73		22,167		(1.11	)	(16,200	)	2.67		35,364
+200 basis points	1.54		22,074		2.12		27,155		(0.05	)	(800	)	2.65		35,109
+100 basis points	1.20		17,209		1.53		19,570		0.41		5,960		1.85		24,533
Most likely rate scenario	—		—		—		—		—		—		—		—
-100 basis points	(3.58	)	(51,487	)	(4.69	)	(59,963	)	(2.72	)	(39,795	)	(4.68	)	(61,889	)
-200 basis points	(10.17	)	(146,146	)	(7.11	)	(90,938	)	(8.27	)	(120,822	)	(8.92	)	(117,988	)
-300 basis points	(11.91	)	(171,098	)	(3.74	)	(47,765	)	(9.58	)	(139,886	)	(5.86	)	(77,480	)

As of ~~June~~September 30, 2017, the Company was less sensitive to market interest rate fluctuations in the shock down 100, shock down 200 and shock up 100, 200, and 300 basis points scenarios when compared to ~~June~~September 30, 2016. The Company believes that the shock down 200 or 300 basis points ~~analysis is~~analyses are not as meaningful since interest rates across most of the yield curve are near historic lows and are not likely to decrease another 200 or 300 basis points. While management considers this scenario highly unlikely, the natural floor increases the Company's sensitivity in rates down scenarios.

ITEM 4 – CONTROLS AND PROCEDURES

The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level.

There was no change in the internal control over financial reporting that occurred during the quarter ended ~~June~~September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

Pending Merger were completed, costs and attorneys’ fees. On November 6, 2017, Mr. Parshall filed a notice of voluntary dismissal, terminating the Parshall Lawsuit without prejudice.

ITEM 1A – RISK FACTORS

~~The following risk factors should be considered in addition~~There have been no material changes with respect to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2016 and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

~~Combining the Company and Xenith may be more difficult, costly or time-consuming than we expect.~~

The success of the Pending Merger will depend, in part, on the Company’s ability to realize the anticipated benefits and cost savings from combining the businesses of the Company and Xenith and to combine the businesses of the Company and Xenith in a manner that permits growth opportunities and cost savings to be realized without materially disrupting the existing customer relationships of Xenith or the Company or decreasing revenues due to loss of customers. However, to realize these anticipated benefits and cost savings, the Company must successfully combine the businesses of the Company and Xenith. If the Company is not able to achieve these objectives, the anticipated benefits and cost savings of the Pending Merger may not be realized fully, or at all, or may take longer to realize than expected.

The Company and Xenith have operated, and, until the completion of the Pending Merger, will continue to operate, independently. The success of the Pending Merger and the future operating performance of the Company and the Bank will depend, in part, on the Company’s ability to successfully combine the businesses of the Company and Xenith, including the merger of Xenith Bank into the Bank (or the “subsidiary bank merger”), which is expected to occur after the Pending Merger in early January 2018. The success of the subsidiary bank merger will, in turn, depend on a number of factors, including the Company’s ability to: (i) integrate the operations and branches of Xenith Bank and the Bank; (ii) retain the deposits and customers of Xenith Bank and the Bank; (iii) control the incremental increase in noninterest expense arising from the Pending Merger in a manner that enables the combined bank to improve its overall operating efficiencies; and (iv) retain and integrate the appropriate personnel of Xenith Bank into the operations of the Bank, as well as reducing overlapping bank personnel. The integration of Xenith Bank and the Bank following the subsidiary bank merger will require the dedication of the time and resources of the banks’ management and may temporarily distract managements’ attention from the day-to-day business of the banks. If the Bank is unable to successfully integrate Xenith Bank, the Bank may not be able to realize expected operating efficiencies and eliminate redundant costs.

The integration process in the Pending Merger and the subsidiary bank merger could result in the loss of key employees, the disruption of each party’s ongoing business, inconsistencies in standards, controls, procedures and policies that affect adversely either party’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the Pending Merger. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business in the markets in which Xenith now operates, which could have an adverse effect on the Company’s financial results and the value of its common stock. As with any merger of financial institutions, there also may be disruptions that cause the Company and Xenith to lose customers or cause customers to withdraw their deposits from Xenith’s or the Company’s banking subsidiaries, or other unintended consequences that could have a material adverse effect on the Company’s results of operations or financial condition after the Pending Merger. These integration matters could have an adverse effect on each of Xenith and the Company during this transition period and for an undetermined period after completion of the Pending Merger.

~~The Company will be subject to additional regulation, increased supervision and increased costs following the Pending Merger.~~

Various federal banking laws and regulations, including rules adopted by the Federal Reserve pursuant to the requirements of the Dodd-Frank Act imposes additional regulatory requirements on institutions with $10 billion or more in assets. The Company had $8.9 billion in assets as of June 30, 2017. If the Pending Merger is completed, then the Company will have more than $10 billion in assets and, as a result, will be subject to the additional regulatory requirements, increased supervision and increased costs, including the following: (i) supervision, examination and enforcement by the Consumer Financial Protection Bureau with respect to consumer financial protection laws; (ii) regulatory stress testing requirements, whereby the Company would be required to conduct an annual stress test (using assumptions for baseline, adverse and severely adverse scenarios); (iii) a modified methodology for calculating FDIC insurance assessments and potentially higher assessment rates; (iv) enhanced supervision as a larger financial institution; and (v) under the Durbin Amendment to the Dodd-Frank Act, institutions with $10 billion or more in assets are subject to a cap on the interchange fees that may be charged in certain electronic debit and prepaid card transactions.

The imposition of these regulatory requirements and increased supervision may require commitment of additional financial resources to regulatory compliance, may increase the Company’s cost of operations, and may otherwise have a significant impact on the Company’s business, financial condition and results of operations. Further, the results of the stress testing process may lead the Company to retain additional capital or alter the mix of its capital components as compared to the Company’s current capital management strategy.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the surviving company following the Pending Merger.

Before the Pending Merger, or the merger of Xenith Bank into the Bank, may be completed, the Company and Xenith must obtain approvals from the Federal Reserve and the Virginia State Corporation Commission. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party, and the competitive effects of the contemplated transactions. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay their receipt. The Community Reinvestment Act of 1977, as amended, and the regulations issued thereunder (the “CRA”) also requires that the bank regulatory authorities, in deciding whether to approve the Pending Merger and the subsidiary bank merger, assess the records of performance of the Bank and Xenith Bank in meeting the credit needs of the communities they serve, including low and moderate income neighborhoods. Each of the Bank and Xenith Bank currently maintains a CRA rating of “Satisfactory” from its primary federal regulator. As part of the review process under the CRA, it is not unusual for the bank regulatory authorities to receive protests and other adverse comments from community groups and others. Any such protests or adverse comments could prolong the period during which the Pending Merger and the subsidiary bank merger are subject to review by the bank regulatory authorities.

These regulators may impose conditions on the completion of the Pending Merger or the subsidiary bank merger or require changes to the terms of the Pending Merger or the subsidiary bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the Pending Merger or the subsidiary bank merger or imposing additional costs on or limiting the revenues of the surviving company following the Pending Merger and the subsidiary bank merger, any of which might have an adverse effect on the surviving company following the Pending Merger.

~~The Pending Merger and the subsidiary bank merger may distract management of the Company and Xenith from their other responsibilities.~~

The Pending Merger and the subsidiary bank merger could cause the respective management groups of the Company and Xenith to focus their time and energies on matters related to the transaction that otherwise would be directed to their business and operations. Any such distraction on the part of either company’s management could affect its ability to service existing business and develop new business and adversely affect the business and earnings of the Company or Xenith before the Pending Merger, or the business and earnings of the Company after the Pending Merger.

~~Termination of the Agreement and Plan of Reorganization between the Company and Xenith, dated May 19, 2017 (or the “merger agreement”) could negatively impact the Company or Xenith.~~

If the merger agreement is terminated, the Company’s or Xenith’s business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Pending Merger, without realizing any of the anticipated benefits of completing the Pending Merger. Additionally, if the merger agreement is terminated, the market price of the Company’s common stock or Xenith common stock could decline to the extent that the current market prices reflect a market assumption that the Pending Merger will be completed. Furthermore, costs relating to the Pending Merger, such as legal, accounting and financial advisory fees, must be paid even if the Pending Merger is not completed. If the merger agreement is terminated under certain circumstances, including circumstances involving a change in recommendation by the Company’s or Xenith’s board of directors, the Company or Xenith may be required to pay to the other party a termination fee of $26.5 million.

~~The merger agreement limits the ability of the Company and Xenith to pursue alternatives to the Pending Merger and might discourage competing offers for a higher price or premium.~~

The merger agreement contains “no-shop” provisions that, subject to limited exceptions, limit the ability of the Company and Xenith to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of either company. In addition, under certain circumstances, if the merger agreement is terminated and either the Company or Xenith, subject to certain restrictions, completes a similar transaction other than the Pending Merger, the party completing such transaction must pay to the other a termination fee of $26.5 million. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant percentage of ownership of the Company or Xenith from considering or proposing the acquisition even if it were prepared to pay consideration, with respect to Xenith, with a higher per share market price than that proposed in the Pending Merger, and with respect to the Company, with a per share market price that would amount to a premium over the current per share market price of the Company.

~~The Company and Xenith will be subject to business uncertainties and contractual restrictions until the Pending Merger is completed.~~

Uncertainty about the effect of the Pending Merger on employees and customers may have an adverse effect on the Company and Xenith. These uncertainties may impair the Company’s and Xenith’s ability to attract, retain and motivate key personnel until the Pending Merger is completed, and could cause customers and others that deal with the Company and Xenith to seek to change existing business relationships with the Company and Xenith. Retention of certain employees by the Company and Xenith may be challenging until the Pending Merger is completed, as certain employees may experience uncertainty about their future roles with the Company or Xenith. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company or Xenith, the Company’s or Xenith’s business, or the business of the combined company following the Pending Merger, could be harmed. In addition, subject to certain exceptions, the Company and Xenith have each agreed to operate its business in the ordinary course prior to completion of the Pending Merger and refrain from taking certain specified actions until the Pending Merger occurs, which may prevent the Company or Xenith from pursuing attractive business opportunities that may arise prior to completion of the Pending Merger.

~~If the Pending Merger is not completed, the Company and Xenith will have incurred substantial expenses without realizing the expected benefits of the Pending Merger.~~

Each of the Company and Xenith has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing and mailing a joint proxy statement/prospectus and all filing and other fees paid to the Securities and Exchange Commission in connection with the Pending Merger. If the Pending Merger is not completed, the Company and Xenith would have to incur these expenses without realizing the expected benefits of the Pending Merger.

~~The Company may not be able to recognize the full value of Xenith’s deferred tax assets and other attributes after the Pending Merger.~~

The Company’s ability to use the net operating loss carryovers (or “NOLs”) and other tax attributes of Xenith after the Pending Merger will be subject to certain limitations and possible changes in tax law that may impact the value of Xenith’s deferred tax asset. The Pending Merger will constitute a change in the ownership of Xenith under Section 382 of the Internal Revenue Code that will place certain limits on the Company’s ability to utilize Xenith’s NOLs and other tax attributes to reduce the Company’s future income taxes. As a result of these limitations the value of Xenith’s deferred tax asset to the Company after the Pending Merger could decrease, because these limitations could reduce the present value of future tax savings to the Company from Xenith’s deferred tax asset.

In addition, comprehensive tax reform remains a topic of discussion in the U.S. Congress and the executive branch of the U.S. government, and any legislation to enact comprehensive tax reform could significantly alter the Internal Revenue Code, including to reduce U.S. federal corporate income tax rates. The value of Xenith’s deferred tax asset on Xenith’s financial statements is currently based on a 35% U.S. federal corporate income tax rate. If Congress passes legislation reducing such U.S. federal corporate income tax rate (e.g., from a 35% tax rate to a 15% tax rate), the value of Xenith’s deferred tax asset would decrease and likely would be accompanied by a related charge to earnings, which could negatively affect the Company’s financial condition and results of operations following the Pending Merger.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities – None.

(b) Use of Proceeds – Not Applicable.

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this Form 10-Q and this list includes the Exhibit Index:



Exhibit No.		Description
2.01		Agreement and Plan of Reorganization, dated as of May 19, 2017, by and between Union Bankshares Corporation and Xenith Bankshares, Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on May 23, 2017).

3.01		Articles of Incorporation of Union Bankshares Corporation, as amended April 25, 2014 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 29, 2014).

3.02		Bylaws of Union Bankshares Corporation, as amended January 21, 2017 (incorporated by reference to Exhibit 3.02 to Annual Report on Form 10-K filed on February 28, 2017).

~~10.31~~10.24		Union Bankshares Corporation Executive Severance Plan (as amended and restated effective January 1, 2018) (incorporated by reference to Exhibit 10.24 to Current Report on Form 8-K filed September 26, 2017).

10.32		Severance Agreement and Release of Claims, dated ~~June 5,~~October 24, 2017, by and between Union Bankshares Corporation, ~~and~~ Union Bank & Trust and ~~D. Anthony Peay~~Elizabeth M. Bentley (incorporated by reference to Exhibit ~~10.31~~10.32 to Current Report on Form 8-K filed ~~on June 5,~~October 24, 2017).

15.01		Letter regarding unaudited interim financial information.

31.01		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01		Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.00		Interactive data files formatted in eXtensible Business Reporting Language for the quarter ended ~~June~~September 30, 2017 pursuant to Rule 405 of Regulation S-T (1): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Changes in ~~Shareholders’~~Stockholders’ Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to the Consolidated Financial Statements (unaudited).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Union Bankshares Corporation

	(Registrant)

Date: ~~August 8,~~November 7, 2017	By:	/s/ John C. Asbury
		John C. Asbury,
		President and Chief Executive Officer
		(principal executive officer)

Date: ~~August 8,~~November 7, 2017	By:	/s/ Robert M. Gorman
		Robert M. Gorman,
��		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

-76-



	For the Six Months Ended
	June 30,						Change
	2017			2016			$			%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	9,792		$	9,488		$	304		3.2	%
Other service charges and fees	9,045			8,574			471			5.5	%
Fiduciary and asset management fees	5,519			4,471			1,048			23.4	%
Mortgage banking income, net	4,818			5,117			(299		)	(5.8	)%
Gains on securities transactions, net	598			146			452			309.6	%
Bank owned life insurance income	3,460			2,734			726			26.6	%
Loan-related interest rate swap fees	2,211			1,753			458			26.1	%
Other operating income	1,451			1,624			(173		)	(10.7	)%
Total noninterest income	$	36,894		$	33,907		$	2,987		8.8	%

Community bank segment	$	31,959		$	28,548		$	3,411		11.9	%
Mortgage segment	5,216			5,684			(468		)	(8.2	)%
Intercompany eliminations	(281		)	(325		)	44			13.5	%
Total noninterest income	$	36,894		$	33,907		$	2,987		8.8	%