0000883948us-gaap:FairValueInputsLevel2Member2020-06-30

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 September 30, 2017~~



¨ For the Quarterly Period Ended June 30, 2020

OR

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

Commission File Number: ~~0-20293~~

000-20293

ATLANTIC UNION BANKSHARES ~~CORPORATION~~

CORPORATION

(Exact name of registrant as specified in its charter)


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

1051 East Cary Street

Suite 1200

Richmond, Virginia23219

(Address of principal executive offices) (Zip Code)

~~(804)~~

(804) 633-5031

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.33 per share	AUB	The NASDAQ Global Select Market
Depositary Shares, Each Representing a 1/400^th Interest in a Share of 6.875% Perpetual Non-Cumulative Preferred Stock, Series A	AUBAP	The NASDAQ Global Select Market

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 ~~November 1, 2017~~July 29, 2020 was ~~43,732,082.~~

78,711,847.

Table of Contents

Glossary of Acronyms and Defined Terms



~~2016~~ 2019 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019
~~AFS~~ Access	–	~~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~~ Access National Corporation and its subsidiaries
ACL	–	Allowance for credit losses
AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALLL	–	Allowance for loan and lease losses, a component of ACL
AOCI	–	Accumulated other comprehensive income (loss)
ASC	–	Accounting Standards Codification
ASC 326	–	ASU 2016-13, Financial Instruments and Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASC 820	–	ASC 820, Fair Value Measurements and Disclosures
ASC 842	–	ASU 2016-02, Leases (Topic 842)
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Atlantic Union Bank (formerly, Union Bank & Trust)
BOLI	–	Bank-owned life insurance
bps	–	Basis points
BSA	–	Bank Secrecy Act
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
CCPs	–	Central Counterparty Clearinghouses
CECL	–	Current expected credit losses
CME	–	Chicago Mercantile Exchange
the Company	–	Atlantic Union Bankshares Corporation (formerly, Union Bankshares Corporation) and its subsidiaries
COVID-19	–	Novel strain of coronavirus first identified in December 2019 in Wuhan, China
Depositary Shares	–	Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock , with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share)
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, as amended
FASB	–	Financial Accounting Standards Board
~~FDIC~~ FCMs	–	Futures Commission Merchants
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
Federal Reserve Act	–	Federal Reserve Act of 1913, as amended
Federal Reserve Bank	–	Federal Reserve Bank of Richmond
FHLB	–	Federal Home Loan Bank of Atlanta
~~U.S.~~ FOMC	–	Federal Open Markets Committee
FTE	–	Fully taxable equivalent
GAAP or U.S. GAAP	–	Accounting principles generally accepted in the United States
~~HELOC~~ HTM	–	~~Home equity line of credit~~
~~HTM~~	–	Held to maturity
IDC	–	Interactive Data Corporation
~~LIBOR~~ LCH	–	London Clearing House
LIBOR	–	London Interbank Offered Rate
~~NPA~~ March 22 Joint Guidance	–	~~Nonperforming assets~~ The five federal bank regulatory agencies and the Conference of State Bank Supervisors guidance
~~ODCM~~ MSLP	–	~~Old Dominion Capital Management, Inc.~~ Main Street Lending Program
~~OREO~~ MBS	–	Mortgage Backed Securities
MD&A	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NOW	–	Negotiable order of withdrawal

Table of Contents

NPA	–	Nonperforming assets
NSF	–	Nonsufficient funds
OCI	–	Other comprehensive income
OREO	–	Other real estate owned
OTTI	–	Other than temporary impairment
~~PCI~~ PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
~~ROA~~ PD/LGD	–	Probability of default/loss given default
PPPLF	–	Paycheck Protection Program Liquidity Facility
PPP	–	Paycheck Protection Program
Quarterly Report	–	Quarterly Report on Form 10-Q for the quarter ended June 30, 2020
ROA	–	Return on average assets
ROE	–	Return on average common equity
ROTCE	–	Return on average tangible common equity
~~SEC~~ ROU Asset	–	Right of Use Asset
RUC	–	Reserve for unfunded commitments
RVI	–	Residual value insurance
SBA	–	Small Business Administration
SEC	–	Securities and Exchange Commission
~~StellarOne~~ Series A preferred stock	–	~~StellarOne Corporation~~ 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share
~~TDR~~ SSFA	–	Simplified supervisory formula approach
TDR	–	Troubled debt restructuring
~~UMG~~ Topic 606	–	ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”
TFSB	–	The Federal Savings Bank
UMG	–	Union Mortgage Group, Inc.
~~Xenith~~ WHO	–	World Health Organization
Xenith	–	Xenith Bankshares, Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

September 30,
2017 December 31,
2016
(Unaudited) (Audited)
ASSETS

Cash and cash equivalents:

Cash and due from banks $ 115,776
$ 120,758
Interest-bearing deposits in other banks 60,294
58,030
Federal funds sold 891
449
Total cash and cash equivalents 176,961
179,237
Securities available for sale, at fair value 968,361
946,764
Securities held to maturity, at carrying value 204,801
201,526
Restricted stock, at cost 68,441
60,782
Loans held for sale, at fair value 30,896
36,487
Loans held for investment, net of deferred fees and costs 6,898,729
6,307,060
Less allowance for loan losses 37,162
37,192
Net loans held for investment 6,861,567
6,269,868
Premises and equipment, net 120,808
122,027
Other real estate owned, net of valuation allowance 8,764
10,084
Goodwill 298,191
298,191
Amortizable intangibles, net 16,017
20,602
Bank owned life insurance 181,451
179,318
Other assets 93,178
101,907
Total assets $ 9,029,436
$ 8,426,793
LIABILITIES

Noninterest-bearing demand deposits $ 1,535,149
$ 1,393,625
Interest-bearing deposits 5,346,677
4,985,864
Total deposits 6,881,826
6,379,489
Securities sold under agreements to repurchase 43,337
59,281
Other short-term borrowings 574,000
517,500
Long-term borrowings 434,750
413,308
Other liabilities 54,152
56,183
Total liabilities 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, 43,729,229 shares and 43,609,317 shares, respectively. 57,708
57,506
Additional paid-in capital 608,884
605,397
Retained earnings 373,468
341,938
Accumulated other comprehensive income 1,311
(3,809 )
Total stockholders' equity 1,041,371
1,001,032
Total liabilities and stockholders' equity $ 9,029,436
$ 8,426,793


	June 30,		December 31,
	2020		2019
ASSETS		(unaudited)		(audited)
Cash and cash equivalents:
Cash and due from banks	$	202,947	$	163,050
Interest-bearing deposits in other banks		636,211		234,810
Federal funds sold		2,862		38,172
Total cash and cash equivalents		842,020		436,032
Securities available for sale, at fair value		2,019,164		1,945,445
Securities held to maturity, at carrying value		547,561		555,144
Restricted stock, at cost		105,832		130,848
Loans held for sale, at fair value		55,067		55,405
Loans held for investment, net of deferred fees and costs		14,308,646		12,610,936
Less allowance for loan and lease losses		169,977		42,294
Total loans held for investment, net		14,138,669		12,568,642
Premises and equipment, net		164,321		161,073
Goodwill		935,560		935,560
Amortizable intangibles, net		65,105		73,669
Bank owned life insurance		327,075		322,917
Other assets		551,943		378,255
Total assets	$	19,752,317	$	17,562,990
LIABILITIES
Noninterest-bearing demand deposits	$	4,345,960	$	2,970,139
Interest-bearing deposits		11,259,179		10,334,842
Total deposits		15,605,139		13,304,981
Securities sold under agreements to repurchase		77,216		66,053
Other short-term borrowings		—		370,200
Long-term borrowings		1,047,814		1,077,495
Other liabilities		403,922		231,159
Total liabilities		17,134,091		15,049,888
Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY
Preferred stock, $10.00 par value		173		—
Common stock, $1.33 par value		104,126		105,827
Additional paid-in capital		1,911,985		1,790,305
Retained earnings		540,638		581,395
Accumulated other comprehensive income (loss)		61,304		35,575
Total stockholders' equity		2,618,226		2,513,102
Total liabilities and stockholders' equity	$	19,752,317	$	17,562,990

Common shares outstanding		78,713,056		80,001,185
Common shares authorized		200,000,000		200,000,000
Preferred shares outstanding		17,250		—
Preferred shares authorized		500,000		500,000

See accompanying notes to consolidated financial statements.

-2-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME ~~(UNAUDITED)~~

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

Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
Interest and dividend income:
Interest and fees on loans $ 75,948
$ 66,190
$ 216,644
$ 193,884
Interest on deposits in other banks 181
65
367
178
Interest and dividends on securities:
Taxable 5,175
4,732
15,081
13,558
Nontaxable 3,546
3,446
10,620
10,344
Total interest and dividend income 84,850
74,433
242,712
217,964

Interest expense:
Interest on deposits 7,234
4,552
18,410
12,945
Interest on short-term borrowings 1,871
765
4,221
2,098
Interest on long-term borrowings 4,547
2,088
13,316
6,386
Total interest expense 13,652
7,405
35,947
21,429

Net interest income 71,198
67,028
206,765
196,535
Provision for credit losses 3,050
2,472
7,345
7,376
Net interest income after provision for credit losses 68,148
64,556
199,420
189,159

Noninterest income:

Service charges on deposit accounts 5,153
4,965
14,945
14,454
Other service charges and fees 4,529
4,397
13,575
12,971
Fiduciary and asset management fees 2,794
2,844
8,313
7,315
Mortgage banking income, net 2,305
3,207
7,123
8,324
Gains on securities transactions, net 184
—
782
145
Bank owned life insurance income 1,377
1,389
4,837
4,122
Loan-related interest rate swap fees 416
1,303
2,627
3,056
Other operating income 778
845
2,228
2,470
Total noninterest income 17,536
18,950
54,430
52,857

Noninterest expenses:

Salaries and benefits 29,769
30,493
92,499
87,061
Occupancy expenses 4,939
4,841
14,560
14,627
Furniture and equipment expenses 2,559
2,635
7,882
7,867
Printing, postage, and supplies 1,154
1,147
3,710
3,566
Communications expense 798
948
2,580
2,964
Technology and data processing 4,232
3,917
12,059
11,340
Professional services 1,985
1,895
5,734
6,432
Marketing and advertising expense 1,944
1,975
5,963
5,838
FDIC assessment premiums and other insurance 1,141
1,262
2,793
4,003
Other taxes 2,022
639
6,065
3,864
Loan-related expenses 1,349
1,531
3,959
3,638
OREO and credit-related expenses 1,139
503
2,023
1,965
Amortization of intangible assets 1,480
1,843
4,661
5,468
Training and other personnel costs 887
863
2,900
2,512
Merger-related costs 732
—
3,476
—
Other expenses 1,366
2,421
3,957
5,291
Total noninterest expenses 57,496
56,913
174,821
166,436

Income before income taxes 28,188
26,593
79,029
75,580
Income tax expense 7,530
6,192
21,292
18,881
Net income $ 20,658
$ 20,401
$ 57,737
$ 56,699
Basic earnings per common share $ 0.47
$ 0.47
$ 1.32
$ 1.29
Diluted earnings per common share $ 0.47
$ 0.47
$ 1.32
$ 1.29
Dividends declared per common share $ 0.20
$ 0.19
$ 0.60
$ 0.57
Basic weighted average number of common shares outstanding 43,706,635
43,565,937
43,685,045
43,853,548
Diluted weighted average number of common shares outstanding 43,792,058
43,754,915
43,767,502
43,967,725


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2020		2019		2020		2019
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest and dividend income:
Interest and fees on loans	$	143,234	$	158,838	$	294,361	$	302,952
Interest on deposits in other banks		155		544		1,017		1,017
Interest and dividends on securities:
Taxable		11,267		13,353		22,895		26,434
Nontaxable		8,211		8,390		15,920		16,374
Total interest and dividend income		162,867		181,125		334,193		346,777
Interest expense:
Interest on deposits		19,861		28,809		48,375		53,239
Interest on short-term borrowings		186		5,563		1,526		12,114
Interest on long-term borrowings		5,515		8,159		11,979		15,283
Total interest expense		25,562		42,531		61,880		80,636
Net interest income		137,305		138,594		272,313		266,141
Provision for credit losses		34,200		5,300		94,396		9,092
Net interest income after provision for credit losses		103,105		133,294		177,917		257,049
Noninterest income:
Service charges on deposit accounts		4,930		7,499		12,508		14,656
Other service charges, commissions and fees		1,354		1,702		2,978		3,367
Interchange fees		1,697		5,612		3,321		10,656
Fiduciary and asset management fees		5,515		5,698		11,499		10,752
Mortgage banking income		5,826		2,785		7,847		4,240
Gains on securities transactions		10,339		51		12,275		202
Bank owned life insurance income		2,027		2,075		4,076		4,129
Loan-related interest rate swap fees		5,484		3,716		9,432		5,176
Other operating income		(1,240)		1,440		902		2,337
Total noninterest income		35,932		30,578		64,838		55,515
Noninterest expenses:
Salaries and benefits		49,896		50,390		100,013		98,398
Occupancy expenses		7,224		7,534		14,357		14,935
Furniture and equipment expenses		3,406		3,542		7,147		6,938
Printing, postage, and supplies		999		1,252		2,289		2,494
Technology and data processing		6,454		5,739		12,623		11,415
Professional services		2,989		2,630		6,297		5,587
Marketing and advertising expense		2,043		2,908		4,782		5,291
FDIC assessment premiums and other insurance		2,907		2,601		5,768		5,239
Other taxes		4,120		4,044		8,240		7,808
Loan-related expenses		2,501		2,396		5,198		4,685
OREO and credit-related expenses		411		1,473		1,099		2,157
Amortization of intangible assets		4,223		4,937		8,624		9,154
Training and other personnel costs		876		1,477		2,446		2,621
Merger-related costs		—		6,371		—		24,493
Rebranding expense		—		4,012		—		4,420
Loss on debt extinguishment		10,306		—		10,306		—
Other expenses		4,459		4,302		9,270		6,700
Total noninterest expenses		102,814		105,608		198,459		212,335
Income from continuing operations before income taxes		36,223		58,264		44,296		100,229
Income tax expense		5,514		9,356		6,498		15,606
Income from continuing operations	$	30,709	$	48,908	$	37,798	$	84,623
Discontinued operations:
Income (loss) from operations of discontinued mortgage segment	$	—	$	(114)	$	—	$	(229)
Income tax expense (benefit)		—		(29)		—		(59)
Income (loss) on discontinued operations		—		(85)		—		(170)
Net income available to common shareholders	$	30,709	$	48,823	$	37,798	$	84,453

Basic earnings per common share	$	0.39	$	0.59	$	0.48	$	1.06
Diluted earnings per common share	$	0.39	$	0.59	$	0.48	$	1.06
Dividends declared per common share	$	0.25	$	0.23	$	0.50	$	0.46
Basic weighted average number of common shares outstanding		78,711,765		82,062,585		79,001,058		79,282,830
Diluted weighted average number of common shares outstanding		78,722,690		82,125,194		79,020,036		79,344,573

See accompanying notes to consolidated financial statements.

-3-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income	$	30,709	$	48,823	$	37,798	$	84,453
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges		—		(2,595)		(699)		(4,055)
Reclassification adjustment for losses included in net income (net of tax, $0 and $46 for the three months and $394 and $78 for the six months ended June 30, 2020 and 2019, respectively)⁽¹⁾		—		173		1,481		293
AFS securities:
Unrealized holding gains arising during period (net of tax, $5,587 and $5,888 for the three months and $9,492 and $11,226 for the six months ended June 30, 2020 and 2019, respectively)		21,019		22,151		35,706		42,233
Reclassification adjustment for gains included in net income (net of tax, $2,171 and $20 for the three months and $2,578 and $42 for the six months ended June 30, 2020 and 2019, respectively) ⁽²⁾		(8,168)		(73)		(9,697)		(159)
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $3 and $3 for the six months ended June 30, 2020 and 2019, respectively)⁽³⁾		(5)		(5)		(10)		(10)
Bank owned life insurance:
Unrealized holding losses arising during the period		—		—		(1,289)		—
Reclassification adjustment for losses included in net income ⁽⁴⁾		129		19		237		38
Other comprehensive income (loss)		12,975		19,670		25,729		38,340
Comprehensive income	$	43,684	$	68,493	$	63,527	$	122,793

(1)

The gross amounts reclassified into earnings for the six months ended June 30, 2020 included a $1.8 million loss related to the termination of a cash flow hedge that is reported in “Other operating income” with the corresponding income tax effect being reflected as a component of income tax expense. The remaining gross amounts are reported in the interest income and interest expense sections of the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.

(2)	The gross amounts reclassified into earnings are reported as "Gains (losses) on securities transactions " on the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.

(3)	The gross amounts reclassified into earnings are reported 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.

(4)	Reclassifications in earnings are reported in "Salaries and benefits" expense on the Company’s Consolidated Statements of Income.

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

Net income $ 20,658
$ 20,401
$ 57,737
$ 56,699
Other comprehensive income (loss):

Cash flow hedges:

Change in fair value of cash flow hedges 41
(78 ) (766 ) (3,766 )
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, $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, $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 84
—
278
—
Other comprehensive income (loss) (2,697 ) 960
5,120
3,607
Comprehensive income $ 17,961
$ 21,361
$ 62,857
$ 60,306

See accompanying notes to consolidated financial statements.

-4-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY (UNAUDITED)

~~NINE~~

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

2020

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

Accumulated

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2019

105,827

—

1,790,305

581,395

35,575

2,513,102

Net Income

7,089

Other comprehensive income (net of taxes of $3,890)

12,754

Dividends on common stock ($0.25 per share)

(19,825)

Stock purchased under stock repurchase plan (1,493,472 shares)

(1,985)

(47,894)

(49,879)

Issuance of common stock under Equity Compensation Plans (34,714 shares)

731

777

Issuance of common stock for services rendered (6,860 shares)

195

204

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (142,176 shares)

189

(2,199)

(2,010)

Impact of adoption of ASC 326

(39,053)

Stock-based compensation expense

2,291

Balance - March 31, 2020

104,086

—

1,743,429

529,606

48,329

2,425,450

Net Income

30,709

Other comprehensive income (net of taxes of $3,415)

12,975

Issuance of preferred stock (17,250 shares)

173

166,190

166,363

Dividends on common stock ($0.25 per share)

(19,677)

Issuance of common stock under Equity Compensation Plans (1,632 shares)

Issuance of common stock for services rendered (8,640 shares)

189

200

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (19,848)

(206)

(179)

Stock-based compensation expense

2,361

Balance - June 30, 2020

104,126

173

1,911,985

540,638

61,304

2,618,226

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.

-5-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2019

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

Accumulated

Additional

Other

Common

Paid-In

Retained

Comprehensive

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2018

87,250

1,380,259

467,345

(10,273)

1,924,581

Net Income

35,631

Other comprehensive income (net of taxes of $5,346)

18,670

Issuance of common stock in regard to acquisition (15,842,026 shares)

21,070

478,904

499,974

Dividends on common stock ($0.23 per share)

(18,838)

Issuance of common stock under Equity Compensation Plans (6,127 shares)

130

138

Issuance of common stock for services rendered (6,085 shares)

211

219

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (104,151 shares)

139

(1,786)

(1,647)

Impact of adoption of ASC 842

(1,133)

Stock-based compensation expense

1,870

Balance- March 31, 2019

108,475

1,859,588

483,005

8,397

2,459,465

Net Income

48,823

Other comprehensive income (net of taxes of $5,913)

19,670

Dividends on common stock ($0.23 per share)

(18,876)

Issuance of common stock under Equity Compensation Plans (36,551 shares)

938

986

Issuance of common stock for services rendered (6,192 shares)

192

200

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (21,447 shares)

(336)

(307)

Stock-based compensation expense

2,334

Balance- June 30, 2019

108,560

1,862,716

512,952

28,067

2,512,295

-6-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2020 AND 2019


(Dollars in thousands)	2020		2019
Operating activities ⁽¹⁾:
Net income	$	37,798	$	84,453
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of premises and equipment		7,517		7,368
Writedown of foreclosed properties and former bank premises		95		852
Amortization, net		12,749		12,917
Amortization (accretion) related to acquisitions, net		(7,591)		(4,704)
Provision for credit losses		94,396		9,092
Gains on securities transactions, net		(12,275)		(202)
BOLI income		(4,076)		(4,129)
Decrease (increase) in loans held for sale, net		338		(41,681)
Losses (gains) on sales of foreclosed properties and former bank premises, net		10		147
Losses on debt extinguishment		10,306		—
Stock-based compensation expenses		4,652		4,204
Issuance of common stock for services		404		419
Net decrease (increase) in other assets		(172,997)		(54,426)
Net increase in other liabilities		151,888		15,710
Net cash provided by (used in) operating activities		123,214		30,020
Investing activities:
Purchases of AFS securities and restricted stock		(403,272)		(253,324)
Purchases of HTM securities		—		(47,217)
Proceeds from sales of AFS securities and restricted stock		228,271		387,949
Proceeds from maturities, calls and paydowns of AFS securities		171,345		108,115
Proceeds from maturities, calls and paydowns of HTM securities		5,927		1,410
Net increase in loans held for investment		(1,687,499)		(348,515)
Net increase in premises and equipment		(10,884)		(5,691)
Proceeds from sales of foreclosed properties and former bank premises		2,452		1,035
Cash paid in acquisitions		—		(12)
Cash acquired in acquisitions		—		46,164
Net cash provided by (used in) investing activities		(1,693,660)		(110,086)
Financing activities:
Net increase in noninterest-bearing deposits		1,375,821		235,882
Net increase in interest-bearing deposits		924,421		82,134
Net increase (decrease) in short-term borrowings		(359,037)		(619,562)
Cash paid for contingent consideration		—		(565)
Proceeds from issuance of long-term debt		189,941		500,000
Repayments of long-term debt		(230,306)		(20,000)
Cash dividends paid - common stock		(39,502)		(37,714)
Repurchase of common stock		(49,879)		—
Issuance of common stock		801		1,124
Issuance of preferred stock, net		166,363		—
Vesting of restricted stock, net of shares held for taxes		(2,189)		(1,954)
Net cash provided by (used in) financing activities		1,976,434		139,345
Increase (decrease) in cash and cash equivalents		405,988		59,279
Cash, cash equivalents and restricted cash at beginning of the period		436,032		261,199
Cash, cash equivalents and restricted cash at end of the period	$	842,020	$	320,478

-7-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~NINE~~

SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2020 AND ~~2016~~

2019

(Dollars in thousands)


	2020		2019
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	63,198	$	77,838
Income taxes		106		7,426

Supplemental schedule of noncash investing and financing activities
Transfers from loans (foreclosed properties) to foreclosed properties (loans)		615		1,171
Issuance of common stock in exchange for net assets in acquisitions		—		499,974

Transactions related to acquisitions
Assets acquired		—		2,855,359
Liabilities assumed		—		2,558,638

2017 2016
Operating activities:

Net income $ 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 8,307
7,617
Writedown of OREO 845
879
Amortization, net 10,500
10,241
Amortization (accretion) related to acquisition, net (158 ) 1,400
Provision for credit losses 7,345
7,376
Gains on securities transactions, net (782 ) (145 )
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 51
97
Stock-based compensation expenses 3,472
2,284
Issuance of common stock for services 561
379
Net decrease (increase) in other assets 4,952
(11,169 )
Net increase in other liabilities 909
11,192
Net cash and cash equivalents provided by (used in) operating activities 95,363
71,666
Investing activities:

Purchases of securities available for sale and restricted stock (205,965 ) (159,863 )
Purchases of securities held to maturity (7,836 ) —
Proceeds from sales of securities available for sale and restricted stock 91,911
18,272
Proceeds from maturities, calls and paydowns of securities available for sale 88,675
83,942
Proceeds from maturities, calls and paydowns of securities held to maturity 818
1,841
Net increase in loans held for investment (594,967 ) (479,346 )
Net increase in premises and equipment (7,139 ) (5,102 )
Proceeds from BOLI settlements 2,497
—
Proceeds from sales of other real estate owned 1,028
4,982
Cash paid in acquisition —
(4,077 )
Cash acquired in acquisitions —
207
Net cash and cash equivalents provided by (used in) investing activities (630,978 ) (539,144 )
Financing activities:

Net increase in noninterest-bearing deposits 141,524
69,331
Net increase in interest-bearing deposits 360,813
225,239
Net increase in short-term borrowings 40,556
276,748
Cash paid for contingent consideration (3,003 ) —
Proceeds from issuance of long-term debt 20,000
—
Repayments of long-term debt —
(32,500 )
Cash dividends paid - common stock (26,207 ) (24,957 )
Repurchase of common stock —
(33,176 )
Issuance of common stock 969
753
Vesting of restricted stock, net of shares held for taxes (1,313 ) (445 )
Net cash and cash equivalents provided by (used in) financing activities 533,339
480,993
Increase (decrease) in cash and cash equivalents (2,276 ) 13,515
Cash and cash equivalents at beginning of the period 179,237
142,660
Cash and cash equivalents at end of the period $ 176,961
$ 156,175
Supplemental Disclosure of Cash Flow Information

Cash payments for:

Interest $ 33,947
$ 21,812
Income taxes 19,600
19,800
Supplemental schedule of noncash investing and financing activities

Transfers between loans and other real estate owned $ 585
$ 865
Issuance of common stock in exchange for net assets in acquisition —
453

(1) Discontinued operations have an immaterial impact to the Company’s Consolidated Statements of Cash Flows.

See accompanying notes to consolidated financial statements.

-8-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1. ACCOUNTING POLICIES

The ~~consolidated financial statements include~~Company

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the ~~accounts~~holding company for Atlantic Union Bank. Atlantic Union Bank has 149 branches and approximately 170 ATMs located throughout Virginia, and in portions of ~~the Company~~Maryland and North Carolina. Middleburg Financial is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank affiliates of Atlantic Union Bank include: Old Dominion Capital Management, Inc., and its ~~wholly-owned subsidiaries. Significant inter-company accounts~~subsidiary, Outfitter Advisors, Ltd., Dixon, Hubard, Feinour, & Brown, Inc., and ~~transactions have been eliminated in consolidation.~~

Middleburg Investment Services, LLC, which provide investment advisory and/or brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

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.~~

year or any other period.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s ~~2016~~2019 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

~~Loans~~

Impact of COVID-19

On March 13, 2020, the United States President declared a national emergency in the face of a growing public health and economic crisis due to the COVID-19 global pandemic. Within a few days of the declaration of a national emergency, governors of states comprising the Company’s geographic footprint issued states of emergency in response to the novel COVID-19. As a result of this pandemic, actions were taken around the world to help mitigate the spread of COVID 19, which have impacted the economies and financial markets of many countries, including the geographical area in which the Company operates. On March 27, 2020, the CARES Act was signed into law. The ~~Company originates commercial~~CARES Act is designated to provide financial relief to the American people and ~~consumer loans~~American businesses in response to ~~customers. A substantial portion~~the economic fallout from COVID-19. On March 22, 2020, the five federal bank regulatory agencies and the Conference of State Bank Supervisors issued joint guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19. The CARES Act, as well as the March 22 Joint Guidance, provide enhanced guidelines and accounting for COVID-19 related modifications.

The federal banking regulators have confirmed with FASB that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) prior to any loan modification are not TDRs. In addition, Section 4013 of the CARES Act provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan ~~portfolio~~modification; however, the suspension is ~~represented by commercial~~only permitted for loan modifications made during the effective period of Section 4013 and ~~residential real estate~~only for those loans ~~(including acquisition and development loans and residential construction loans) throughout its market area.~~that were not more than thirty days past due as of December 31, 2019. The ~~ability~~Company has made $1.8 billion of loan modifications pursuant to the March 22 Joint Guidance or Section 4013 of the ~~Company’s debtors~~CARES Act and as of June 30, 2020 approximately $1.6 billion remain under their modified terms.

During the second quarter of 2020, the Company continued to ~~honor their contracts on such~~participate in the SBA PPP under the CARES Act. The Company processed over 11,000 loans, ~~is dependent upon~~which totaled $1.7 billion with a recorded investment of $1.6 billion as of June 30, 2020, through the ~~real estate~~SBA PPP. The loans carry a 1% interest rate 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~~Company recorded net PPP 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 ofapproximately $50.2 million, which are being amortized over 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 nine months ended September 30, 2017, the Company recognized amortization of $229,000 and $643,000, respectively, and tax credits of $240,000 and $724,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. For the three and nine months ended September 30, 2016, the Company recognized amortization of $185,000 and $445,000, respectively, and tax credits of $265,000 and $685,000, respectively. The carrying value of the Company’s investments in these qualified affordable housing projects was $9.1 million and $9.9 million as of September 30, 2017 and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, the Company's recorded liability totaled $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.

24-month period.

Adoption of New Accounting Standards

~~In March 2016,~~

On January 1, 2020, 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 via the modified retrospective approach. The Company performed its assessment of the adoption of this ASU and the related subsequent technical corrections issued. Based on the completed contracts reviewed thus far, the adoption of this accounting guidance is not expected to have a material impact on 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. The Company is currently working to identify the 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 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.~~”ASC 326. 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~~This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of

-9-

Table of Contents

reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to- maturity debt securities. It also applies to unfunded credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). The Company established a cross-functional governance structure to oversee the Company’s implementation of the CECL methodology, which included evaluating key assumptions used and assessing the internal controls over financial reporting related to the adoption of ASC 326. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and unfunded credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. As a result of adopting ASC 326, the Company recorded a net decrease to retained earnings of $39.1 million.

ASC 326 also replaced the Company’s current accounting for PCI loans. With the adoption of ASC 326, previously classified PCI loans are now classified as PCD loans. In accordance with ASC 326, the Company did not re-assess whether individual modifications were needed to individual acquired financial assets accounted for in the pools with troubled debt restructurings as of the date of adoption. The Company adopted ASC 326 using the prospective transition approach for financial assets with PCD that were previously identified as PCI and accounted for under ASC 310-30. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $2.4 million to the ACL. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1,2020.

The Company adopted ASC 326 using the prospective transition approach for debt securities. The effective interest rate on these debt securities was not changed. Upon adoption of ASC 326, the Company did not have any securities included in its portfolio where OTTI had previously beenrecognized.

The following table illustrates the impact of ASC326.


		December 31,		January 1,		January 1,
		2019		2020		2020
		As Previously Reported (Incurred Loss)		Impact of CECL Adoption		As Reported Under CECL
Assets:
Loans
Commercial	$	30,941	$	6,184	$	37,125
Consumer		11,353		41,300		52,653
Allowance for loan and lease losses		42,294		47,484		89,778
Liabilities:
Allowance for credit losses on unfunded credit exposure		900		4,160		5,060
Total Allowance for credit losses	$	43,194	$	51,644	$	94,838

Allowance for Loan and Lease Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance to an estimated balance that management considers adequate to absorb expected losses in the Company’s loan portfolio. The ALLL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Amortized cost is the principal balance outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.

The ALLL represents management’s estimate of credit losses over the remaining life of the loan portfolio. Loans are charged off against the ALLL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged off amounts are recorded as increases to theALLL.

Management’s determination of the adequacy of the ALLL is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience,

-10-

Table of Contents

reasonable and supportable forecasts, and other risk factors. The ALLL is estimated by pooling loans by call code and credit risk indicator and applying a loan-level PD/LGD method for all loans with the exception of its auto and third party consumer lending portfolios. For auto and third party consumer portfolios, the Company has elected to pool those loans based on similar risk characteristics to determine the ALLL using vintage and loss rate methods. The Company utilizes a forecast period of two years and then reverts to the mean of historical loss factors on a straight-line basis over the following two-year period. The Company considers economic forecasts and recession probabilities from highly recognized third-parties to inform the model for loss estimation. The Company’s ALLL estimate is particularly impacted by the unemployment rate forecast in its geographic footprint. In the current quarter forecast, the unemployment rate in the Company’s geographic footprint is projected to remain significantly elevated through the forecast period. Management also considers qualitative factors when estimating loan losses to take into account model limitations. For the current quarter, the largest qualitative additions were related to industries that are particularly impacted by the COVID pandemic, and were partially offset by qualitative reductions meant to account for enhanced unemployment benefits, bank deferrals, the PPP loan program and other factors. The Company’s Allowance Committee approves the key methodologies and assumptions, as well as the final ALLL on a quarterly basis. While management uses available information to estimate expected losses on loans, future changes in the ALLL may be necessary based on changes in portfolio composition, portfolio credit quality, and/or economic conditions.

Loans that do not share risk characteristics are evaluated on an individual basis. The individual reserve component relates to loans that have shown substantial credit deterioration as measured by risk rating and/or delinquency status. In addition, the Company has elected the practical expedient that would include loans for individual assessment consideration if the repayment of the loan is expected substantially through the operation or sale of collateral because the borrower is experiencing financial difficulty. Where the source of repayment is the sale of collateral, the ALLL is based on the fair value of the underlying collateral, less selling costs, compared to the amortized cost basis of the loan. If the ALLL is based on the operation of the collateral, the reserve is calculated based on the fair value of the collateral calculated as the present value of expected cash flows from the operation of the collateral, compared to the amortized cost basis. If the Company determines that the value of a collateral dependent loan is less than the recorded investment in the loan, the Company charges off the deficiency if it is determined that such amount is deemed to be a confirmed loss. Typically, a loss is confirmed when the Company is moving towards foreclosure (or final disposition).

In situations where, for economic or legal reasons related to a borrower’s financial condition, the Company grants a concession in the loan structure to the borrower that it would not otherwise consider, the related loan is classified as a TDR. With the exception of loans with interest rate concessions, the ALLL on a TDR is measured using the same method as all other loans held for investment. For loans with interest rate concessions, the Company uses a discounted cash flow approach using the original interest rate.

Reserve for Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is adjusted as a provision for credit loss expense and is measured using the same measurement objectives as the ALLL. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded and is included in “Other Liabilities” within the Company’s Consolidated Balance Sheets.

Accrued Interest Receivable

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ACL reserve for both loans and HTM securities, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest receivable totaled $45.7 million on loans held for investment and, $6.8 million on HTM securities at June 30, 2020 and is included in “Other Assets” on the Company’s consolidated balance sheet.

-11-

Table of Contents

Acquired Loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Acquired loans are recorded at their fair value at acquisition date without carryover of the acquiree’s previously established ALLL, as credit discounts are included in the determination of fair value. The fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and then applying a market-based discount rate to those cash flows. During evaluation upon acquisition, acquired loans are also classified as either PCD or acquired performing.

The purchase discount on acquired performing loans is accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs. The difference between the fair value and unpaid principal balance of the loan at acquisition date (premium or discount) is amortized or accreted into interest income over the life of the loans. If the acquired performing loan has revolving privileges, it is accounted for using the straight-line method; otherwise, the effective interest method is used.

PCD loans reflect loans that have experienced more-than-insignificant credit deterioration since origination. These PCD loans are accounted for under ASC 326. Credit risk characteristics include risk rating groups, nonaccrual status, and past due status. For valuation purposes, these pools are further disaggregated by maturity, pricing characteristics, and re-payment structure.

PCD loans are recorded at the amount paid. An ALLL is determined using the same methodology as other loans held for investment. For PCD loans not individually assessed, the initial ALLL is determined on a collective basis and is allocated to individual loans. The sum of the loan's purchase price and ALLL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.Subsequent changes to the ALLL are recorded through provision expense.

ThePCDloansareandwillcontinuetobesubjecttotheCompany’sinternalandexternalcreditreviewandmonitoring.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash, cash due from banks, interest-bearing deposits in other banks, money market investments, other interest-bearing deposits, and federal funds sold.

Restricted cash is disclosed in Note 8 “Commitments and Contingencies” and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other banks in the Company’s Consolidated Balance Sheets. In addition, the Company is required to maintain reserve balances with the Federal Reserve Bank based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions.

Investment Securities

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securitieswhere prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

The Company regularly evaluates all securities whose values have declined below amortized cost to assess whether the decline in fair value is the result of credit impairment. For AFS securities, the Company evaluates the fair value and credit quality of its AFS securities on at least a quarterly basis. In the event the fair value of a security falls below its amortized cost basis, the security will be evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality. The primary indicators of credit quality for the Company’s AFS portfolio are security type and credit rating, which are influenced by a number of security-specific factors that may include obligor cash flow, geography, seniority, and others.

-12-

Table of Contents

There is currently no ACL held against the Company’s AFS securities portfolio at June 30, 2020. See Note 3 “Securities,” for additional information on the Company’s ACL analysis. If unrealized losses are related to credit quality, the Company estimates the credit related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, an ACL shall be recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis. Non-credit related declines in fair value are recognized in other comprehensive income, net of applicable taxes. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Charge-offs are recorded against the ACL when management believes the AFS security is no longer collectible. Currently, the Company does not have an ACL on its AFS debt securities portfolio. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent.

The Company evaluates the credit risk of its HTM securities on at least a quarterly basis. Management estimates expected credit losses on held-to-maturity debt securities based on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. Management recorded an immaterial ACL on HTM securities as a result of the adoption of ASC 326, and no additional changes were needed at June 30, 2020.

-13-

Table of Contents

2. ACQUISITIONS

Access Acquisition

On February 1, 2019, the Company completed its acquisition of Access National Corporation (and its subsidiaries), a bank holding company based in Reston, Virginia. Holders of shares of Access’s common stock received 0.75 shares of the Company’s common stock in exchange for each share of Access’s common stock, resulting in the Company issuing 15,842,026 shares of the Company’s common stock at a fair value of approximately $500.0 million. In addition, the Company paid cash of approximately $12,000 in lieu of fractional shares.

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 350, Intangibles-Goodwill and Other. The measurement period was formally closed as of February 1, 2020, and the Company did not make any measurement period adjustments in 2020.

There were 0 merger-related costs associated with the acquisition of Access during the first six months of 2020. Merger- related costs associated with the acquisition of Access were $5.8 million and $23.6 million for the three and six months ended June 30, 2019, respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.

-14-

Table of Contents

3. SECURITIES

On January 1, 2020, the Company adopted ASC 326, which made changes to the accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires financial assets measured at amortized cost, including held-to-maturity debt securities, to measure an expected credit loss under the CECL methodology that requires 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~~For further discussion on 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~~Company’s accounting policies and ~~provide a framework for making judgments whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment~~policy elections related to the ~~Business Combinations Topic~~accounting standard update refer to Note 1 “Accounting Policies”.

All securities information presented as of June 30, 2020 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 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~~ASC 326. All securities information presented prior to March 31, 2020 is in accordance with previous applicable GAAP. ~~The amendment simplifies~~See the ~~application~~Company’s prior accounting policies in Note 1 “Summary of Significant Accounting Policies” 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~~

2019 Form 10-K.

Available for Sale

The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with 0 securities past due or on non-accrual as of June 30, 2020.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities ~~available for sale~~ as of ~~September~~June 30, ~~2017 and December 31, 2016~~2020 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Cost

Gains

(Losses)

Fair Value

June 30, 2020

U.S. government and agency securities

14,198

505

(57)

14,646

Obligations of states and political subdivisions

504,866

34,968

(307)

539,527

Corporate and other bonds ⁽¹⁾

132,489

1,122

(2,261)

131,350

Commercial mortgage-backed securities

Agency

337,721

18,600

(88)

356,233

Non-agency

20,253

—

20,315

Total commercial mortgage-backed securities

357,974

18,662

(88)

376,548

Residential mortgage-backed securities

Agency

841,571

37,643

(415)

878,799

Non-agency

75,790

494

(1,089)

75,195

Total residential mortgage-backed securities

917,361

38,137

(1,504)

953,994

Other securities

3,099

—

3,099

Total AFS securities

1,929,987

93,394

(4,217)

2,019,164

(1)	Other bonds include asset-backed securities.

Amortized Gross Unrealized Estimated
Cost Gains (Losses) Fair Value
September 30, 2017

Obligations of states and political subdivisions $ 285,921
$ 7,582
$ (1,304 ) $ 292,199
Corporate bonds 114,997
1,241
(816 ) 115,422
Mortgage-backed securities 546,038
4,119
(3,253 ) 546,904
Other securities 13,890
—
(54 ) 13,836
Total available for sale securities $ 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
Corporate bonds 123,674
892
(2,786 ) 121,780
Mortgage-backed securities 536,031
4,626
(5,371 ) 535,286
Other securities 13,885
—
(77 ) 13,808
Total available for sale securities $ 947,597
$ 10,480
$ (11,313 ) $ 946,764

Table of Contents

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, 2019 are summarized as follows (dollars in thousands):


	Amortized		Gross Unrealized				Estimated
December 31, 2019	Cost		Gains		(Losses)		Fair Value
U.S. government and agency securities	$	21,149	$	209	$	(38)	$	21,320
Obligations of states and political subdivisions		421,344		25,776		(29)		447,091
Corporate and other bonds ⁽¹⁾		134,342		1,991		(374)		135,959
Commercial mortgage-backed securities
Agency		405,731		8,786		(619)		413,898
Non-agency		11,173		—		(24)		11,149
Total commercial mortgage-backed securities		416,904		8,786		(643)		425,047
Residential mortgage-backed securities
Agency		852,300		16,680		(816)		868,164
Non-agency		44,309		476		—		44,785
Total residential mortgage-backed securities		896,609		17,156		(816)		912,949
Other securities		3,079		—		—		3,079
Total AFS securities	$	1,893,427	$	53,918	$	(1,900)	$	1,945,445

(1) Other bonds include asset-backed securities

-16-

Table of Contents

The following table shows the gross unrealized losses and fair value ~~(dollars in thousands)~~ of the Company’s ~~available for sale~~AFS securities with unrealized losses for which an allowance for credit losses has not been recorded at June 30, 2020 and that are not deemed to be ~~other-than-temporarily~~other than temporarily impaired as of ~~September 30, 2017 and~~ December 31, ~~2016.~~2019. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss ~~position.~~

position (dollars in thousands).


	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
June 30, 2020
U.S. government and agency securities	$	3,771	$	(28)	$	2,444	$	(29)	$	6,215		(57)
Obligations of states and political subdivisions		48,653		(307)		—		—		48,653	$	(307)
Corporate and other bonds⁽¹⁾		76,760		(1,739)		19,515		(522)		96,275		(2,261)
Commercial mortgage-backed securities		—		—		—		—		—		—
Agency		11,086		(88)		—		—		11,086		(88)
Non-agency		—		—		—		—		—		—
Total commercial mortgage-backed securities		11,086		(88)		—		—		11,086		(88)
Residential mortgage-backed securities		—		—		—		—		—		—
Agency		40,939		(390)		9,744		(25)		50,683		(415)
Non-agency		45,642		(1,089)		—		—		45,642		(1,089)
Total residential mortgage-backed securities		86,581		(1,479)		9,744		(25)		96,325		(1,504)
Total AFS securities	$	226,851	$	(3,641)	$	31,703	$	(576)	$	258,554	$	(4,217)

December 31, 2019
U.S. government and agency securities	$	7,638	$	(38)	$	—	$	—	$	7,638	$	(38)
Obligations of states and political subdivisions		4,526		(29)		—		—		4,526		(29)
Corporate and other bonds⁽¹⁾		17,323		(83)		19,901		(291)		37,224		(374)
Commercial mortgage-backed securities
Agency		43,552		(530)		14,966		(89)		58,518		(619)
Non-agency		11,162		(24)		—		—		11,162		(24)
Total commercial mortgage-backed securities		54,714		(554)		14,966		(89)		69,680		(643)
Residential mortgage-backed securities
Agency		114,147		(500)		40,168		(316)		154,315		(816)
Non-agency		—		—		—		—		—		—
Total residential mortgage-backed securities		114,147		(500)		40,168		(316)		154,315		(816)
Total AFS securities	$	198,348	$	(1,204)	$	75,035	$	(696)	$	273,383	$	(1,900)

Less than 12 months More than 12 months Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
September 30, 2017

Obligations of states and political subdivisions $ 55,319
$ (700 ) $ 9,338
$ (604 ) $ 64,657
$ (1,304 )
Mortgage-backed securities 283,466
(2,708 ) 42,481
(545 ) 325,947
(3,253 )
Corporate bonds and other securities 21,128
(353 ) 32,674
(517 ) 53,802
(870 )
Total available for sale securities $ 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 )
Mortgage-backed securities 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 )
Total available for sale securities $ 472,297
$ (9,523 ) $ 83,152
$ (1,790 ) $ 555,449
$ (11,313 )

(1) Other bonds includes asset-backed securities.

As of ~~September~~June 30, ~~2017,~~2020, there were ~~$84.5~~$31.7 million, or 3614 issues, of individual ~~available for sale~~AFS securities that had been in a continuous loss position for more than 12 ~~months. These securities~~months and had an aggregate unrealized loss of ~~$1.7 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds.~~$576,000. As of December 31, ~~2016,~~2019, there were ~~$83.2~~$75.0 million, or 3047 issues, of individual securities that had been in a continuous loss position for more than 12 ~~months. These~~months and had an aggregate unrealized loss of $696,000.

The Company has evaluated AFS securities ~~had~~in an unrealized loss ~~of $1.8 million~~position for credit related impairment at June 30, 2020 and ~~consisted~~December 31, 2019 and concluded 0 impairment existed based on several factors which included: (1) the majority of ~~municipal obligations, mortgage-backed securities, and corporate bonds. The Company has determined that~~ these securities are ~~temporarily impaired as~~ of ~~September 30, 2017 and December 31, 2016 for the reasons set out below:~~

~~Mortgage-backed securities.~~ ~~This category’s~~high credit quality, (2) unrealized losses are primarily the result of ~~interest rate fluctuations. Because~~market volatility, (3) 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~~issuer(s) to settle the securities at a price less than the cost basis of each ~~investment. Because~~investment, (4) issuers continue to make timely principal and interest payments, and (5) 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,~~basis.

-17-

Table of Contents

Additionally, 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 Company’s mortgage-backed securities ~~remain investment grade~~are issued by FNMA, FHLMC, and ~~the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments~~GNMA and do not ~~permit~~have credit risk given the ~~issuer to settle~~implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed securities atgenerally received 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.

20% SSFA rating.

The following table presents the amortized cost and estimated fair value of ~~available for sale~~AFS securities as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, by contractual ~~maturity (dollars in thousands).~~maturity. 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

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Due in one year or less $ 23,387
$ 23,510
$ 21,403
$ 21,517
Due after one year through five years 128,261
130,107
108,198
109,778
Due after five years through ten years 267,492
271,830
300,552
301,888
Due after ten years 541,706
542,914
517,444
513,581
Total securities available for sale $ 960,846
$ 968,361
$ 947,597
$ 946,764

~~For~~penalties (dollars in thousands).


	June 30, 2020				December 31, 2019
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	27,404	$	27,621	$	35,177	$	35,329
Due after one year through five years		148,289		155,504		164,605		166,873
Due after five years through ten years		233,029		237,974		249,713		254,790
Due after ten years		1,521,265		1,598,065		1,443,932		1,488,453
Total AFS securities	$	1,929,987	$	2,019,164	$	1,893,427	$	1,945,445

Refer to Note 8 "Commitments and Contingencies" for information regarding the estimated fair value of ~~available for sale~~AFS securities ~~which~~that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016, see Note 6 “Commitments and Contingencies.”~~

2019.

Held to Maturity

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities and the estimated credit loss inherent in the portfolio is currently immaterial. The Company’s HTM securities were all current, with 0 securities past due or on non-accrual at June 30, 2020.

The Company reports HTM securities ~~held to maturity~~ on the Company’s 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 AFS securities ~~available for sale~~ to ~~securities held to maturity.~~HTM securities. Investment securities transferred into the ~~held to maturity~~HTM category from the ~~available for sale~~AFS 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.~~HTM securities. 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 HTM securities ~~held to maturity~~ as of ~~September~~June 30, ~~2017 and December 31, 2016~~2020 are summarized as follows (dollars in thousands):


	Carrying		Gross Unrealized				Estimated
	Value		Gains		(Losses)		Fair Value
June 30, 2020
U.S. government and agency securities	$	2,781	$	—	$	(27)	$	2,754
Obligations of states and political subdivisions		539,187		65,944		—		605,131
Commercial mortgage-backed securities
Agency		5,593		1		(50)		5,544
Non-agency		—		—		—		—
Total commercial mortgage-backed securities		5,593		1		(50)		5,544
Total held-to-maturity securities	$	547,561	$	65,945	$	(77)	$	613,429

-18-

Carrying Gross Unrealized Estimated

Value ⁽¹⁾
Gains (Losses) Fair Value
September 30, 2017

Obligations of states and political subdivisions $ 204,801
$ 5,111
$ (77 ) $ 209,835

December 31, 2016

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

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

Table of Contents

~~(1)The carrying value includes $4.0 million as of September 30, 2017~~

Refer to Note 8 "Commitments and ~~$5.2 million as of December 31, 2016 of net unrealized gains present at the time of transfer from available~~Contingencies" for ~~sale securities, net of any accretion.~~

2019.

Restricted Stock, at cost

~~Other-Than-Temporary-Impairment~~

Realized Gains and Losses

Three Months Ended
September 30, 2017 Nine Months Ended September 30, 2017
Realized gains (losses):

Gross realized gains $ 296
$ 958
Gross realized losses (112 ) (176 )
Net realized gains $ 184
$ 782

Proceeds from sales of securities $ 39,284
$ 91,911

Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2016
Realized gains (losses):

Gross realized gains $ —
$ 242
Gross realized losses —
(97 )
Net realized gains $ —
$ 145

Proceeds from sales of securities $ 2,848
$ 18,272

4. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

September 30, 2017 December 31, 2016
Construction and Land Development $ 841,738
$ 751,131
Commercial Real Estate - Owner Occupied 903,523
857,805
Commercial Real Estate - Non-Owner Occupied 1,748,039
1,564,295
Multifamily Real Estate 368,686
334,276
Commercial & Industrial 554,522
551,526
Residential 1-4 Family 1,083,112
1,029,547
Auto 276,572
262,071
HELOC 535,446
526,884
Consumer and all other 587,091
429,525
Total loans held for investment, net ⁽¹⁾
$ 6,898,729
$ 6,307,060

⁽¹⁾Commercial & industrial and other commercial loans include approximately $1.6 billion and $20.3 million, respectively, in new loans from the PPP loan program at June 30, 2020.

~~(1)Loans, as presented, are net~~

Table of ~~deferred fees and costs totaling $335,000 and $1.8 million as of September 30, 2017 and December 31, 2016, respectively.~~Contents

The following table shows the aging of the Company’s loan portfolio, by ~~segment,~~class, at ~~September~~June 30, ~~2017~~2020 (dollars in thousands):


					Greater than
			30-59 Days		60-89 Days		90 Days and
	Current		Past Due		Past Due		still Accruing		Nonaccrual		Total Loans
Construction and Land Development	$	1,241,512	$	1,683	$	294	$	473	$	3,977	$	1,247,939
Commercial Real Estate - Owner Occupied		2,048,203		1,679		430		7,851		8,924		2,067,087
Commercial Real Estate - Non-Owner Occupied		3,451,071		930		369		878		1,877		3,455,125
Multifamily Real Estate		717,320		—		—		366		33		717,719
Commercial & Industrial		3,551,187		1,602		296		178		2,708		3,555,971
Residential 1-4 Family - Commercial		706,437		480		2,105		578		5,784		715,384
Residential 1-4 Family - Consumer		818,877		1,229		3,817		5,099		12,029		841,051
Residential 1-4 Family - Revolving		619,172		1,924		1,048		1,995		3,626		627,765
Auto		377,822		1,176		290		181		584		380,053
Consumer		308,719		844		561		1,157		81		311,362
Other Commercial		388,234		456		—		499		1		389,190
Total loans held for investment	$	14,228,554	$	12,003	$	9,210	$	19,255	$	39,624	$	14,308,646

These balances reflect the impact of the CARES Act and the March 22 Joint Guidance which provides relief for TDR designations and also provides guidance on past due reporting for modified loans.

The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020 as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of June 30, 2020 (dollars in thousands):


	Nonaccrual
	January 1, 2020		June 30, 2020		Nonaccrual With No ALLL		90 Days and still Accruing
Construction and Land Development	$	4,060	$	3,977	$	1,987	$	473
Commercial Real Estate - Owner Occupied		13,889		8,924		1,990		7,851
Commercial Real Estate - Non-Owner Occupied		1,368		1,877		—		878
Multifamily Real Estate		—		33		—		366
Commercial & Industrial		3,037		2,708		—		178
Residential 1-4 Family - Commercial		6,492		5,784		1,738		578
Residential 1-4 Family - Consumer		13,117		12,029		1,069		5,099
Residential 1-4 Family - Revolving		2,490		3,626		60		1,995
Auto		565		584		—		181
Consumer		88		81		—		1,157
Other Commercial		98		1		—		499
Total loans held for investment	$	45,204	$	39,624	$	6,844	$	19,255

There was 0 interest income recognized on nonaccrual loans during the three or six months ended June 30, 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2019 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

-22-

Table of Contents

Troubled Debt Restructurings

The CARES Act permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. As of June 30, 2020, the Company had approximately $1.6 billion in loans still under their modified terms. The Company’s modification program included payment deferrals, interest only, and other forms of modifications. A majority of the modifications were 3-month deferrals.

In addition to the above mentioned modifications, as of June 30, 2020, the Company has TDRs totaling $20.3 million with an estimated $1.9 million of allowance for those loans for the current period.

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 credit losses in accordance with the Company’s ALLL methodology. For the three months and six ended June 30, 2020, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable 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 30, 2020 (dollars in thousands):


	June 30, 2020
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	222	$	—
Commercial Real Estate - Owner Occupied	6		2,218		26
Commercial Real Estate - Non-Owner Occupied	1		1,089		—
Commercial & Industrial	5		1,129		—
Residential 1-4 Family - Commercial	4		214		—
Residential 1-4 Family - Consumer	79		9,886		—
Residential 1-4 Family - Revolving	2		55		—
Consumer	5		34		—
Other Commercial	1		456		—
Total performing	107	$	15,303	$	26
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	165	$	—
Commercial & Industrial	2		128		—
Residential 1-4 Family - Commercial	1		71		—
Residential 1-4 Family - Consumer	21		4,572		—
Residential 1-4 Family - Revolving	3		106		—
Total nonperforming	29	$	5,042	$	—
Total performing and nonperforming	136	$	20,345	$	26

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. During the three and six months ended June 30, 2020, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

-23-

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 $ 7,221
$ 100
$ 54
$ 3,026
$ 5,671
$ 825,666
$ 841,738
Commercial Real Estate - Owner Occupied 1,707
689
679
17,668
2,205
880,575
903,523
Commercial Real Estate - Non-Owner Occupied 909
571
298
14,376
2,701
1,729,184
1,748,039
Multifamily Real Estate —
—
—
77
—
368,609
368,686
Commercial & Industrial 1,558
255
101
625
1,252
550,731
554,522
Residential 1-4 Family 5,633
1,439
2,360
14,077
6,163
1,053,440
1,083,112
Auto 2,415
293
143
—
174
273,547
276,572
HELOC 1,400
628
709
982
1,791
529,936
535,446
Consumer and all other 3,469
1,445
188
210
165
581,614
587,091
Total loans held for investment $ 24,312
$ 5,420
$ 4,532
$ 51,041
$ 20,122
$ 6,793,302
$ 6,898,729

Table of Contents

The following table shows, by class and modification type, TDRs that occurred during the three and six months ended June 30, 2020 (dollars in thousands):


	All Restructurings
	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—	—	$	—

Term modification, at a market rate
Commercial & Industrial	4	$	353	4	$	353
Residential 1-4 Family - Consumer	3		326	3		326
Consumer	1		10	1		10
Total loan term extended at a market rate	8	$	689	8	$	689

Term modification, below market rate
Construction and Land Development	—	$	—	1	$	35
Residential 1-4 Family - Consumer	3		172	13		1,937
Residential 1-4 Family - Revolving	1		52	1		52
Total loan term extended at a below market rate	4	$	224	15	$	2,024

Interest rate modification, below market rate
Total interest only at below market rate of interest	—	$	—	—	$	—

Total	12	$	913	23	$	2,713

Allowance for Loan and Lease Losses

ALLL on the loan portfolio is a material estimate for the Company. The Company estimates its ALLL on its loan portfolio on a quarterly basis. The Company models the ALLL using two primary segments, Commercial and Consumer. Within each segment, loan classes are further identified based on similar risk characteristics. The Company has identified the following classes within each segment:

●

Commercial: Construction and Land Development, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Multifamily Real Estate, Commercial & Industrial, Residential 1-4 Family – Commercial, and Other Commercial

●

Consumer: Residential 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer

The following tables show the ALLL activity by segment for the three and six months ended June 30, 2020 (dollars in thousands):





	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	77,843	$	63,200	$	141,043	$	30,941	$	11,353	$	42,294
Impact of ASC 326 adoption on non-PCD loans		—		—		—		4,432		40,666		45,098
Impact of ASC 326 adoption on PCD loans		—		—		—		1,752		634		2,386
Impact of adopting ASC 326		—		—		—		6,184		41,300		47,484
Loans charged-off		(1,590)		(3,087)		(4,677)		(4,558)		(7,270)		(11,828)
Recoveries credited to allowance		708		703		1,411		1,862		1,709		3,571
Provision charged to operations		34,993		(2,793)		32,200		77,525		10,931		88,456
Balance at end of period	$	111,954	$	58,023	$	169,977	$	111,954	$	58,023	$	169,977

-24-

Table of Contents

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer segments. For classes of loans within the Commercial segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is risk rating categories of Pass, Watch & Special Mention, Substandard, and Doubtful. For classes of loans within the Consumer segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, these indicators are primarily used in estimating the ALLL. The Company evaluates the credit risk of its loan portfolio on at least a quarterly basis.

Commercial Loans

The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. 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 credit loss; 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 with General Obligation Municipal 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;

Watch & 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;

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;

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

-25-

Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of June 30, 2020 (dollars in thousands):


		June 30, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Construction and Land Development
Pass	$	137,981	$	453,779	$	395,935	$	64,529	$	47,982	$	70,524	$	29,060	$	1,199,790
Watch & Special Mention		4,492		6,859		1,061		350		5,759		16,202		2,509		37,232
Substandard		—		1		59		962		2,468		7,427		—		10,917
Total Construction and Land Development	$	142,473	$	460,639	$	397,055	$	65,841	$	56,209	$	94,153	$	31,569	$	1,247,939

Commercial Real Estate - Owner Occupied
Pass	$	144,263	$	384,862	$	290,813	$	258,877	$	147,657	$	658,853	$	23,773	$	1,909,098
Watch & Special Mention		—		10,694		24,683		15,082		28,604		57,783		2,475		139,321
Substandard		—		—		1,106		400		1,123		15,664		375		18,668
Total Commercial Real Estate - Owner Occupied	$	144,263	$	395,556	$	316,602	$	274,359	$	177,384	$	732,300	$	26,623	$	2,067,087

Commercial Real Estate - Non-Owner Occupied
Pass	$	214,340	$	515,046	$	488,913	$	498,462	$	455,214	$	1,121,284	$	50,855	$	3,344,114
Watch & Special Mention		1,265		17,170		14,631		16,585		20,830		33,911		249		104,641
Substandard		—		—		164		—		25		5,981		200		6,370
Total Commercial Real Estate - Non-Owner Occupied	$	215,605	$	532,216	$	503,708	$	515,047	$	476,069	$	1,161,176	$	51,304	$	3,455,125

Commercial & Industrial
Pass	$	1,868,291	$	439,598	$	241,038	$	85,126	$	82,301	$	169,136	$	601,547	$	3,487,037
Watch & Special Mention		1,630		4,963		11,326		2,963		5,536		5,656		27,680		59,754
Substandard		—		484		828		158		826		2,806		4,078		9,180
Total Commercial & Industrial	$	1,869,921	$	445,045	$	253,192	$	88,247	$	88,663	$	177,598	$	633,305	$	3,555,971

Multifamily Real Estate
Pass	$	79,312	$	80,058	$	70,145	$	144,193	$	70,943	$	245,687	$	6,904	$	697,242
Watch & Special Mention		—		653		4,415		8,254		1,137		5,619		—		20,078
Substandard		—		—		—		—		—		399		—		399
Total Multifamily Real Estate	$	79,312	$	80,711	$	74,560	$	152,447	$	72,080	$	251,705	$	6,904	$	717,719

Residential 1-4 Family - Commercial
Pass	$	58,222	$	105,249	$	78,610	$	97,653	$	82,407	$	244,579	$	1,721	$	668,441
Watch & Special Mention		1,214		5,356		8,535		5,022		2,053		14,874		—		37,054
Substandard		—		485		324		630		1,180		6,782		488		9,889
Total Residential 1-4 Family - Commercial	$	59,436	$	111,090	$	87,469	$	103,305	$	85,640	$	266,235	$	2,209	$	715,384

Other Commercial
Pass	$	121,097	$	114,883	$	10,376	$	40,118	$	16,919	$	60,477	$	18,630	$	382,500
Watch & Special Mention		—		—		629		1,324		927		3,251		—		6,131
Substandard		—		—		—		59		—		500		—		559
Total Other Commercial	$	121,097	$	114,883	$	11,005	$	41,501	$	17,846	$	64,228	$	18,630	$	389,190

Total Commercial
Pass	$	2,623,506	$	2,093,475	$	1,575,830	$	1,188,958	$	903,423	$	2,570,540	$	732,490	$	11,688,222
Watch & Special Mention		8,601		45,695		65,280		49,580		64,846		137,296		32,913		404,211
Substandard		—		970		2,481		2,209		5,622		39,559		5,141		55,982
Total Commercial	$	2,632,107	$	2,140,140	$	1,643,591	$	1,240,747	$	973,891	$	2,747,395	$	770,544	$	12,148,415

-26-

Table of Contents

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of June 30, 2020 (dollars in thousands):


		June 30, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	91,069	$	86,537	$	90,968	$	87,658	$	120,412	$	342,221	$	12	$	818,877
30-59 Days Past Due		37		—		20		90		185		897		—		1,229
60-89 Days Past Due		—		636		109		1,986		250		836		—		3,817
90+ Days Past Due		162		1,756		151		446		223		2,361		—		5,099
Nonaccrual		—		—		718		879		790		9,642		—		12,029
Total Residential 1-4 Family - Consumer	$	91,268	$	88,929	$	91,966	$	91,059	$	121,860	$	355,957	$	12	$	841,051

Residential 1-4 Family - Revolving
Current	$	9,667	$	4,666	$	2,167	$	18	$	—	$	653	$	602,001	$	619,172
30-59 Days Past Due		—		—		—		—		—		—		1,924		1,924
60-89 Days Past Due		—		—		—		—		—		—		1,048		1,048
90+ Days Past Due		—		—		—		—		—		—		1,995		1,995
Nonaccrual		—		—		—		—		—		314		3,312		3,626
Total Residential 1-4 Family - Revolving	$	9,667	$	4,666	$	2,167	$	18	$	—	$	967	$	610,280	$	627,765

Consumer
Current	$	24,807	$	91,712	$	94,273	$	30,170	$	13,211	$	18,930	$	35,616	$	308,719
30-59 Days Past Due		14		261		407		74		61		2		25		844
60-89 Days Past Due		19		198		296		30		6		—		12		561
90+ Days Past Due		—		92		382		85		19		215		364		1,157
Nonaccrual		—		—		—		—		2		79		—		81
Total Consumer	$	24,840	$	92,263	$	95,358	$	30,359	$	13,299	$	19,226	$	36,017	$	311,362

Auto
Current	$	89,044	$	138,532	$	70,484	$	43,386	$	24,536	$	11,840	$	—	$	377,822
30-59 Days Past Due		88		291		247		254		186		110		—		1,176
60-89 Days Past Due		—		90		21		41		84		54		—		290
90+ Days Past Due		—		11		62		58		9		41		—		181
Nonaccrual		—		142		84		112		161		85		—		584
Total Auto	$	89,132	$	139,066	$	70,898	$	43,851	$	24,976	$	12,130	$	—	$	380,053
��
Total Consumer
Current	$	214,587	$	321,447	$	257,892	$	161,232	$	158,159	$	373,644	$	637,629	$	2,124,590
30-59 Days Past Due		139		552		674		418		432		1,009		1,949		5,173
60-89 Days Past Due		19		924		426		2,057		340		890		1,060		5,716
90+ Days Past Due		162		1,859		595		589		251		2,617		2,359		8,432
Nonaccrual		—		142		802		991		953		10,120		3,312		16,320
Total Consumer	$	214,907	$	324,924	$	260,389	$	165,287	$	160,135	$	388,280	$	646,309	$	2,160,231

The Company did not have any material revolving loans convert to term during the three and six months ended June 30, 2020.

-27-

Table of Contents

Acquired Loans

The Company has purchased loans that, at the time of acquisition, exhibited more than insignificant credit deterioration since origination. The Company has elected to treat all loans that were previously identified as PCI as PCD. As of June 30, 2020, the amortized cost of the Company’s PCD loans totaled $73.2 million, which had an estimated ALLL of $4.5 million.

Prior to the adoption of ASC 326

The following table shows the aging of the Company’s loan portfolio, by ~~segment,~~class, at December 31, ~~2016~~2019 (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


					Greater than
	30-59 Days		60-89 Days		90 Days and
	Past Due		Past Due		still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	4,563	$	482	$	189	$	10,944	$	3,703	$	1,231,043	$	1,250,924
Commercial Real Estate - Owner Occupied		3,482		2,184		1,062		27,438		6,003		2,001,074		2,041,243
Commercial Real Estate - Non-Owner Occupied		457		—		1,451		14,565		381		3,269,244		3,286,098
Multifamily Real Estate		223		—		474		94		—		632,952		633,743
Commercial & Industrial		8,698		1,598		449		1,579		1,735		2,099,974		2,114,033
Residential 1-4 Family - Commercial		1,479		2,207		674		12,205		4,301		703,471		724,337
Residential 1-4 Family - Consumer		16,244		3,072		4,515		14,713		9,292		842,667		890,503
Residential 1-4 Family - Revolving		10,190		1,784		3,357		4,127		2,080		637,966		659,504
Auto		2,525		236		272		4		563		346,819		350,419
Consumer		2,128		1,233		953		668		77		367,794		372,853
Other Commercial		464		—		—		344		97		286,374		287,279
Total loans held for investment	$	50,453	$	12,796	$	13,396	$	86,681	$	28,232	$	12,419,378	$	12,610,936

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

30-89 Days Past
Due

Greater than 90
Days
Current Total
Construction and Land Development $ 62
$ —
$ 2,964
$ 3,026
Commercial Real Estate - Owner Occupied 463
643
16,562
17,668
Commercial Real Estate - Non-Owner Occupied 318
1,032
13,026
14,376
Multifamily Real Estate —
—
77
77
Commercial & Industrial —
—
625
625
Residential 1-4 Family 949
1,125
12,003
14,077
HELOC 132
128
722
982
Consumer and all other 34
—
176
210
Total $ 1,958
$ 2,928
$ 46,155
$ 51,041

~~The following table shows the PCI loan portfolios, by segment~~class and their delinquency status, at December 31, ~~2016~~2019 (dollars in thousands):


	30-89 Days		Greater than
	Past Due		90 Days		Current		Total
Construction and Land Development	$	136	$	343	$	10,465	$	10,944
Commercial Real Estate - Owner Occupied		480		6,884		20,074		27,438
Commercial Real Estate - Non-Owner Occupied		848		987		12,730		14,565
Multifamily Real Estate		—		—		94		94
Commercial & Industrial		—		989		590		1,579
Residential 1-4 Family - Commercial		543		1,995		9,667		12,205
Residential 1-4 Family - Consumer		927		1,781		12,005		14,713
Residential 1-4 Family - Revolving		287		205		3,635		4,127
Auto		—		—		4		4
Consumer		—		9		659		668
Other Commercial		—		—		344		344
Total	$	3,221	$	13,193	$	70,267	$	86,681

-28-

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~~

As of December 31, 2019, the Company ~~measures~~measured 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~~class at ~~September 30, 2017 and~~ December 31, ~~2016~~2019 (dollars in thousands):


	December 31, 2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
Loans without a specific allowance
Construction and Land Development	$	5,877	$	7,174	$	—
Commercial Real Estate - Owner Occupied		8,801		9,296		—
Commercial Real Estate - Non-Owner Occupied		3,510		4,059		—
Commercial & Industrial		3,668		3,933		—
Residential 1-4 Family - Commercial		4,047		4,310		—
Residential 1-4 Family - Consumer		8,420		9,018		—
Residential 1-4 Family - Revolving		862		865		—
Total impaired loans without a specific allowance	$	35,185	$	38,655	$	—
Loans with a specific allowance
Construction and Land Development	$	984	$	1,032	$	49
Commercial Real Estate - Owner Occupied		2,820		3,093		146
Commercial Real Estate - Non-Owner Occupied		335		383		2
Commercial & Industrial		2,568		2,590		619
Residential 1-4 Family - Commercial		1,726		1,819		162
Residential 1-4 Family - Consumer		12,026		12,670		1,242
Residential 1-4 Family - Revolving		2,186		2,369		510
Auto		563		879		221
Consumer		168		336		46
Other Commercial		562		567		30
Total impaired loans with a specific allowance	$	23,938	$	25,738	$	3,027
Total impaired loans	$	59,123	$	64,393	$	3,027

The following ~~tables show~~table shows the average recorded investment and interest income recognized for the Company’s ~~impaired~~ loans, excluding PCI loans, by ~~segment~~class for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016~~2019 (dollars in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			Interest				Interest
	Average		Income		Average		Income
	Investment		Recognized		Investment		Recognized
Construction and Land Development	$	7,811	$	13	$	8,167	$	54
Commercial Real Estate - Owner Occupied		12,002		91		12,030		200
Commercial Real Estate - Non-Owner Occupied		6,931		60		6,944		119
Commercial & Industrial		3,038		27		3,081		59
Residential 1-4 Family - Commercial		6,125		29		5,848		56
Residential 1-4 Family - Consumer		19,830		50		19,939		187
Residential 1-4 Family - Revolving		3,489		38		3,506		78
Auto		493		—		520		1
Consumer		191		2		195		3
Other Commercial		579		7		583		15
Total impaired loans	$	60,489	$	317	$	60,813	$	772

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017

Average
Investment

Interest Income
Recognized

Average
Investment

Interest Income
Recognized
Construction and Land Development $ 15,654
$ 128
$ 15,378
$ 368
Commercial Real Estate - Owner Occupied 7,354
62
7,407
245
Commercial Real Estate - Non-Owner Occupied 7,597
57
7,584
185
Commercial & Industrial 4,139
36
4,203
121
Residential 1-4 Family 14,218
94
14,358
261
Auto 192
—
223
2
HELOC 2,460
7
2,492
29
Consumer and all other 800
8
690
20
Total impaired loans $ 52,414
$ 392
$ 52,335
$ 1,231

Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2016
Average
Investment Interest Income
Recognized Average
Investment Interest Income
Recognized
Construction and Land Development $ 28,195
$ 464
$ 27,645
$ 1,346
Commercial Real Estate - Owner Occupied 7,691
72
7,862
230
Commercial Real Estate - Non-Owner Occupied 3,777
33
3,759
98
Commercial & Industrial 4,628
42
4,964
134
Residential 1-4 Family 13,106
89
13,439
267
Auto 271
—
289
4
HELOC 2,118
7
2,185
35
Consumer and all other 453
—
620
6
Total impaired loans $ 60,239
$ 707
$ 60,763
$ 2,120

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

Table of Contents

The following table shows, by ~~segment~~class and modification type, TDRs that occurred during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 (dollars in thousands):

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
Modified to interest only, at a market rate
Commercial & Industrial 3
$ 936
8
$ 1,596
Total interest only at market rate of interest 3
$ 936
8
$ 1,596

Term modification, at a market rate

Construction and Land Development 1
$ 160
4
$ 1,150
Commercial Real Estate - Owner Occupied 1
380
1
380
Commercial Real Estate - Non-Owner Occupied 1
571
3
2,196
Commercial & Industrial —
—
4
969
Residential 1-4 Family 3
1,647
8
2,574
Consumer and all other 1
26
2
522
Total loan term extended at a market rate 7
$ 2,784
22
$ 7,791

Term modification, below market rate
Commercial Real Estate - Owner Occupied —
$ —
1
$ 841
Commercial & Industrial —
—
3
179
Residential 1-4 Family 1
40
8
1,143
Total loan term extended at a below market rate 1
$ 40
12
$ 2,163

Total 11
$ 3,760
42
$ 11,550

~~The following table shows, by segment~~


	All Restructurings
	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—	—	$	—

Term modification, at a market rate
Residential 1-4 Family - Commercial	—	$	—	1	$	74
Residential 1-4 Family - Consumer	1		43	3		299
Consumer	—		—	1		9
Total loan term extended at a market rate	1	$	43	5	$	382

Term modification, below market rate
Residential 1-4 Family - Consumer	9	$	483	14	$	1,410
Consumer	—		—	1		6
Total loan term extended at a below market rate	9	$	483	15	$	1,416

Total	10	$	526	20	$	1,798

Allowance for Loan and ~~modification type, TDRs that occurred during the three and nine months ended September 30, 2016 (dollars in thousands):~~

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
Term modification, at a market rate

Construction and Land Development —
$ —
1
$ 1,177
Commercial Real Estate - Owner Occupied —
—
2
739
Commercial & Industrial 1
457
1
457
Residential 1-4 Family —
—
2
474
Total loan term extended at a market rate 1
$ 457
6
$ 2,847

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

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

Total 1
$ 457
8
$ 3,008

Lease Losses

The following table shows the ~~allowance for loan loss~~ALLL activity ~~balances for allowance for loan losses, and loan balances based on impairment methodology~~ by ~~segment~~class for the ~~nine~~six months ended ~~and as of September~~June 30, ~~2017.~~2019. 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):


	Six Months Ended June 30, 2019
	Allowance for loan losses
	Balance,		Recoveries		Loans		Provision		Balance,
	beginning of		credited to		charged		charged to		end of
	the year		allowance		off		operations		period
Construction and Land Development	$	6,803	$	97	$	(800)	$	(101)	$	5,999
Commercial Real Estate - Owner Occupied		4,023		54		(231)		235		4,081
Commercial Real Estate - Non-Owner Occupied		8,865		92		—		654		9,611
Multifamily Real Estate		649		85		—		(70)		664
Commercial & Industrial		7,636		681		(1,858)		1,237		7,696
Residential 1-4 Family - Commercial		1,692		127		(267)		66		1,618
Residential 1-4 Family - Consumer		1,492		219		(37)		218		1,892
Residential 1-4 Family - Revolving		1,297		434		(523)		47		1,255
Auto		1,443		339		(703)		334		1,413
Consumer and all other⁽¹⁾		7,145		1,238		(7,454)		7,305		8,234
Total	$	41,045	$	3,366	$	(11,873)	$	9,925	$	42,463

Allowance for loan losses

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
$ 193
$ (2,115 ) $ 535
$ 8,668
Commercial Real Estate - Owner Occupied 3,801
84
(46 ) (620 ) 3,219
Commercial Real Estate - Non-Owner Occupied 6,622
2
(1,181 ) 1,825
7,268
Multifamily Real Estate 1,236
—
—
(136 ) 1,100
Commercial & Industrial 4,627
451
(1,241 ) 1,526
5,363
Residential 1-4 Family 6,399
332
(815 ) (35 ) 5,881
Auto 946
352
(761 ) 398
935
HELOC 1,328
240
(861 ) 675
1,382
Consumer and all other 2,178
905
(2,929 ) 3,192
3,346
Total $ 37,192
$ 2,559
$ (9,949 ) $ 7,360
$ 37,162

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

-31-

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
Construction and Land Development $ 15,236
$ 113
$ 823,476
$ 8,555
$ 3,026
$ —
$ 841,738
$ 8,668
Commercial Real Estate - Owner Occupied 7,356
157
878,499
3,062
17,668
—
903,523
3,219
Commercial Real Estate - Non-Owner Occupied 7,580
42
1,726,083
7,226
14,376
—
1,748,039
7,268
Multifamily Real Estate —
—
368,609
1,100
77
—
368,686
1,100
Commercial & Industrial 4,143
909
549,754
4,454
625
—
554,522
5,363
Residential 1-4 Family 13,931
249
1,055,104
5,632
14,077
—
1,083,112
5,881
Auto 174
1
276,398
934
—
—
276,572
935
HELOC 2,417
56
532,047
1,326
982
—
535,446
1,382
Consumer and all other 763
43
586,118
3,303
210
—
587,091
3,346
Total loans held for investment, net $ 51,600
$ 1,570
$ 6,796,088
$ 35,592
$ 51,041
$ —
$ 6,898,729
$ 37,162

Loans individually evaluated

Loans collectively evaluated for

deteriorated credit quality

Pass is determined by the following criteria:

•~~Risk rated 0 loans have little or no risk and are with General Obligation Municipal 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.~~

●

Risk rated 0 loans have little or no risk and are with General Obligation Municipal 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.

Watch & 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;

●

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

•~~Risk rated 5 loans are watch loans that warrant more than the normal level~~

-32-

Table of ~~supervision and have the possibility of an~~Contents

~~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.~~

●

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 September 30, 2017 (dollars in thousands):~~

Pass Special Mention Substandard Doubtful Total
Construction and Land Development $ 768,206
$ 57,190
$ 13,201
$ 115
$ 838,712
Commercial Real Estate - Owner Occupied 834,265
47,019
4,571
—
885,855
Commercial Real Estate - Non-Owner Occupied 1,702,500
23,764
7,399
—
1,733,663
Multifamily Real Estate 361,175
7,434
—
—
368,609
Commercial & Industrial 534,594
16,400
2,903
—
553,897
Residential 1-4 Family 1,045,736
15,878
4,480
2,941
1,069,035
Auto 273,446
2,910
143
73
276,572
HELOC 530,263
2,427
1,051
723
534,464
Consumer and all other 583,728
2,618
530
5
586,881
Total $ 6,633,913
$ 175,640
$ 34,278
$ 3,857
$ 6,847,688

●

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 December 31, ~~2016~~2019 (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 September 30, 2017 (dollars in thousands):~~

Pass Special Mention Substandard Doubtful Total
Construction and Land Development $ 1,460
$ 1,311
$ 255
$ —
$ 3,026
Commercial Real Estate - Owner Occupied 5,521
8,237
3,910
—
17,668
Commercial Real Estate - Non-Owner Occupied 10,676
2,435
1,265
—
14,376
Multifamily Real Estate —
77
—
—
77
Commercial & Industrial 94
309
222
—
625
Residential 1-4 Family 7,498
4,227
1,577
775
14,077
HELOC 722
132
6
122
982
Consumer and all other 154
46
10
—
210
Total $ 26,125
$ 16,774
$ 7,245
$ 897
$ 51,041


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,197,066	$	37,182	$	5,732	$	—	$	1,239,980
Commercial Real Estate - Owner Occupied		1,916,492		87,004		10,309		—		2,013,805
Commercial Real Estate - Non-Owner Occupied		3,205,463		62,368		3,608		94		3,271,533
Multifamily Real Estate		613,844		19,396		409		—		633,649
Commercial & Industrial		2,043,903		60,495		8,048		8		2,112,454
Residential 1-4 Family - Commercial		680,894		24,864		6,374		—		712,132
Residential 1-4 Family - Consumer		841,408		13,592		20,534		256		875,790
Residential 1-4 Family - Revolving		641,069		6,373		7,935		—		655,377
Auto		345,960		2,630		1,825		—		350,415
Consumer		371,315		550		320		—		372,185
Other Commercial		284,914		1,863		158		—		286,935
Total	$	12,142,328	$	316,317	$	65,252	$	358	$	12,524,255

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, ~~2016~~2019 (dollars in thousands):


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,092	$	3,692	$	6,160	$	—	$	10,944
Commercial Real Estate - Owner Occupied		8,264		10,524		8,650		—		27,438
Commercial Real Estate - Non-Owner Occupied		3,826		9,415		1,324		—		14,565
Multifamily Real Estate		—		94		—		—		94
Commercial & Industrial		127		25		1,427		—		1,579
Residential 1-4 Family - Commercial		6,000		2,693		3,512		—		12,205
Residential 1-4 Family - Consumer		9,947		557		4,209		—		14,713
Residential 1-4 Family - Revolving		2,887		707		533		—		4,127
Auto		2		—		2		—		4
Consumer		657		—		11		—		668
Other Commercial		120		224		—		—		344
Total	$	32,922	$	27,931	$	25,828	$	—	$	86,681

-33-

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

For the Nine Months Ended
September 30,
2017 2016
Balance at beginning of period $ 19,739
$ 22,139
Accretion (4,896 ) (4,232 )
Reclass of nonaccretable difference due to improvement in expected cash flows 2,175
3,580
Other, net ⁽¹⁾
(452 ) (1,149 )
Balance at end of period $ 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.

Table of Contents

5. 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~~intangibles are being amortized over the period of expected benefit, which ranges from 4 to 1410 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 54 to 10 years, using ~~a straight-line method.~~

various methods.

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 COVID-19 pandemic has disrupted the economy and created significant volatility in the financial markets. The volatility in the financial markets has adversely affected the Company’s expected future cash flows, due to the lower interest rate environment and other factors, and resulted in a decline in the market price of the Company’s common stock, along with others in the financial services industry. The Company performed its annual impairment testing in the second quarter of ~~2017~~2020 and, while the fair value of the reporting unit declined from the prior test, the Company determined that there was no0 impairment to its goodwill or intangible assets.

In the normal course of business, the Company routinely monitors the impact of the changes in the financial markets and includes these assessments in the Company’s goodwill impairment process.

Amortization expense of ~~core deposit~~ intangibles for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 totaled ~~$1.4~~$4.2 million and ~~$4.3~~$8.6 million, respectively; and ~~the three and nine months ended September 30, 2016 totaled $1.7 million and $5.3 million, respectively. Amortization expense of other intangibles~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 totaled ~~$120,000~~$4.9 million and ~~$360,000, respectively and $160,000 for the~~ ~~boththree and nine months ended September 30, 2016.~~$9.2 million, respectively.

As of ~~September~~June 30, ~~2017,~~2020, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):


For the remaining six months of 2020	$	7,920
2021		13,874
2022		11,490
2023		9,687
2024		7,818
Thereafter		14,316
Total estimated amortization expense	$	65,105

-35-

Table of Contents

6. LEASES

The Company enters into both lessor and lessee arrangements and determines if an arrangement is a lease at inception. As both a lessee and lessor, the Company elected the practical expedient permitted under the transition guidance within the standard to account for lease and non-lease components as a single lease component for all asset classes.

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixed and are typically payable in monthly installments with terms ranging from 31 to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components. The Company has no lease transactions with related parties.

At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party RVI to reduce its residual asset risk. At June 30, 2020 the carrying value of residual assets covered by residual value guarantees and RVI was $7.5 million.

The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. At June 30, 2020, the total net investment in sales-type and direct financing leases was $81.3 million, comprised of $78.7 million in lease receivables and $2.6 million in unguaranteed residuals. There were no significant changes in the balance of the Company’s unguaranteed residual assets for the period ending June 30, 2020. The Company’s net investment in sales-type and direct financing leases are included in Loans Held for Investment (net of deferred fees and costs) on the Company’s Consolidated Balance Sheets. For the three and six months ended June 30, 2020, total lease income was $290,000 and $340,000, and is recorded within Interest Income on the Company’s Consolidated Statements of Income. There was 0 lease income for the three and six months ended June 30, 2019.

Lessee Arrangements

The Company’s lessee arrangements consist of operating and finance leases; however the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 14 years. The Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. The Company does not have any material arrangements where the Company is in a sublease contract.

Lessee arrangements with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheet. The ROU Assets and lease liabilities associated with operating and finance leases greater than twelve months are recorded in the Company’s Consolidated Balance Sheets; ROU Assets within Other Assets and lease liabilities within Other Liabilities. ROU Assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU Assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU Assets are recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to renew; however, the Company is not reasonably certain to exercise those options and therefore does not include the renewal options in the measurement of the operating ROU Assets and lease liabilities.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income. Finance lease expenses consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU Assets are recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in Interest Expense on Long-Term Borrowings within total interest expense on the Company’s Consolidated Statements of Income.

-36-

Table of Contents

As of June 30, 2020, the Company had 0 sales leaseback transactions or leases that have 0t yet commenced that create significant rights and obligations.

The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information (dollars in thousands):


	June 30, 2020							December 31, 2019
	Operating			Finance				Operating
Right-of-use-assets	$	53,208		$	7,884		$	54,941
Lease liabilities		63,523			10,559			66,052
Lease Term and Discount Rate of Operating leases:
Weighted-average remaining lease term (years)		7.00			8.58			7.36
Weighted-average discount rate ⁽¹⁾		2.43	%		1.17	%		2.69	%

(1)	An incremental borrowing rate is used based on information available at commencement date of lease.

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


	Six months ended June 30,
	2020		2019
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Finance Leases	$	10	$	-
Operating Cash Flows from Operating Leases		6,893		6,880
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		3,183		3,619
Finance leases		10,549		-


	Three months ended June 30,				Six months ended June 30,
		2020		2019		2020		2019
Net Operating Lease Cost	$	2,928	$	3,134	$	5,847	$	6,136
Finance Lease Cost:
Amortization of right-of-use assets		77		-		77		-
Interest on lease liabilities		10		-		10		-
Total Lease Cost	$	3,015	$	3,134	$	5,934	$	6,136

The maturities of lessor and lessee arrangements outstanding at June 30, 2020 are presented in the tables below (dollars in thousands):


	June 30, 2020
	Lessor		Lessee
		Sales-type and Direct Financing	Operating		Finance
For the remaining six months of 2020	$	7,894	$	6,526	$	—
2021		16,216		12,182		1,261
2022		17,093		10,920		1,292
2023		15,503		9,958		1,325
2024		13,130		8,640		1,358
2025		4,310		6,296		1,392
Thereafter		10,548		15,088		4,515
Total undiscounted cash flows		84,694		69,610		11,143
Less: Adjustments ⁽¹⁾		5,996		6,087		584
Total ⁽²⁾	$	78,698	$	63,523	$	10,559

(1)	Lessor – unearned income and guaranteed residual value; Lessee – imputed interest.

(2)	Representslease receivables for lessor arrangements and lease liabilities for lessee arrangements

-37-

Table of Contents

7. 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):

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

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

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


	June 30,			December 31,
	2020			2019
Securities sold under agreements to repurchase	$	77,216		$	66,053
Federal Funds Purchased		—			—
FHLB advances		—			370,200
Total short-term borrowings	$	77,216		$	436,253

Average outstanding balance during the period	$	272,470		$	673,116
Average interest rate (during the period)		1.13	%		2.30	%
Average interest rate at end of period		0.32	%		1.52	%

The Bank maintains federal funds lines with several correspondent ~~banks;~~banks, the remaining available balance was ~~$185.0~~$972.0 million and ~~$175.0~~$682.0 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The Company maintains an alternate line of credit at a correspondent ~~bank; the~~bank, which had an available balance ~~was~~of $25.0 million at both ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019. 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.~~such covenants as of June 30, 2020. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to ~~$2.7~~$5.3 billion and ~~$2.4~~$5.2 billion at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

Long-term Borrowings

In connection with ~~two~~several previous bank acquisitions, ~~prior to 2006,~~ the Company issued and acquired trust preferred capital notes ~~to fund the cash portion~~ of ~~those acquisitions, collectively totaling~~ $58.5 ~~million. In~~million and $87.0 million, respectively. Most recently, in connection with the acquisition of ~~StellarOne,~~Access on February 1, 2019, the Company acquired additional trust preferred capital notes totaling $5.0 million. The remaining fair value discount on all acquired trust preferred capital notes ~~totaling $32.0 million with a remaining fair value discount of $6.5~~was $14.5 million at ~~September~~June 30, ~~2017.~~ 2020.

-38-

Table of Contents

The trust preferred capital notes currently qualify for Tier 12 capital of the Company for regulatory purposes.

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 % 4.08 % 6/17/2034
Trust Preferred Capital Note - Statutory Trust II 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 % 4.06 % 3/18/2034
FNB Statutory Trust II Indenture 12,000,000
372,000
3.10 % 4.43 % 6/26/2033
Total $ 90,500,000
$ 2,801,000

~~(1)~~The ~~total of the~~Company’s trust preferred capital ~~securities and investments in the respective trusts represents the principal asset~~notes consist 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.following as of June 30, 2020:


	Trust
	Preferred
	Capital				Spread to
	Securities ⁽¹⁾		Investment ⁽¹⁾		3-Month LIBOR		Rate ⁽²⁾		Maturity
Trust Preferred Capital Note - Statutory Trust I	$	22,500	$	696	2.75	%	3.05	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II		36,000		1,114	1.40	%	1.70	%	6/15/2036
VFG Limited Liability Trust I Indenture		20,000		619	2.73	%	3.03	%	3/18/2034
FNB Statutory Trust II Indenture		12,000		372	3.10	%	3.40	%	6/26/2033
Gateway Capital Statutory Trust I		8,000		248	3.10	%	3.40	%	9/17/2033
Gateway Capital Statutory Trust II		7,000		217	2.65	%	2.95	%	6/17/2034
Gateway Capital Statutory Trust III		15,000		464	1.50	%	1.80	%	5/30/2036
Gateway Capital Statutory Trust IV		25,000		774	1.55	%	1.85	%	7/30/2037
MFC Capital Trust II		5,000		155	2.85	%	3.15	%	1/23/2034
Total	$	150,500	$	4,659

(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 Company’s Consolidated Balance Sheets.

(2)	Rate as of June 30, 2020.

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 inon December 15, 2026. In connection with the acquisition of Xenith on January 1, 2018, the Company acquired $8.5 million of subordinated notes with a fair value premium of $259,000, which had been fully amortized at June 30, 2020. The acquired subordinated notes have a fixed interest rate of 6.75% and a maturity date of June 30, 2025. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the ~~carrying value~~contractual principal reported for subordinated notes was $158.5 million; remaining issuance discount as of ~~the subordinated debt was $150.0~~June 30, 2020 and December 31, 2019 is $1.3 million ~~with a remaining discount of $1.8~~and $1.4 million, respectively.

The subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with the acquired subordinated notes and was considered to be in compliance with these covenants as of June 30, 2020.

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~~was deferred and ~~Extinguishments, the Company is amortizing this prepayment penalty~~to be amortized 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~~Income and was $502,000 and $994,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016 was $486,000 and $1.4 million and $474,000 and $1.4 million,~~2019, respectively.

~~In connection with the StellarOne acquisition,~~ On August 29, 2019, the Company ~~assumed $70.0 million in long-term borrowings with~~repaid the floating rate FHLB ~~of which there is $20.0 million remaining at September 30, 2017 that had a remaining fair value premium of $223,000.~~

advances.

As of ~~September~~June 30, ~~2017,~~2020, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):


	Spread to
	3-Month		Interest
Long-term Type	LIBOR		Rate ⁽¹⁾⁽²⁾		Maturity Date	Advance Amount
Convertible Flipper	(0.75)	%	—	%	8/17/2029	$	50,000
Convertible Flipper	(0.75)	%	—	%	5/22/2029		150,000
Convertible Flipper	(0.75)	%	—	%	5/30/2029		50,000
Convertible Flipper	(0.75)	%	—	%	6/21/2029		100,000
Fixed Rate Convertible	-		1.78	%	10/26/2028		200,000
Fixed Rate Credit	-		1.54	%	10/2/2020		10,000
						$	560,000

Long-term Type
Spread to
3-Month LIBOR

Interest Rate ⁽¹⁾
Maturity Date Advance Amount
Adjustable Rate Credit 0.44 % 1.77 % 8/23/2022 $ 55,000
Adjustable Rate Credit 0.45 % 1.79 % 11/23/2022 65,000
Adjustable Rate Credit 0.45 % 1.79 % 11/23/2022 10,000
Adjustable Rate Credit 0.45 % 1.79 % 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
Fixed Rate Hybrid —
1.58 % 5/18/2020 20,000

$ 210,000
(1)Interest rates calculated using non-rounded numbers.

(1)	Interest rates calculated using non-rounded numbers.

(2)	Convertible Flippers have interest rate floor of 0%

-39-

Table of Contents

As of December 31, ~~2016,~~2019, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):


	Spread to
	3-Month		Interest
Long-term Type	LIBOR		Rate ⁽¹⁾⁽²⁾		Maturity Date	Advance Amount
Convertible Flipper	(0.75)	%	1.16	%	8/17/2029	$	50,000
Convertible Flipper	(0.50)	%	1.41	%	5/15/2024		200,000
Convertible Flipper	(0.75)	%	1.16	%	5/22/2029		150,000
Convertible Flipper	(0.75)	%	1.16	%	5/30/2029		50,000
Convertible Flipper	(0.75)	%	1.16	%	6/21/2029		100,000
Fixed Rate Convertible	-		1.78	%	10/26/2028		200,000
Fixed Rate Hybrid	-		1.58	%	5/18/2020		20,000
Fixed Rate Credit	-		1.54	%	10/2/2020		10,000
						$	780,000

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.

(1)	Interest rates calculated using non-rounded numbers.

(2)	Convertible Flippers have interest rate floor of 0%

For information on the carrying value of loans and securities pledged as collateral on FHLB advances as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, refer to Note 68 "Commitments and ~~Contingencies".~~

Contingencies."

During the second quarter of 2020, in connection with the loans originated as part of the PPP, the Company borrowed under the Federal Reserve’s PPPLF. Under the terms of the PPPLF, the Company can borrow funds which are secured by the Company’s PPP loans. As of ~~September~~June 30, ~~2017,~~2020, the Company’s outstanding advances under the PPPLF were $189.9 million. The interest rate on the advances is fixed at a rate of 0.35% through the advance maturities in April 2022. The Company’s available borrowing capacity under the PPPLF as of June 30, 2020 was $1.5 billion.

As of June 30, 2020, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):


	Trust
	Preferred								Fair Value
	Capital		Subordinated		PPPLF		FHLB		Premium		Total Long-term
	Notes		Debt		Advances		Advances		(Discount) ⁽¹⁾		Borrowings
For the remaining six months of 2020	$	—	$	—	$	—	$	10,000	$	(456)	$	9,544
2021		—		—		—		—		(1,008)		(1,008)
2022		—		—		189,941		—		(1,030)		188,911
2023		—		—		—		—		(1,053)		(1,053)
2024		—		—		—		—		(1,078)		(1,078)
Thereafter		155,159		158,500		—		550,000		(11,161)		852,498
Total long-term borrowings	$	155,159	$	158,500	$	189,941	$	560,000	$	(15,786)	$	1,047,814

Trust
Preferred
Capital
Notes

Subordinated
Debt

FHLB
Advances

Fair Value
Premium
(Discount)

Prepayment
Penalty

Total Long-term
Borrowings
For the remaining three months of 2017 $ —
$ —
$ 10,000
$ (21 ) $ (488 ) $ 9,491
2018 —
—
40,000
(343 ) (1,970 ) 37,687
2019 —
—
—
(486 ) (2,018 ) (2,504 )
2020 —
—
20,000
(501 ) (2,074 ) 17,425
2021 —
—
—
(516 ) (2,119 ) (2,635 )
Thereafter 93,301
150,000
140,000
(6,308 ) (1,707 ) 375,286
Total Long-term borrowings $ 93,301
$ 150,000
$ 210,000
$ (8,175 ) $ (10,376 ) $ 434,750

(1)	Includes discount on issued subordinated notes.

-40-

Table of Contents

8. 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,~~and funding information, current and future economic conditions, risk ratings, and past due status among other factors in the consideration of ~~whether~~expected 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 ~~both September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the ~~Company's~~Company’s reserves for off-balance sheet credit risk and indemnification were ~~$1.1~~$12.9 million and ~~are reported as a component of "Other Liabilities" on the Company's Consolidated Balance Sheets.~~

$2.6 million, respectively.

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):

September 30, 2017 December 31, 2016
Commitments with off-balance sheet risk:

Commitments to extend credit ⁽¹⁾
$ 2,085,103
$ 1,924,885
Standby letters of credit 119,977
84,212
Total commitments with off-balance sheet risk $ 2,205,080
$ 2,009,097

~~(1)~~ ~~Includes unfunded overdraft protection.~~

~~The~~


	June 30, 2020		December 31, 2019
Commitments with off-balance sheet risk:
Commitments to extend credit ⁽¹⁾	$	4,968,910	$	4,691,272
Standby letters of credit		161,958		209,658
Total commitments with off-balance sheet risk	$	5,130,868	$	4,900,930
(1) Includes unfunded overdraft protection.

Prior to the first quarter of 2020, the Company ~~must~~was required to 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 September 30, 2017, the aggregate amount of daily average required reserves was approximately $73.1 million and was satisfied by vault cash holdings and deposits maintained withOn March 15, 2020, the Federal Reserve ~~Bank.~~

Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.

As of ~~September~~June 30, ~~2017,~~2020, the Company had approximately ~~$45.4~~$342.9 million in deposits in other financial institutions, of which ~~$23.8~~$271.6 million served as collateral for cash flow and loan swap derivatives. The Company had approximately ~~$20.3~~$68.2 million in deposits in other financial institutions that were uninsured at ~~September~~June 30, ~~2017.~~2020. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

-41-

Table of Contents

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~~Refer to Note 79 “Derivatives” for additional information.

As part of the ~~Company's~~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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):


	Pledged Assets as of June 30, 2020
			AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	454,733	$	432,310	$	—	$	887,043
Repurchase agreements		—		93,551		—		—		93,551
FHLB advances		—		57,534		—		4,193,380		4,250,914
Derivatives		271,551		1,033		—		—		272,584
Fed Funds		—		—		—		319,068		319,068
PPP Loans		—		—		—		189,941		189,941
Other purposes		—		127,384		8,901		—		136,285
Total pledged assets	$	271,551	$	734,235	$	441,211	$	4,702,389	$	6,149,386

(1) Balance represents market value.
(2) Balance represents book value.


	Pledged Assets as of December 31, 2019
			AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	467,266	$	292,096	$	—	$	759,362
Repurchase agreements		—		79,299		7,602		—		86,901
FHLB advances		—		63,812		—		3,846,934		3,910,746
Derivatives		116,839		1,260		—		—		118,099
Fed Funds		—		—		—		292,738		292,738
Other purposes		—		122,358		10,654		—		133,012
Total pledged assets	$	116,839	$	733,995	$	310,352	$	4,139,672	$	5,300,858

(1) Balance represents book value.
(2) Balance represents market value.

-42-

Table of Contents

Pledged Assets as of September 30, 2017
Cash
AFS Securities ⁽¹⁾

HTM Securities ⁽¹⁾

Loans ⁽²⁾
Total
Public deposits $ —
$ 224,153
$ 206,878
$ —
$ 431,031
Repurchase agreements —
88,257
—
—
88,257
FHLB advances —
1,022
—
2,404,355
2,405,377
Derivatives 23,831
3,898
—
—
27,729
Other purposes —
15,580
—
—
15,580
Total pledged assets $ 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.~~

9. 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~~free-standing derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.

Derivatives Counterparty Credit Risk

Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract. The Company’s exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on the Company’s Consolidated Balance Sheets, assuming no recoveries of underlying collateral.

Effective January 1, 2019, as required under the Dodd-Frank Act, the Company clears eligible derivative transactions through CCPs such as the CME and LCH, which are often referred to as “central clearinghouses”. The Company clears certain OTC derivatives with central clearinghouses through FCMs as part of the regulatory requirement. The use of the CCPs and the FCMs reduces the Company’s bilateral counterparty credit exposures while it increases the Company’s credit exposures to CCPs and FCMs. The Company is required by CCPs to post initial and variation margin to mitigate the risk of non-payment through the Company’s FCMs. The Company’s FCM agreements governing these derivative transactions generally include provisions that may require the Company to post more collateral or otherwise change terms in the Company’s agreements under certain circumstances. For CME and LCH-cleared OTC derivatives, the Company characterizes variation margin cash payments as settlements.

The Company also enters into legally enforceable master netting agreements and collateral agreements, where possible, with certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset exposures and require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty.

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.~~financial instruments. 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 or commercial loans, 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.~~length. Amounts receivable or payable are recognized as accrued under the terms of the agreements.

All swaps were entered into with counterparties that met the Company’s credit standards, and the agreements contain collateral provisions protecting the at-risk party. The Company ~~believes~~concluded 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~~For the period ended December 31, 2019, the Company’s ~~assessment, its~~ cash flow hedges ~~are~~were highly ~~effective, but to the extent that~~effective.

The Company did 0t have 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~~derivatives 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 Septemberoutstanding at June 30, ~~2018 is $395,000.~~

2020.

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.

-43-

Table of Contents

Loans:During the normal course of business, the Company enters into ~~interest rate swaps~~swap agreements 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled ~~$82.0~~$77.2 million and ~~$65.9~~$83.1 million, respectively, and the fair value of the related hedged items was an unrealized loss of ~~$597,000~~$6.2 million and ~~$890,000,~~$2.0 million, respectively.

AFS Securities: The Company has entered into a swap agreement to hedge the interest rate risk on a portion of its fixed rate available for sale securities. At June 30, 2020 and December 31, 2019, the aggregate notional amount of the related hedged items of the AFS securities totaled $50 million and the fair value of the related hedged items was an unrealized loss of $8.3 million and $4.1 million, 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~~offers interest rate swap loan relationships (“loan swaps”) ~~with~~to its borrowers to help 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):

September 30, 2017 December 31, 2016

Derivative ⁽²⁾

Derivative⁽²⁾

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
$ 120
$ 9,460
$ 188,500
$ 211
$ 9,619

Fair value hedges 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 506,056
3,051
—
373,355
—
1,005

Pay floating - receive fixed interest rate swaps 506,056
—
3,051
373,355
1,005
—

Other contracts:

Interest rate lock commitments 50,311
685
—
48,743
610
—

Best efforts forward delivery commitments 80,307
245
—
85,400
1,469
—

~~(1)~~ ~~Notional amounts are not recorded on the balance sheet~~


	June 30, 2020						December 31, 2019
			Derivative ⁽²⁾						Derivative ⁽²⁾
	Notional or						Notional or
	Contractual						Contractual
	Amount ⁽¹⁾		Assets		Liabilities		Amount ⁽¹⁾		Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Cash flow hedges	$	—	$	—	$	—	$	100,000	$	—	$	1,147
Fair value hedges		127,172		—		14,530		133,078		182		6,256
Derivatives not designated as accounting hedges:
Loan Swaps :
Pay fixed - receive floating interest rate swaps		2,064,653		—		194,707		1,575,149		753		53,592
Pay floating - receive fixed interest rate swaps		2,064,653		194,707		—		1,575,149		53,592		753

(1)	Notional amounts are not recorded on the Company’s Consolidated Balance Sheets 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.

-44-

Table of Contents

The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of June 30, 2020 and December 31, 2019 (dollars in thousands):

June 30, 2020

December 31, 2019

Cumulative

Amount of Basis

Adjustments

Included in the

Carrying Amount

Carrying

Carrying Amount

Carrying

of Hedged

Amount of the

of Hedged

Amount of the

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Amount ⁽¹⁾

Assets/(Liabilities)

Amount ⁽¹⁾

Assets/(Liabilities)

Line items on the Consolidated Balance Sheets in which the hedged item is included:

Securities available-for-sale ^{(1) (2)}

191,589

8,309

206,799

4,072

Loans

77,172

6,131

83,078

1,972

(1)

These amounts include the amortized cost basis of the investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At June 30, 2020 and December 31, 2019, the amortized cost basis of this portfolio was $192 million and $207 million, respectively and the cumulative basis adjustment associated with this hedge was $8.3 million and $4.1 million, respectively. The amount of the designated hedged item was $50 million.

(2)	Carrying value represents amortized cost.

-45-

Table of Contents

10. STOCKHOLDERS’ EQUITY

Series A Preferred Stock

On June 9, 2020, the Company issued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its 6.875% Perpetual Non-Cumulative Preferred Stock, Series A (the “Series A preferred stock”), with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other ~~payments are determined.~~

~~(2)~~ ~~Balancesrepresent fair value~~offering expenses payable by the Company. The Company intends to use the net proceeds of ~~derivative financial instruments.~~

~~For information regarding collateral pledged on derivative instruments, see Note 6 “Commitments~~the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and ~~Contingencies.”~~

~~8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)~~

investments in the Company’s subsidiaries.

Accumulated Other Comprehensive Income (Loss)

The change in accumulated other comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 is summarized as follows, net of tax (dollars in thousands):


			Unrealized Gains
			(Losses)
	Unrealized		for AFS				Unrealized
	Gains (Losses)		Securities		Change in Fair		Gains
	on AFS		Transferred to		Value of Cash		(Losses) on
	Securities		HTM		Flow Hedge		BOLI		Total
Balance - March 31, 2020	$	51,035	$	70	$	—	$	(2,776)	$	48,329
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		21,019		—		—		—		21,019
Amounts reclassified from AOCI into earnings		(8,168)		(5)		—		129		(8,044)
Net current period other comprehensive income (loss)		12,851		(5)		—		129		12,975
Balance - June 30, 2020	$	63,886	$	65	$	—	$	(2,647)	$	61,304


			Unrealized Gains
			(Losses)
	Unrealized		for AFS				Unrealized
	Gains (Losses)		Securities		Change in Fair		Gains
	on AFS		Transferred to		Value of Cash		(Losses) on
	Securities		HTM		Flow Hedge		BOLI		Total
Balance - December 31, 2019	$	37,877	$	75	$	(782)	$	(1,595)	$	35,575
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		35,706		—		(699)		(1,289)		33,718
Amounts reclassified from AOCI into earnings		(9,697)		(10)		1,481		237		(7,989)
Net current period other comprehensive income (loss)		26,009		(10)		782		(1,052)		25,729
Balance - June 30, 2020	$	63,886	$	65	$	—	$	(2,647)	$	61,304

-46-

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 - June 30, 2017 $ 7,733
$ 3,033
$ (5,487 ) $ (1,271 ) $ 4,008
Other comprehensive income (loss) (2,729 ) —
41
—
(2,688 )
Amounts reclassified from accumulated other comprehensive income (119 ) (163 ) 189
84
(9 )
Net current period other comprehensive income (loss) (2,848 ) (163 ) 230
84
(2,697 )
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 Total
Balance - June 30, 2016 $ 14,412
$ 3,853
$ (9,366 ) $ 8,899
Other comprehensive income (loss) 1,121
—
(78 ) 1,043
Amounts reclassified from accumulated other comprehensive income —
(237 ) 154
(83 )
Net current period other comprehensive income (loss) $ 1,121
$ (237 ) $ 76
$ 960
Balance - September 30, 2016 $ 15,533
$ 3,616
$ (9,290 ) $ 9,859

11. FAIR VALUE MEASUREMENTS



~~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.

Derivative instruments

Financial Statements.

AFS Securities ~~available for sale~~

~~Loans held for sale~~

~~Other real estate owned~~

~~Cash and cash equivalents~~

~~Held to Maturity Securities~~

Table of Contents

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 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 table below.

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 in current period earnings as a component of "Mortgage banking income" 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 30, 2020 and December 31, 2019 (dollars in thousands):

Fair Value Measurements at June 30, 2020 using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Level 1

Level 2

Level 3

Balance

ASSETS

AFS securities:

U.S. government and agency securities

—

14,646

—

14,646

Obligations of states and political subdivisions

—

539,527

—

539,527

Corporate and other bonds⁽¹⁾

—

131,350

—

131,350

Mortgage-backed securities

—

1,330,542

—

1,330,542

Other securities

—

3,099

—

3,099

Loans held for sale

—

55,067

—

55,067

Derivatives:

Interest rate swap

—

194,707

—

194,707

LIABILITIES

Derivatives:

Interest rate swap

—

194,707

—

194,707

Fair value hedges

—

14,530

—

14,530

(1)	Other bonds include asset-backed securities.

-49-

Table of Contents


	Fair Value Measurements at December 31, 2019 using
			Significant
	Quoted Prices in		Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
AFS securities:
U.S. government and agency securities	$	—	$	21,320	$	—	$	21,320
Obligations of states and political subdivisions		—		447,091		—		447,091
Corporate and other bonds⁽¹⁾		—		135,959		—		135,959
Mortgage-backed securities		—		1,337,996		—		1,337,996
Other securities		—		3,079		—		3,079
Loans held for sale		—		55,405		—		55,405
Derivatives:
Interest rate swap		—		54,345		—		54,345
Fair value hedges		—		182		—		182

LIABILITIES
Derivatives:
Interest rate swap	$	—	$	54,345	$	—	$	54,345
Cash flow hedges		—		1,147		—		1,147
Fair value hedges		—		6,256		—		6,256

(1)	Other bonds include asset-backed securities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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 after they are evaluated for impairment. The primary assets accounted for at fair value on a nonrecurring basis are related to foreclosed properties, former bank premises, and collateral-dependent loans that are individually assessed. When the asset is secured by real estate, the Company measures the fair value utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. Management may discount the value from the appraisal in determining the fair value if, based on its understanding of the market conditions, the collateral had been impaired below the appraised value (Level 3). The assets for which a nonrecurring fair value measurement was recorded during the period ended June 30, 2020 and December 31, 2019 was $6.4 million and $11.9 million, respectively. The nonrecurring valuation adjustments for these assets did not have a material impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

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.

HTM 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.

-50-

Table of Contents

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 30, 2020 and December 31, 2019. The Company’s level 3 securities are a result of the Access acquisition and are comprised of asset-backed securities and municipal bonds. Valuations of the asset-backed securities are provided by a third party vendor specializing in the SBA markets, and are based on underlying loan pool information, market data, and recent trading activity for similar securities. Valuations of the municipal bonds are provided by a third party vendor that specializes in hard-to-value securities, and are based on a discounted cash flow model and considerations for the complexity of the instrument, likelihood it will be called and credit ratings. The Company reviews the valuation of both security types for reasonableness in the context of market conditions and to similar bonds in the Company’s portfolio. 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 30, 2020.

Loans

The fair value of loans was estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans. The fair value of performing loans iswas estimated ~~by discounting expected future~~through use of discounted cash ~~flows using a yield curve that is constructed by adding a loan spread to a market yield curve. Loan spreads are~~flows. Credit loss assumptions were based on ~~spreads currently observed in the~~ market PD/LGD for ~~loans of similar type and structure.~~loan cohorts. The discount rate was based primarily on recent market origination rates. Fair value of loans individually assessed for ~~impaired loans~~impairment and their respective ~~level~~levels within the fair value hierarchy are described in the previous ~~disclosure~~section related to fair value measurements of assets that are measured on a nonrecurring basis.

~~Bank-owned~~

Bank owned life insurance

The carrying value of 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~~deposits were valued using a discounted cash ~~flows using the rates currently offered for deposits of similar remaining maturities.~~

~~Borrowings~~

~~The carrying value~~flow calculation that includes a market rate analysis of the ~~Company’s repurchase agreements is a reasonable estimate~~current rates offered by market participants for certificates of ~~fair value. Other borrowings are discounted using the current yield curve for~~deposits that mature in 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.

period.

Accrued ~~interest~~

Interest

The carrying amounts of accrued interest approximate fair value.

-51-

Table of Contents

The carrying values and estimated fair values of the Company’s financial instruments at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 are as follows (dollars in thousands):

Fair Value Measurements at June 30, 2020 using

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Total Fair

Identical Assets

Inputs

Value

Carrying

Value

Level 1

Level 2

Level 3

Balance

ASSETS

Cash and cash equivalents

842,020

—

842,020

AFS securities

2,019,164

—

2,019,164

—

2,019,164

HTM securities

547,561

—

600,146

13,283

613,429

Restricted stock

105,832

—

105,832

—

105,832

Loans held for sale

55,067

—

55,067

—

55,067

Net loans

14,138,669

—

13,970,248

Derivatives:

Interest rate swap

194,707

—

194,707

—

194,707

Accrued interest receivable

62,330

—

62,330

—

62,330

BOLI

327,075

—

327,075

—

327,075

LIABILITIES

Deposits

15,605,139

—

15,653,360

—

15,653,360

Borrowings

1,125,030

—

1,093,558

—

1,093,558

Accrued interest payable

4,495

—

4,495

—

4,495

Derivatives:

Interest rate swap

194,707

—

194,707

—

194,707

Fair value hedges

14,530

—

14,530

—

14,530


	Fair Value Measurements at December 31, 2019 using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable		Total Fair
			Identical Assets		Inputs		Inputs		Value
	Carrying
	Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	436,032	$	436,032	$	—	$	—	$	436,032
AFS securities		1,945,445		—		1,945,445		—		1,945,445
HTM securities		555,144		—		585,820		17,683		603,503
Restricted stock		130,848		—		130,848		—		130,848
Loans held for sale		55,405		—		55,405		—		55,405
Net loans		12,568,642		—		—		12,449,505		12,449,505
Derivatives:
Interest rate swap		54,345		—		54,345		—		54,345
Fair value hedges		182		—		182		—		182
Accrued interest receivable		52,721		—		52,721		—		52,721
BOLI		322,917		—		322,917		—		322,917

LIABILITIES
Deposits	$	13,304,981	$	—	$	13,349,943	$	—	$	13,349,943
Borrowings		1,513,748		—		1,479,606		—		1,479,606
Accrued interest payable		6,108		—		6,108		—		6,108
Derivatives:
Interest rate swap		54,345		—		54,345		—		54,345
Cash flow hedges		1,147		—		1,147		—		1,147
Fair value hedges		6,256		—		6,256		—		6,256

-52-

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
Carrying Value Level 1 Level 2 Level 3 Balance
ASSETS

Cash and cash equivalents $ 176,961
$ 176,961
$ —
$ —
$ 176,961
Securities available for sale 968,361
—
968,361
—
968,361
Held to maturity securities 204,801
—
209,835
—
209,835
Restricted stock 68,441
—
68,441
—
68,441
Loans held for sale 30,896
—
30,896
—
30,896
Net loans 6,861,567
—
—
6,873,609
6,873,609
Derivatives:

Interest rate swap 3,051
—
3,051
—
3,051
Cash flow hedge 120
—
120
—
120
Fair value hedge 1,253
—
1,253
—
1,253
Interest rate lock commitments 685
—
—
685
685
Best efforts forward delivery commitments 245
—
—
245
245
Accrued interest receivable 25,279
—
25,279
—
25,279
Bank owned life insurance 181,451
—
181,451
—
181,451

LIABILITIES

Deposits $ 6,881,826
$ —
$ 6,873,124
$ —
$ 6,873,124
Borrowings 1,052,087
—
1,031,983
—
1,031,983
Accrued interest payable 4,372
—
4,372
—
4,372
Derivatives:

Interest rate swap 3,051
—
3,051
—
3,051
Cash flow hedges 9,460
—
9,460
—
9,460
Fair value hedges 371
—
371
—
371

Table of Contents

12. REVENUE

The majority of the Company’s noninterest income comes from short term contracts associated with fees for services provided on deposit accounts, credit cards, and wealth management accounts and is being accounted for in accordance with Topic 606. Typically, the duration of a contract does not extend beyond the services performed; therefore, the Company concluded that discussion regarding contract balances is immaterial.

The Company’s performance obligations on revenue from interchange fees and deposit accounts are generally satisfied immediately, when the transaction occurs, or by month-end. Performance obligations on revenue from fiduciary and asset management fees are generally satisfied monthly or quarterly. For a majority of fee income on deposit accounts the Company is a principal, controlling the promised good or service before transferring it to the customer. For the majority of income related to wealth management income, the Company is an agent, responsible for arranging for the provision of goods and services by another party.

Noninterest income disaggregated by major source, for the three and six months ended June 30, 2020 and 2019, consisted of the following (dollars in thousands):

Three Months Ended

Six Months Ended

June 30,

2020

2019

2020

2019

Noninterest income:

Deposit Service Charges ⁽¹⁾:

Overdraft fees

3,245

6,045

9,010

11,827

Maintenance fees & other

1,685

1,454

3,498

2,829

Other service charges, commissions, and fees ⁽¹⁾

1,354

1,702

2,978

3,367

Interchange fees⁽¹⁾

1,697

5,612

3,321

10,656

Fiduciary and asset management fees ⁽¹⁾:

Trust asset management fees

2,470

1,976

5,298

3,315

Registered advisor management fees

2,091

2,825

4,178

5,701

Brokerage management fees

954

897

2,023

1,736

Mortgage banking income

5,826

2,785

7,847

4,240

Gains (losses) on securities transactions

10,339

12,275

202

Bank owned life insurance income

2,027

2,075

4,076

4,129

Loan-related interest rate swap fees

5,484

3,716

9,432

5,176

Other operating income ⁽²⁾

(1,240)

1,440

902

2,337

Total noninterest income ⁽³⁾

35,932

30,578

64,838

55,515

(1) Income within scope of Topic 606.

(2) Includes income within the scope of Topic 606 of $645,000 and $1.1 million for the three months ended June 30, 2020 and 2019, respectively, and $1.2 million and $1.9 million for the six months ended June 30, 2020 and 2019, respectively. The remaining balance is outside the scope of Topic 606.

(3) Noninterest income for the discontinued mortgage segment is reported in Note 14 "Segment Reporting & Discontinued Operations."

~~10.~~

-54-

Table of Contents

13. EARNINGS PER SHARE

Basic EPS is computed by dividing net income ~~available~~ to common ~~stockholders~~shareholders, after deducting dividends on preferred stock 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.

The following ~~is a reconciliation of the denominators of the basic~~table presents EPS from continuing operations, discontinued operations and ~~diluted EPS computations~~total net income available to common shareholders for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands except per share data):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net Income:
Income from continuing operations	$	30,709	$	48,908	$	37,798	$	84,623
Income (loss) from discontinued operations		—		(85)		—		(170)
Net income available to common shareholders	$	30,709	$	48,823	$	37,798	$	84,453


Weighted average shares outstanding, basic		78,712		82,062		79,001		79,283
Dilutive effect of stock awards and warrants		11		63		19		62
Weighted average shares outstanding, diluted		78,723		82,125		79,020		79,345


Basic EPS:
EPS from continuing operations	$	0.39	$	0.59	$	0.48	$	1.06
EPS from discontinued operations		—		—		—		—
EPS available to common shareholders	$	0.39	$	0.59	$	0.48	$	1.06

Diluted EPS:
EPS from continuing operations	$	0.39	$	0.59	$	0.48	$	1.06
EPS from discontinued operations		—		—		—		—
EPS available to common shareholders	$	0.39	$	0.59	$	0.48	$	1.06

-55-

Net Income Available to
Common Stockholders
(Numerator)

Weighted
Average
Common Shares
(Denominator)

Per Share
Amount
Three months ended September 30, 2017

Basic 20,658
43,707
$ 0.47
Add: potentially dilutive common shares - stock awards —
85
—
Diluted $ 20,658
43,792
$ 0.47
Three months ended September 30, 2016

Basic 20,401
43,566
$ 0.47
Add: potentially dilutive common shares - stock awards —
189
—
Diluted $ 20,401
43,755
$ 0.47
Nine months ended September 30, 2017
Basic 57,737
43,685
$ 1.32
Add: potentially dilutive common shares - stock awards —
83
—
Diluted $ 57,737
43,768
$ 1.32
Nine months ended September 30, 2016
Basic 56,699
43,854
$ 1.29
Add: potentially dilutive common shares - stock awards —
114
—
Diluted $ 56,699
43,968
$ 1.29

~~11.~~

14. SEGMENT REPORTING ~~DISCLOSURES~~

~~UNION BANKSHARES CORPORATION AND SUBSIDIARIES~~

Community Bank Mortgage Eliminations Consolidated
Three Months Ended September 30, 2017

Net interest income $ 70,718
$ 480
$ —
$ 71,198
Provision for credit losses 3,056
(6 ) —
3,050
Net interest income after provision for credit losses 67,662
486
—
68,148
Noninterest income 15,121
2,527
(112 ) 17,536
Noninterest expenses 55,133
2,475
(112 ) 57,496
Income before income taxes 27,650
538
—
28,188
Income tax expense 7,339
191
—
7,530
Net income $ 20,311
$ 347
$ —
$ 20,658
Total assets $ 9,020,486
$ 97,154
$ (88,204 ) $ 9,029,436

Three Months Ended September 30, 2016

Net interest income $ 66,605
$ 423
$ —
$ 67,028
Provision for credit losses 2,455
17
—
2,472
Net interest income after provision for credit losses 64,150
406
—
64,556
Noninterest income 15,589
3,501
(140 ) 18,950
Noninterest expenses 54,353
2,700
(140 ) 56,913
Income before income taxes 25,386
1,207
—
26,593
Income tax expense 5,770
422
—
6,192
Net income $ 19,616
$ 785
$ —
$ 20,401
Total assets $ 8,251,351
$ 90,692
$ (83,813 ) $ 8,258,230

Nine Months Ended September 30, 2017

Net interest income $ 205,534
$ 1,231
$ —
$ 206,765
Provision for credit losses 7,344
1
—
7,345
Net interest income after provision for credit losses 198,190
1,230
—
199,420
Noninterest income 47,080
7,743
(393 ) 54,430
Noninterest expenses 167,643
7,571
(393 ) 174,821
Income before income taxes 77,627
1,402
—
79,029
Income tax expense 20,791
501
—
21,292
Net income $ 56,836
$ 901
$ —
$ 57,737
Total assets $ 9,020,486
$ 97,154
$ (88,204 ) $ 9,029,436

Nine Months Ended September 30, 2016

Net interest income $ 195,508
$ 1,027
$ —
$ 196,535
Provision for credit losses 7,215
161
—
7,376
Net interest income after provision for credit losses 188,293
866
—
189,159
Noninterest income 44,137
9,185
(465 ) 52,857
Noninterest expenses 158,964
7,937
(465 ) 166,436
Income before income taxes 73,466
2,114
—
75,580
Income tax expense 18,145
736
—
18,881
Net income $ 55,321
$ 1,378
$ —
$ 56,699
Total assets $ 8,251,351
$ 90,692
$ (83,813 ) $ 8,258,230

Table of Contents

15. SUBSEQUENT EVENTS

On July 24, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.25 per share of common stock. The common stock dividend amount is the same as that paid in the prior quarter and the third quarter of 2019. The common stock dividend is payable on August 21, 2020 to common shareholders of record as of August 7, 2020.

The Board also declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400^th ownership interest in a share of Series A preferred stock. The dividend of $156.60 per share (equivalent to $0.39 per outstanding depositary share) is payable on September 1, 2020 to preferred shareholders of record as of August 14, 2020.

-57-

Table of Contents

~~Review~~

Report of Independent Registered ~~Public~~Public Accounting Firm

~~The~~

To the Stockholders and the Board of Directors of Atlantic Union Bankshares Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Atlantic Union Bankshares Corporation (the ~~“Company”)~~Company) as of ~~September~~June 30, ~~2017, and~~2020, the related consolidated statements of income and comprehensive income for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016, and~~2019, the consolidated statements of changes in stockholders’ equity and cash flows for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016. These~~2019, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements ~~are the responsibility of the Company's management.~~

for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 25, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Adoption of ASC 326

As discussed in Note 1 to the consolidated interim financial statements, the Company changed its method of accounting for the allowance for credit losses effective January 1, 2020 due to the adoption of ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326 in the Accounting Standards Codification).

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial ~~information~~statements 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),~~PCAOB, 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 4, 2020

~~November 7, 2017~~

-58-

Table of Contents

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”).~~Company. This discussion and analysis should be read with the Company’s consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s ~~2016~~2019 Form 10-K, including ~~management’s discussion~~the “Management’s Discussion and ~~analysis.~~Analysis of Financial Condition and Results of Operations” section therein. Highlighted in the discussion are material changes from prior reporting periods and ~~any~~ identifiable trends materially affecting the Company. Results of operations for the ~~three and nine months ended September 30, 2017 and 2016~~interim periods are not necessarily indicative of results that may be ~~attained~~expected for the full year or for any other period. Amounts are rounded for presentation 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, without limitation, projections, predictions, expectations, or beliefs about future events or results ~~or otherwise~~that are not statements of historical ~~fact,~~fact. Such forward-looking statements are based on ~~certain~~various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties, and ~~uncertainties,~~other factors, some of which cannot be predicted or ~~quantified. Such~~quantified, that may cause actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Forward-looking statements are often ~~characterized~~accompanied by ~~the use of qualified~~ words ~~(and their derivatives)~~that convey projected future events or outcomes 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, or trends affecting, the Company will not differ materially from any projected future results, performance, achievements or ~~achievements~~trends expressed or implied by such forward-looking statements. Actual future results, ~~and~~performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to:

●

changes in interest rates;

●

general economic and financial market conditions, in the United States generally and particularly in the markets in which the Company operates and which its loans are concentrated, including the effects of declines in real estate values, an increase in unemployment levels and slowdowns in economic growth, including as a result of the COVID-19 pandemic;

●

the quality or composition of the loan or investment portfolios and changes therein;

●

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

●

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

●

expense reduction plans, including planned branch consolidations;

●

the introduction of new lines of business or new products and services;

●

the Company’s ability to recruit and retain key employees;

●

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

●

real estate values in the Bank’s lending area;

●

an insufficient ACL;

●

changes in accounting principles relating to CECL;

●

the Company’s liquidity and capital positions;

●

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;

●

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

●

technological risks and developments, and cyber threats, attacks, or events;

●

the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (such as the COVID-19 pandemic), and of governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or its other products and services, on incidents of cyberattack and fraud, on the Company’s liquidity

-59-

Table of Contents

or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth;

●

the effect of steps the Company takes in response to the COVID-19 pandemic, the severity and duration of the pandemic, including whether there is a “second wave” as a result of the loosening of governmental restrictions, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein;

●

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, including the impact of the CARES Act and other legislative and regulatory reactions to COVID-19;

●

potential claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to COVID-19, including, among other things, the CARES Act;

●

legislative or regulatory changes and requirements;

●

the effects of changes in federal, state or local tax laws and regulations;

●

monetary and fiscal policies of the U.S. government including policies of the U.S. Department of the Treasury and the Federal Reserve;

●

changes to applicable accounting principles and guidelines; and

●

other factors, many of which are beyond the control of the Company.

Please refer to the ~~effects~~“Risk Factors” and “Management’s Discussion and Analysis of ~~or changes in:~~

~~the possibility that any~~Financial Condition and Results of Operations” sections of the ~~anticipated benefits~~Company’s 2019 Form 10-K and comparable sections of this Quarterly Report and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the ~~acquisition of Xenith pursuant~~forward-looking statements made in this Quarterly Report are expressly qualified by the cautionary statements contained or referred to ~~a definitive merger agreement between the Company and Xenith, dated as of May 19, 2017 (the “Pending Merger”) with Xenith will~~in this Quarterly Report. The actual results or developments anticipated may not be realized or, ~~will~~even if substantially realized, they may not ~~be realized within~~have the expected ~~time period,~~consequences or effects on the Company or its businesses or operations. Readers are cautioned not to rely too heavily on the forward-looking statements contained in this Quarterly Report. Forward-looking statements speak only as of the ~~Company~~date they are made 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 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 September 30, 2017, and other reports filed with the 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~~undertake any obligation to update, revise, or ~~revise any~~clarify these forward-looking statements ~~that may be made from time to time by~~whether as a result of new information, future events or ~~on behalf of the Company.~~

otherwise.

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.~~

Directors of the Company.

The critical accounting and reporting policies include the Company’s accounting for the ~~allowance for loan losses,~~ACL, acquired loans, business combinations and divestitures, 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 ~~2016~~2019 Form 10-K.

The Company provides additional information on its critical accounting policies and estimates listed above under ~~“Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in its ~~2016~~2019 Form ~~10-K.~~10-K and in Note 1 “Accounting Policies” within Part I of Item I of this Quarterly Report.

-60-

Table of Contents

RECENT ACCOUNTING PRONOUNCEMENTS (ISSUED BUT NOT ADOPTED)

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company evaluated the impacts from this standard and does not expect a material financial statement impact.

ABOUT ATLANTIC UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Atlantic 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~~(Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank ~~& Trust, which provides banking, trust, and wealth management services and~~ has ~~a statewide presence of 111 bank~~149 branches and approximately ~~173 ATMs. Non-bank~~170 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Middleburg Financial is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank affiliates of ~~the holding company~~Atlantic Union Bank include: ~~Union Mortgage Group,~~Old Dominion Capital Management, Inc., and its subsidiary, Outfitter Advisors, Ltd., Dixon, Hubard, Feinour, & Brown, Inc., and Middleburg Investment Services, LLC, which ~~provides a full line of mortgage products;~~provide investment advisory and/or brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance ~~products; and Old Dominion Capital Management, Inc., which provides investment advisory services.~~

products.

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

-61-

Table of Contents

RESULTS OF OPERATIONS

Executive Overview

~~For the quarter ended September 30, 2017,~~

On February 1, 2019, the Company ~~reported net income~~completed the acquisition of ~~$20.7~~Access, a bank holding company based in Reston, Virginia. The Company’s results for the first quarter of 2019 include two months of financial results of Access.

On May 20, 2019, the Company re-branded to Atlantic Union Bankshares Corporation and successfully completed the integration of Access National Bank branches and operations into Atlantic Union Bank. Rebranding-related costs amounted to $4.0 million and ~~earnings~~$4.4 million during the three and six months ended June 30, 2019, respectively. There were no rebranding costs during the six months ended June 30, 2020.

On January 1, 2020, the Company adopted ASC 326, which resulted in an increase of $51.7 million in the ACL on January 1, 2020. The impact of the worsening economic forecast related to COVID-19 subsequent to the adoption of ASC 326 further increased the ACL by $86.1 million to $181.0 million at June 30, 2020. The ACL included an ALLL of $170.0 million and an RUC of $11.0 million at June 30, 2020.

On June 9, 2020, the Company announced the closing of an offering of 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of ~~$0.47. Excluding after-tax merger-related costs~~Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of ~~$661,000,~~their option to purchase additional depositary shares. The total net ~~operating earnings~~⁽¹⁾proceeds to the Company were ~~$21.3~~approximately $166.4 million, after deducting the underwriting discount and ~~operating earnings per share~~⁽¹⁾ ~~were $0.49~~other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ~~third~~ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.

During the second quarter of ~~2017. The Company's net operating earnings and operating earnings per share for~~2020, the ~~third quarter~~Company undertook several actions, including a planned consolidation of ~~2017 represent an increase of $918,000, or 4.5%, over net income and an increase of $0.02, or 4.3%, over earnings per share,~~14 branches expected to occur in ~~each case compared~~September, to ~~the third quarter of 2016. These increases are primarily attributable to increases~~reduce expenses in ~~net interest income, driven by higher average loan balances partially offset by the impact~~light of the ~~decline~~current and expected operating environment. These actions resulted in ~~net interest margin.~~

For the nine months ended September 30, 2017, the Company reported net income of $57.7 million and earnings per share of $1.32. Excluding after-tax merger-related costs of $3.0 million, net operating earnings⁽¹⁾ ~~were $60.8 million and operating earnings per share~~⁽¹⁾ were $1.39 for the first nine months of 2017. The Company's net operating earnings and operating earnings per share for the first nine months of 2017 represent an increase of $4.1 million, or 7.2%, over net income and an increase of $0.10, or 7.8%, over earnings per share, in each case compared to the first nine months of 2016. 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~~expenses during the second quarter of ~~2017~~$1.8 million of severance costs and also $1.6 million related to ~~acquire Xenith in~~ the ~~Pending Merger, which is expected to close in early January 2018. On October 17, 2017, the Company~~real estate write-downs.

Second Quarter Net Income and ~~Xenith~~

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

Performance Metrics

•●

Net income was $30.7 million and EPS was $0.39 for the ~~community bank segment was $20.3~~second quarter of 2020 compared to net income of $48.8 million ~~or $0.46 per share,~~and EPS of $0.59 for the ~~third~~second quarter of ~~2017 compared to $19.6 million, or $0.45 per share, for the third quarter of 2016. Net operating earnings~~⁽¹⁾ ~~for the community bank segment were $21.0 million, or $0.48 per share, for the third quarter of 2017.~~

2019.

•●

~~Net~~Pre-tax pre-provision earnings⁽¹⁾, which exclude provision for credit losses, merger and rebranding-related costs, and income tax expense, were $70.4 million ($0.89 per share) for the ~~community bank segment was $56.8~~second quarter of 2020 compared to $73.9 million ~~or $1.30~~($0.90 per ~~share,~~share) for the ~~nine months ended September 30, 2017 compared to $55.3 million, or $1.26 per share, for the nine months ended September 30, 2016. Net operating earnings~~⁽¹⁾ ~~for the community bank segment were $59.9 million, or $1.37 per share, for the nine months ended September 30, 2017.~~

second quarter of 2019.

The mortgage segment reported net income of $347,000 for the third quarter of 2017 compared to net income of $785,000 in the third quarter of 2016. The mortgage segment reported net income of $901,000 for the nine months ended September 30, 2017 compared to $1.4 million for the nine months ended September 30, 2016.

Six Month Net Income and Performance Metrics

•●

~~ROA~~Net income was ~~0.91%~~$37.8 million and EPS was $0.48 for the ~~quarter~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~1.00%~~net income of $84.5 million and EPS of $1.06 for the ~~third quarter of 2016. Operating ROA~~⁽¹⁾ ~~for the quarter ended September 30, 2017 was 0.94%. ROA was 0.88% for the nine~~six months ended ~~September~~June 30, ~~2017 compared to 0.95% for the nine months ended September 30, 2016. Operating ROA~~⁽¹⁾ ~~for the nine months ended September 30, 2017 was 0.93%.~~

2019.

•●

~~ROE was 7.90%~~Pre-tax pre-provision earnings⁽¹⁾ were $138.7 million ($1.76 per share) for the ~~quarter~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~8.14%~~$138.1 million ($1.74 per share) for the ~~third quarter of 2016. Operating ROE~~⁽¹⁾ ~~for the quarter ended September 30, 2017 was 8.15%. ROE was 7.53% for the nine~~six months ended ~~September~~June 30, ~~2017 compared to 7.64%~~2019.

Balance Sheet

●

Loans held for investment (net of deferred fees and costs) were $14.3 billion at June 30, 2020, an increase of $1.7 billion, or 27.1% (annualized), from December 31, 2019. Excluding the ~~nine months ended September 30, 2016. Operating ROE~~impact of the PPP⁽¹⁾, loans held for ~~the nine months ended September 30, 2017 was 7.93%~~investment grew $99.0 million, or 1.6% (annualized).

•●

~~ROTCE was 11.34% for the quarter ended September~~Total deposits were $15.6 billion at June 30, ~~2017 compared to 12.00% for the third quarter~~2020, an increase of ~~2016. Operating ROTCE~~⁽¹⁾ ~~for the quarter ended September 30, 2017 was 11.70%. ROTCE was 10.90% for the nine months ended September 30, 2017 compared to 11.25% for the nine months ended September 30, 2016. Operating ROTCE~~⁽¹⁾ ~~for the nine months ended September 30, 2017 was 11.47%.~~

$2.3 million, or 34.8% (annualized), from December 31, 2019.

~~Loans held for investment grew $591.7 million, or 12.5% (annualized), from December 31, 2016. Quarterly average loans held for investment increased $788.8 million, or 13.1%, compared~~

(1) Refer to the ~~quarter ended September 30, 2016.~~

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

~~(1)For a reconciliation of the non-GAAP operating measures that exclude merger-related costs unrelated to the Company’s normal operations, refer to~~ “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of ~~this Form 10-Q. Such costs were only incurred~~these measures to the most directly comparable financial measures in accordance with GAAP.

-62-

Table of Contents

Recent Developments

COVID-19 Pandemic. The Company’s financial performance generally, and in particular the ability of its borrowers to repay their loans, the value of collateral securing those loans, as well as demand for loans and other products and services the Company offers, is highly dependent on the business environment in its primary markets where it operates and in the United States as a whole.

In December 2019, COVID-19 was reported in Wuhan, China. The WHO declared the COVID-19 outbreak to constitute a Public Health Emergency of International Concern on January 30, 2020. Over the course of the first quarter of 2020, COVID-19 has developed into a worldwide outbreak and, on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, the President of the United States issued a proclamation declaring a national state of emergency in response to COVID-19. During the final two weeks of March 2020, the governors of multiple U.S. states, including Virginia, where the Company has its principal place of business, issued stay-at-home orders that directed the closing of non-essential businesses and restricted public gatherings. Recently, businesses have begun to re-open in many areas of the United States under government social distancing and other restrictions. As such, the COVID-19 pandemic may continue to be a significant health concern in the Company’s areas of operation, the United States and across the globe.

The pandemic is having a wide range of economic impacts, involving the possibility of an extended economic recession. The pandemic has severely disrupted supply chains and adversely affected production, demand, sales, and employee productivity across a range of industries. It has dramatically increased unemployment in the Company’s areas of operation and nationally. It is expected that the national economy and economies in the Company’s areas of operations will continue to be affected throughout fiscal year 2020, despite the fact that businesses have recently begun to re-open. In addition, the pandemic may have social and other impacts that are not yet known but may affect the Company’s customers, employees, and vendors. These events have adversely affected the Company’s operations during the ~~second~~first six months of 2020 and are expected to impact its business, financial condition, and results of operations throughout fiscal year 2020. The duration, nature, and severity of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration, spread, and severity of the outbreak, the pandemic’s impact on its customers, employees, and vendors and the nature and effect of past and future federal and state governmental and private sector responses to the pandemic, all of which are uncertain and cannot be predicted. New information may emerge concerning the severity of the outbreak and the actions taken to contain COVID-19 or treat its impact may change or become more restrictive if a “second wave” of infections occurs as a result of the loosening of governmental restrictions.

Future developments with respect to COVID-19 remain highly uncertain and cannot be predicted and new information may emerge concerning the nature and severity of the outbreak, short- and long-term health impacts, the actions to contain the outbreak or treat its impact, and unforeseen effects of the pandemic, among others. Other national health concerns, including the outbreak of other contagious diseases or pandemics, may adversely affect the Company in the future.

The Bank has been participating in the SBA PPP under the CARES Act, which was intended to provide economic relief to small businesses that have been adversely impacted by COVID-19. The Bank secured funding through the SBA PPP for more than 11,000 loans, totaling approximately $1.7 billion. As of June 30, 2020, the recorded investment of these loans was approximately $1.6 billion.

Loans under the PPP generally have a two-year term, earn interest at 1.00%, and are forgivable to the extent that the proceeds are used for payroll costs and other qualifying expenses in accordance with the terms of the program. Lenders participating in the program are scheduled to receive loan processing fees from the SBA ranging from 1.00% to 5.00% of the initial principal amount of the loan. Beginning in the third quarter of ~~2017; thus each~~2020, the Bank will work with these borrowers and the SBA to achieve forgiveness and repayment of these ~~operating measures~~loans.

The Bank has also implemented a short-term loan modification program that is ~~equivalent~~intended to provide temporary relief for certain of our borrowers who expected to be or may have already been adversely affected by the outbreak of COVID-19 by providing short-term deferrals of loan payments on amortizing loans. The Bank offered a three- to six-month full payment deferral option or a three- to six-month interest-only payment option. In accordance with interagency regulatory guidance issued in March 2020, these short-term deferrals are not deemed to be TDRs to the ~~corresponding GAAP financial measure for~~extent they meet the ~~three and nine months ended September~~terms of such guidance. As of June 30, ~~2016.~~2020 approximately $1.6 billion remain under their modified terms.

The Bank has not registered as a lender under the MSLP but continues to monitor developments related thereto.

-63-

Table of Contents

Net Interest Income


	For the Three Months Ended
	June 30,
	2020			2019			Change

	(Dollars in thousands)
Average interest-earning assets	$	17,106,132		$	15,002,726		$	2,103,406
Interest and dividend income	$	162,867		$	181,125		$	(18,258)
Interest and dividend income (FTE) ⁽¹⁾	$	165,672		$	184,045		$	(18,373)
Yield on interest-earning assets		3.83	%		4.84	%		(101)	bps
Yield on interest-earning assets (FTE) ⁽¹⁾		3.90	%		4.92	%		(102)	bps
Average interest-bearing liabilities	$	12,286,362		$	11,402,418		$	883,944
Interest expense	$	25,562		$	42,531		$	(16,969)
Cost of interest-bearing liabilities		0.84	%		1.50	%		(66)	bps
Cost of funds		0.61	%		1.14	%		(53)	bps
Net interest income	$	137,305		$	138,594		$	(1,289)
Net interest income (FTE) ⁽¹⁾	$	140,110		$	141,514		$	(1,404)
Net interest margin		3.23	%		3.71	%		(48)	bps
Net interest margin (FTE) ⁽¹⁾		3.29	%		3.78	%		(49)	bps

For the Three Months Ended
September 30,

2017 2016 Change
(Dollars in thousands)
Average interest-earning assets $ 8,167,919
$ 7,354,684
$ 813,235

Interest income $ 84,850
$ 74,433
$ 10,417

Interest income (FTE) ⁽¹⁾
$ 87,498
$ 76,860
$ 10,638

Yield on interest-earning assets 4.12 % 4.03 % 9
bps
Yield on interest-earning assets (FTE) ⁽¹⁾
4.25 % 4.16 % 9
bps
Average interest-bearing liabilities $ 6,382,452
$ 5,681,102
$ 701,350

Interest expense $ 13,652
$ 7,405
$ 6,247

Cost of interest-bearing liabilities 0.85 % 0.52 % 33
bps
Cost of funds 0.66 % 0.40 % 26
bps
Net interest income $ 71,198
$ 67,028
$ 4,170

Net interest income (FTE) ⁽¹⁾
$ 73,846
$ 69,455
$ 4,391

Net interest margin 3.46 % 3.63 % (17 ) bps
Net interest margin (FTE) ⁽¹⁾
3.59 % 3.76 % (17 ) bps

(1)Refer to the “Non-GAAP Financial Measures” section within this Item 2 ~~of this Form 10-Q~~ for more information about ~~this non-GAAP~~these measures, including a reconciliation of these measures to the most directly comparable financial ~~measure.~~

measures calculated in accordance with GAAP.

For the ~~third~~second quarter of ~~2017,~~2020, net interest income was ~~$71.2~~$137.3 million, a decrease of $1.3 million from the second quarter of 2019. For the second quarter of 2020, net interest income (FTE) was $140.1 million, a decrease of $1.4 million from the second quarter of 2019. The decreases in both net interest income and net interest income (FTE) were primarily driven by lower yields and lower purchased loan discount accretion. Net accretion related to acquisition accounting decreased $1.5 million from the second quarter of 2019 to $6.3 million in the second quarter of 2020. In the second quarter of 2020, net interest margin decreased 48 basis points to 3.23% from 3.71% in the second quarter of 2019, and net interest margin (FTE) decreased 49 basis points compared to the second quarter of 2019. The net decline in net interest margin and net interest margin (FTE) measures were primarily driven by a decrease in the yield on interest-earning assets, partially offset by a smaller decrease in cost of funds. The decline in the Company’s earning asset yields was driven by the impact of lower yielding PPP loans originated during the second quarter of 2020 and the impact of the lower interest rate environment. The cost of funds decline was driven by lower deposit costs and wholesale borrowing costs driven by lower market interest rates and a favorable funding mix.

-64-

Table of Contents


	For the Six Months Ended
	June 30,
	2020			2019			Change

	(Dollars in thousands)
Average interest-earning assets	$	16,334,901		$	14,450,057		$	1,884,844
Interest and dividend income	$	334,193		$	346,777		$	(12,584)
Interest and dividend income (FTE) ⁽¹⁾	$	339,755		$	352,445		$	(12,690)
Yield on interest-earning assets		4.11	%		4.84	%		(73)	bps
Yield on interest-earning assets (FTE) ⁽¹⁾		4.18	%		4.92	%		(74)	bps
Average interest-bearing liabilities	$	12,076,932		$	11,105,042		$	971,890
Interest expense	$	61,880		$	80,636		$	(18,756)
Cost of interest-bearing liabilities		1.03	%		1.46	%		(43)	bps
Cost of funds		0.76	%		1.13	%		(37)	bps
Net interest income	$	272,313		$	266,141		$	6,172
Net interest income (FTE) ⁽¹⁾	$	277,875		$	271,809		$	6,066
Net interest margin		3.35	%		3.71	%		(36)	bps
Net interest margin (FTE) ⁽¹⁾		3.42	%		3.79	%		(37)	bps

(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these measures, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with GAAP.

For the first six months of 2020, net interest income was $272.3 million, an increase of ~~$4.2~~$6.2 million from the ~~third quarter~~same period of ~~2016.~~2019. For the ~~third quarter~~first six months of ~~2017, tax-equivalent~~2020, net interest income (FTE) was ~~$73.8~~$277.9 million, an increase of ~~$4.4~~$6.1 million from the ~~third quarter~~same period of ~~2016.~~2019. The increases in both net interest income and ~~tax-equivalent~~ net interest income (FTE) were primarily driven by higher average loan ~~balances.~~balances and higher purchased loan discount accretion. Net accretion related to acquisition accounting increased ~~$190,000~~$2.2 million from the ~~third quarter~~first six months of ~~2016~~2019 to ~~$1.7~~$15.8 million in the ~~third quarter~~first six months of ~~2017.~~2020. In the ~~third quarter~~first six months of ~~2017, both net interest margin and tax-equivalent~~2020, net interest margin decreased 1736 basis points to 3.35% from 3.71% in the first six months of 2019, and net interest margin (FTE) decreased 37 basis points compared to the ~~third quarter~~first six months of ~~2016.~~2019. The net ~~decreases~~decline in net interest margin and ~~tax-equivalent~~ net interest margin (FTE) measures were primarily driven by a decrease in the ~~26 basis point increase~~yield on interest-earning assets, partially offset by a smaller decrease in cost of ~~funds, offset~~funds. The decline in the Company’s earning asset yields was driven by the ~~9 basis point increase in interest-earning asset yields.~~impact of lower yielding PPP loans originated during the second quarter of 2020 and the impact of the lower interest rate environment. The ~~increase in the~~ cost of funds decline was ~~primarily attributable~~driven by lower deposit costs and wholesale borrowing costs driven by lower market interest rates and a favorable funding mix.

The Federal Open Markets Committee lowered Federal Funds target rates for the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined decrease of 75 basis points during 2019. In response 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 Nine Months Ended
September 30,
2017 2016 Change
(Dollars in thousands)
Average interest-earning assets $ 7,922,944
$ 7,159,813
$ 763,131

Interest income $ 242,712
$ 217,964
$ 24,748

Interest income (FTE) ⁽¹⁾
$ 250,548
$ 225,331
$ 25,217

Yield on interest-earning assets 4.10 % 4.07 % 3
bps
Yield on interest-earning assets (FTE) ⁽¹⁾
4.23 % 4.20 % 3
bps
Average interest-bearing liabilities $ 6,196,663
$ 5,528,833
$ 667,830

Interest expense $ 35,947
$ 21,429
$ 14,518

Cost of interest-bearing liabilities 0.78 % 0.52 % 26
bps
Cost of funds 0.61 % 0.40 % 21
bps
Net interest income $ 206,765
$ 196,535
$ 10,230

Net interest income (FTE) ⁽¹⁾
$ 214,601
$ 203,902
$ 10,699

Net interest margin 3.49 % 3.67 % (18 ) bps
Net interest margin (FTE) ⁽¹⁾
3.62 % 3.80 % (18 ) bps

~~(1)~~ ~~Refer~~market volatility related to the ~~“Non-GAAP Measures” section within this Item 2~~COVID-19 pandemic, the FOMC again lowered Federal Funds target rates twice in March 2020, for a combined decrease of ~~this Form 10-Q for more information about this non-GAAP financial measure.~~

~~For~~150 basis points. The FOMC’s current Federal Funds target rate range is currently 0% to 0.25%. As a consequence, long-term interest rates have decreased. The Company anticipates that these actions by the ~~first nine months of 2017,~~FOMC will continue to put downward pressure on its net interest ~~income was $206.8 million, an increase~~margin.

-65-

Table of $10.2 million from the first nine months of 2016. For the first nine months of 2017, tax-equivalent net interest income was $214.6 million, an increase of $10.7 million from the first 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 $752,000 from the first nine months of 2016 to $4.8 million in the first nine months of 2017. In the first nine months of 2017, both net interest margin and tax-equivalent net interest margin decreased 18 basis points compared the first nine months of 2016. The net decreases in net interest margin and tax-equivalent net interest margin measures were driven by the 21 basis point increase in cost of funds, 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.Contents

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,
	2020						2019
			Interest						Interest
	Average		Income /		Yield /		Average		Income /		Yield /
	Balance		Expense ⁽¹⁾		Rate ⁽¹⁾⁽²⁾		Balance		Expense⁽¹⁾		Rate ⁽¹⁾⁽²⁾

	(Dollars in thousands)
Assets:
Securities:
Taxable	$	1,626,426	$	11,267	2.79	%	$	1,705,977	$	13,333	3.13	%
Tax-exempt		1,022,541		10,394	4.09	%		1,032,551		10,646	4.14	%
Total securities		2,648,967		21,661	3.29	%		2,738,528		23,979	3.51	%
Loans, net ^{(3) (4)}		13,957,711		143,339	4.13	%		12,084,961		158,935	5.28	%
Other earning assets		499,454		672	0.54	%		179,237		1,131	2.53	%
Total earning assets		17,106,132	$	165,672	3.90	%		15,002,726	$	184,045	4.92	%
Allowance for credit losses		(150,868)						(41,174)
Total non-earning assets		2,201,974						2,035,979
Total assets	$	19,157,238					$	16,997,531
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	7,474,210	$	7,303	0.39	%	$	6,215,912	$	16,139	1.04	%
Regular savings		799,890		123	0.06	%		776,683		416	0.21	%
Time deposits ⁽⁵⁾		2,667,268		12,435	1.88	%		2,562,498		12,254	1.92	%
Total interest-bearing deposits		10,941,368		19,861	0.73	%		9,555,093		28,809	1.21	%
Other borrowings ⁽⁶⁾		1,344,994		5,701	1.70	%		1,847,325		13,722	2.98	%
Total interest-bearing liabilities		12,286,362	$	25,562	0.84	%		11,402,418	$	42,531	1.50	%
Noninterest-bearing liabilities:
Demand deposits		4,019,018						2,898,609
Other liabilities		361,889						206,455
Total liabilities		16,667,269						14,507,482
Stockholders' equity		2,489,969						2,490,049
Total liabilities and stockholders' equity	$	19,157,238					$	16,997,531
Net interest income			$	140,110					$	141,514
Interest rate spread					3.06	%					3.42	%
Cost of funds					0.61	%					1.14	%
Net interest margin					3.29	%					3.78	%

For the Three Months Ended September 30,
2017 2016
Average
Balance
Interest
Income /
Expense ⁽¹⁾

Yield /
Rate ⁽¹⁾⁽²⁾

Average
Balance

Interest
Income /
Expense⁽¹⁾

Yield /
Rate ⁽¹⁾⁽²⁾
(Dollars in thousands)
Assets:

Securities:

Taxable $ 774,513
$ 5,175
2.65 % $ 768,608
$ 4,732
2.45 %
Tax-exempt 469,391
5,455
4.61 % 449,944
5,302
4.69 %
Total securities 1,243,904
10,630
3.39 % 1,218,552
10,034
3.28 %
Loans, net ^{(3) (4)}
6,822,498
76,333
4.44 % 6,033,723
66,397
4.38 %
Other earning assets 101,517
535
2.09 % 102,409
429
1.67 %
Total earning assets 8,167,919
$ 87,498
4.25 % 7,354,684
$ 76,860
4.16 %
Allowance for loan losses (38,138 )

(35,995 )

Total non-earning assets 844,183

835,262

Total assets $ 8,973,964

$ 8,153,951

Liabilities and Stockholders' Equity:

Interest-bearing deposits:

Transaction and money market accounts $ 3,457,279
$ 3,491
0.40 % $ 3,016,337
$ 1,682
0.22 %
Regular savings 555,153
151
0.11 % 598,232
207
0.14 %
Time deposits 1,289,794
3,592
1.10 % 1,181,936
2,663
0.90 %
Total interest-bearing deposits 5,302,226
7,234
0.54 % 4,796,505
4,552
0.38 %
Other borrowings ⁽⁵⁾
1,080,226
6,418
2.36 % 884,597
2,853
1.28 %
Total interest-bearing liabilities 6,382,452
$ 13,652
0.85 % 5,681,102
$ 7,405
0.52 %
Noninterest-bearing liabilities:

Demand deposits 1,495,614

1,408,453

Other liabilities 58,106

67,728

Total liabilities 7,936,172

7,157,283

Stockholders' equity 1,037,792

996,668

Total liabilities and stockholders' equity $ 8,973,964

$ 8,153,951

Net interest income
$ 73,846

$ 69,455

Interest rate spread

3.40 %

3.64 %
Cost of funds

0.66 %

0.40 %
Net interest margin

3.59 %

3.76 %

(1)Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of ~~35%~~21% .

(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 ~~$1.7~~$6.4 million and ~~$1.3~~$7.7 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5) Interest expense on ~~borrowings~~time deposits includes ~~$47,000~~$34,000 and ~~$181,000 for~~$213,000 the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, in accretion of the fair market value adjustments related to acquisitions.

(6) Interest expense on borrowings includes $140,000 and $70,000 for the three months ended June 30, 2020 and 2019, respectively, in amortization of the fair market value adjustments related to acquisitions.

-66-

Table of Contents

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


	For the Six Months Ended June 30,
	2020						2019
			Interest						Interest
	Average		Income /		Yield /		Average		Income /		Yield /
	Balance		Expense ⁽¹⁾		Rate ⁽¹⁾⁽²⁾		Balance		Expense⁽¹⁾		Rate ⁽¹⁾⁽²⁾

	(Dollars in thousands)
Assets:
Securities:
Taxable	$	1,645,438	$	22,895	2.80	%	$	1,683,702	$	26,400	3.16	%
Tax-exempt		989,764		20,152	4.09	%		1,008,534		20,769	4.15	%
Total securities		2,635,202		43,047	3.29	%		2,692,236		47,169	3.53	%
Loans, net ^{(3) (4)}		13,275,817		294,652	4.46	%		11,608,821		303,434	5.27	%
Other earning assets		423,882		2,056	0.98	%		149,000		1,842	2.49	%
Total earning assets		16,334,901	$	339,755	4.18	%		14,450,057	$	352,445	4.92	%
Allowance for loan losses		(120,505)						(42,083)
Total non-earning assets		2,144,183						1,944,248
Total assets	$	18,358,579					$	16,352,222
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	7,203,777	$	21,824	0.61	%	$	6,086,277	$	30,509	1.01	%
Regular savings		766,232		281	0.07	%		755,105		817	0.22	%
Time deposits ⁽⁵⁾		2,711,384		26,270	1.95	%		2,444,513		21,913	1.81	%
Total interest-bearing deposits		10,681,393		48,375	0.91	%		9,285,895		53,239	1.16	%
Other borrowings ⁽⁶⁾		1,395,539		13,505	1.95	%		1,819,147		27,397	3.04	%
Total interest-bearing liabilities		12,076,932	$	61,880	1.03	%		11,105,042	$	80,636	1.46	%
Noninterest-bearing liabilities:
Demand deposits		3,472,228						2,678,641
Other liabilities		321,612						188,705
Total liabilities		15,870,772						13,972,388
Stockholders' equity		2,487,807						2,379,834
Total liabilities and stockholders' equity	$	18,358,579					$	16,352,222
Net interest income			$	277,875					$	271,809
Interest rate spread					3.15	%					3.46	%
Cost of funds					0.76	%					1.13	%
Net interest margin					3.42	%					3.79	%

For the Nine Months Ended September 30,
2017 2016
Average
Balance
Interest
Income /
Expense ⁽¹⁾

Yield /
Rate ⁽¹⁾⁽²⁾
Average
Balance
Interest
Income /
Expense ⁽¹⁾

Yield /
Rate ⁽¹⁾⁽²⁾
(Dollars in thousands)
Assets:

Securities:

Taxable $ 763,276
$ 15,081
2.64 % $ 756,042
$ 13,558
2.40 %
Tax-exempt 463,944
16,338
4.71 % 446,840
15,914
4.76 %
Total securities 1,227,220
31,419
3.42 % 1,202,882
29,472
3.27 %
Loans, net ^{(3) (4)}
6,613,078
217,910
4.41 % 5,869,511
194,839
4.43 %
Other earning assets 82,646
1,219
1.97 % 87,420
1,020
1.56 %
Total earning assets 7,922,944
$ 250,548
4.23 % 7,159,813
$ 225,331
4.20 %
Allowance for loan losses (38,205 )

(35,439 )

Total non-earning assets 846,076

832,467

Total assets $ 8,730,815

$ 7,956,841

Liabilities and Stockholders' Equity:

Interest-bearing deposits:

Transaction and money market accounts $ 3,344,248
$ 8,189
0.33 % $ 2,903,336
$ 4,523
0.21 %
Regular savings 571,735
493
0.12 % 591,699
649
0.15 %
Time deposits 1,250,180
9,728
1.04 % 1,172,856
7,773
0.89 %
Total interest-bearing deposits 5,166,163
18,410
0.48 % 4,667,891
12,945
0.37 %
Other borrowings ⁽⁵⁾
1,030,500
17,537
2.28 % 860,942
8,484
1.32 %
Total interest-bearing liabilities 6,196,663
$ 35,947
0.78 % 5,528,833
$ 21,429
0.52 %
Noninterest-bearing liabilities:

Demand deposits 1,449,555

1,376,001

Other liabilities 59,744

60,910

Total liabilities 7,705,962

6,965,744

Stockholders' equity 1,024,853

991,097

Total liabilities and stockholders' equity $ 8,730,815

$ 7,956,841

Net interest income
$ 214,601

$ 203,902

Interest rate spread

3.45 %

3.68 %
Cost of funds

0.61 %

0.40 %
Net interest margin

3.62 %

3.80 %

(1)Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of ~~35%~~21%.

(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 ~~$4.7~~$16.0 million and ~~$3.7~~$13.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5) Interest expense on ~~borrowings~~time deposits includes ~~$142,000~~$84,000 and ~~$386,000 for~~$505,000 the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, in accretion of the fair market value adjustments related to acquisitions.

(6) Interest expense on borrowings includes $278,000 and $140,000 for the six months ended June 30, 2020 and 2019, respectively, in amortization of the fair market value adjustments related to acquisitions.

-67-

Table of Contents

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						Six Months Ended
	June 30, 2020 vs. June 30, 2019						June 30, 2020 vs. June 30, 2019
	Increase (Decrease) Due to Change in:						Increase (Decrease) Due to Change in:
	Volume		Rate		Total		Volume		Rate		Total
Earning Assets:
Securities:
Taxable	$	(601)	$	(1,465)	$	(2,066)	$	(588)	$	(2,917)	$	(3,505)
Tax-exempt		(102)		(150)		(252)		(384)		(233)		(617)
Total securities		(703)		(1,615)		(2,318)		(972)		(3,150)		(4,122)
Loans, net ⁽¹⁾		22,394		(37,990)		(15,596)		40,367		(49,149)		(8,782)
Other earning assets		914		(1,373)		(459)		1,841		(1,627)		214
Total earning assets	$	22,605	$	(40,978)	$	(18,373)	$	41,236	$	(53,926)	$	(12,690)
Interest-Bearing Liabilities:
Interest-bearing deposits:
Transaction and money market accounts	$	2,946	$	(11,782)	$	(8,836)	$	5,262	$	(13,947)	$	(8,685)
Regular savings		13		(306)		(293)		12		(548)		(536)
Time Deposits ⁽²⁾		494		(313)		181		2,505		1,852		4,357
Total interest-bearing deposits		3,453		(12,401)		(8,948)		7,779		(12,643)		(4,864)
Other borrowings ⁽³⁾		(3,110)		(4,911)		(8,021)		(5,480)		(8,412)		(13,892)
Total interest-bearing liabilities		343		(17,312)		(16,969)		2,299		(21,055)		(18,756)
Change in net interest income	$	22,262	$	(23,666)	$	(1,404)	$	38,937	$	(32,871)	$	6,066

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
Earning Assets:

Securities:

Taxable $ 37
$ 406
$ 443
$ 131
$ 1,392
$ 1,523
Tax-exempt 226
(73 ) 153
603
(179 ) 424
Total securities 263
333
596
734
1,213
1,947
Loans, net ⁽¹⁾
8,809
1,127
9,936
24,512
(1,441 ) 23,071
Other earning assets (3 ) 109
106
(58 ) 257
199
Total earning assets $ 9,069
$ 1,569
$ 10,638
$ 25,188
$ 29
$ 25,217
Interest-Bearing Liabilities:
Interest-bearing deposits:
Transaction and money market accounts $ 276
$ 1,533
$ 1,809
$ 769
$ 2,897
$ 3,666
Regular savings (14 ) (42 ) (56 ) (21 ) (135 ) (156 )
Time Deposits 259
670
929
537
1,418
1,955
Total interest-bearing deposits 521
2,161
2,682
1,285
4,180
5,465
Other borrowings ⁽²⁾
742
2,823
3,565
1,930
7,123
9,053
Total interest-bearing liabilities 1,263
4,984
6,247
3,215
11,303
14,518
Change in net interest income $ 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 $324,000 and $996,000 for the three- and 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 ~~$134,000 and $244,000~~$1.2 million for the ~~three-~~three month change, and ~~nine-month~~higher accretion of $2.8 million for the six month change, respectively.

(2) The rate-related change in interest expense on deposits includes the impact of lower accretion of the acquisition-related fair market value adjustments of $179,000 and $421,000 for the three-and-six-month change, respectively.

(3) The rate-related change in interest expense on other borrowings includes the impact of higher amortization of the acquisition-related fair market value adjustments of $70,000 and $138,000 for the three-and-six-month change, respectively.

The Company’s ~~fully taxable equivalent~~ net interest margin (FTE) includes the impact of acquisition accounting fair value adjustments. The impact of net accretion for the first ~~three~~and second quarters of ~~2017 as well as~~2019, and the ~~remaining estimated net accretion~~first and second quarters of 2020 are reflected in the following table (dollars in thousands):


			Deposit		Borrowings
	Loan		Accretion		Accretion
	Accretion		(Amortization)		(Amortization)		Total
For the quarter ended March 31, 2019	$	5,557	$	292	$	(70)	$	5,779
For the quarter ended June 30, 2019		7,659		213		(70)		7,802
For the quarter ended March 31, 2020		9,528		50		(138)		9,440
For the quarter ended June 30, 2020		6,443		34		(140)		6,337

-68-

Table of Contents

Noninterest Income


	For the Three Months Ended
	June 30,				Change
	2020		2019⁽¹⁾		$		%

	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	4,930	$	7,499	$	(2,569)	(34.3)	%
Other service charges, commissions, and fees		1,354		1,702		(348)	(20.4)	%
Interchange fees		1,697		5,612		(3,915)	(69.8)	%
Fiduciary and asset management fees		5,515		5,698		(183)	(3.2)	%
Mortgage banking income		5,826		2,785		3,041	109.2	%
Gains on securities transactions		10,339		51		10,288	NM
Bank owned life insurance income		2,027		2,075		(48)	(2.3)	%
Loan-related interest rate swap fees		5,484		3,716		1,768	47.6	%
Other operating income		(1,240)		1,440		(2,680)	(186.1)	%
Total noninterest income	$	35,932	$	30,578	$	5,354	17.5	%

Loan Accretion Borrowings Accretion (Amortization) Total
For the quarter ended March 31, 2017 $ 1,445
$ 48
$ 1,493
For the quarter ended June 30, 2017 1,570
47
1,617
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 4,842
(143 ) 4,699
2019 3,483
(286 ) 3,197
2020 2,689
(301 ) 2,388
2021 2,187
(316 ) 1,871
2022 1,767
(332 ) 1,435
Thereafter 6,589
(4,974 ) 1,615

^{NM – Not meaningful}

(1)~~Estimated accretion only includes accretion~~ Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Form 10-Q for ~~previously executed acquisitions. The effects of the Pending Merger are not included in the information above.~~

~~Noninterest Income~~

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

Service charges on deposit accounts $ 5,153
$ 4,965
$ 188
3.8 %
Other service charges and fees 4,529
4,397
132
3.0 %
Fiduciary and asset management fees 2,794
2,844
(50 ) (1.8 )%
Mortgage banking income, net 2,305
3,207
(902 ) (28.1 )%
Gains on securities transactions, net 184
—
184
NM
Bank owned life insurance income 1,377
1,389
(12 ) (0.9 )%
Loan-related interest rate swap fees 416
1,303
(887 ) (68.1 )%
Other operating income 778
845
(67 ) (7.9 )%
Total noninterest income $ 17,536
$ 18,950
$ (1,414 ) (7.5 )%

Community bank segment $ 15,121
$ 15,589
$ (468 ) (3.0 )%
Mortgage segment 2,527
3,501
(974 ) (27.8 )%
Intercompany eliminations (112 ) (140 ) 28
20.0 %
Total noninterest income $ 17,536
$ 18,950
$ (1,414 ) (7.5 )%
~~NM - Not meaningful~~

further discussion regarding discontinued operations.

Noninterest income ~~declined $1.4~~increased $5.4 million, or ~~7.5%~~17.5%, to ~~$17.5~~$35.9 million for the quarter ended ~~September~~June 30, ~~2017~~2020 compared to $30.6 million for the quarter ended ~~September~~June 30, ~~2016.~~2019. 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 $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 $998,000 higher due to the acquisition of ODCMincrease in the second quarter of ~~2016; bank owned life insurance~~2020 was primarily driven by a $10.3 million gain on sale of investment securities recorded in the quarter and an increase of $1.8 million in loan related interest rate swap income. In addition, mortgage banking income was higher by $3.0 million primarily due to increased mortgage loan refinance volumes due to the current low interest rate environment. Partially offsetting these increases was a decline in service charges on deposit accounts of $2.6 million primarily due to lower NSF and overdraft incident fees, $2.5 million in unrealized losses related to equity method investments due to the current economic environment related to COVID-19, and a decline of $3.9 million in interchange income primarily due to reduced debit card interchange transaction fees as a result of the Durbin Amendment, which was effective for the Company on July 1, 2019.


	For the Six Months Ended
	June 30,				Change
	2020		2019⁽¹⁾		$		%

	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	12,508	$	14,656	$	(2,148)	(14.7)	%
Other service charges, commissions, and fees		2,978		3,367		(389)	(11.6)	%
Interchange fees		3,321		10,656		(7,335)	(68.8)	%
Fiduciary and asset management fees		11,499		10,752		747	6.9	%
Mortgage banking income		7,847		4,240		3,607	85.1	%
Gains on securities transactions		12,275		202		12,073	NM
Bank owned life insurance income		4,076		4,129		(53)	(1.3)	%
Loan-related interest rate swap fees		9,432		5,176		4,256	82.2	%
Other operating income		902		2,337		(1,435)	(61.4)	%
Total noninterest income	$	64,838	$	55,515	$	9,323	16.8	%

NM – Not meaningful

(1) Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Form 10-Q for further discussion regarding discontinued operations.

Noninterest income increased ~~$715,000~~$9.3 million, or 16.8%, to $64.8 million for the six months ended June 30, 2020 compared to $55.5 million for the six months ended June 30, 2019. The increase was primarily driven by a $12.3 million gain on sale of investment securities and an increase of $4.3 million in loan related interest rate swap income. In addition, mortgage banking

-69-

Table of Contents

income was higher by $3.6 million primarily due to increased mortgage loan refinance volumes due to the current low interest rate environment. Partially offsetting these increases was a decline in service charges on deposit accounts of $2.1 million primarily due to lower NSF and overdraft incident fees, $1.6 million in unrealized losses related to ~~death benefit proceeds received in 2017; and gains on sales of securities were $637,000 higher, in each case as compared~~equity method investments due to the ~~first nine months of 2016. Mortgage banking income decreased $1.2 million primarily~~current economic environment related to ~~declines~~COVID-19, and a decline of $7.3 million in ~~mortgage loan originations and lower unrealized gains~~interchange income primarily due to reduced debit card interchange transaction fees as a result of the Durbin Amendment which was effective for the Company on ~~mortgage banking derivatives in the first nine months of 2017 compared to the first nine months of 2016.~~

July 1, 2019.

Noninterest ~~expense~~

Expense


	For the Three Months Ended
	June 30,				Change
	2020		2019⁽¹⁾		$		%

	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	49,896	$	50,390	$	(494)	(1.0)	%
Occupancy expenses		7,224		7,534		(310)	(4.1)	%
Furniture and equipment expenses		3,406		3,542		(136)	(3.8)	%
Printing, postage, and supplies		999		1,252		(253)	(20.2)	%
Technology and data processing		6,454		5,739		715	12.5	%
Professional services		2,989		2,630		359	13.7	%
Marketing and advertising expense		2,043		2,908		(865)	(29.7)	%
FDIC assessment premiums and other insurance		2,907		2,601		306	11.8	%
Other taxes		4,120		4,044		76	1.9	%
Loan-related expenses		2,501		2,396		105	4.4	%
OREO and credit-related expenses		411		1,473		(1,062)	(72.1)	%
Amortization of intangible assets		4,223		4,937		(714)	(14.5)	%
Training and other personnel costs		876		1,477		(601)	(40.7)	%
Merger-related costs		—		6,371		(6,371)	(100.0)	%
Rebranding expense		—		4,012		(4,012)	(100.0)	%
Loss on debt extinguishment		10,306		—		10,306	NM
Other expenses		4,459		4,302		157	3.6	%
Total noninterest expense	$	102,814	$	105,608	$	(2,794)	(2.6)	%

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

Salaries and benefits $ 29,769
$ 30,493
$ (724 ) (2.4 )%
Occupancy expenses 4,939
4,841
98
2.0 %
Furniture and equipment expenses 2,559
2,635
(76 ) (2.9 )%
Printing, postage, and supplies 1,154
1,147
7
0.6 %
Communications expense 798
948
(150 ) (15.8 )%
Technology and data processing 4,232
3,917
315
8.0 %
Professional services 1,985
1,895
90
4.7 %
Marketing and advertising expense 1,944
1,975
(31 ) (1.6 )%
FDIC assessment premiums and other insurance 1,141
1,262
(121 ) (9.6 )%
Other taxes 2,022
639
1,383
216.4 %
Loan-related expenses 1,349
1,531
(182 ) (11.9 )%
OREO and credit-related expenses 1,139
503
636
126.4 %
Amortization of intangible assets 1,480
1,843
(363 ) (19.7 )%
Training and other personnel costs 887
863
24
2.8 %
Merger-related costs 732
—
732
NM
Other expenses 1,366
2,421
(1,055 ) (43.6 )%
Total noninterest expense $ 57,496
$ 56,913
$ 583
1.0 %

Community bank segment $ 55,133
$ 54,353
$ 780
1.4 %
Mortgage segment 2,475
2,700
(225 ) (8.3 )%
Intercompany eliminations (112 ) (140 ) 28
20.0 %
Total noninterest expense $ 57,496
$ 56,913
$ 583
1.0 %

NM - – Not meaningful

Noninterest expense ~~increased $583,000,~~decreased $2.8 million, or ~~1.0%~~2.6%, to ~~$57.5~~$102.8 million for the quarter ended ~~September~~June 30, ~~2017~~2020 compared to ~~$56.9~~$105.6 million ~~for the third quarter of 2016. Excluding merger-related costs of $732,000, noninterest expense~~ for the quarter ended ~~September~~June 30, ~~2017 declined $149,000,~~2019. Excluding merger-related costs, amortization of intangible assets, and rebranding-related costs, operating noninterest expense ⁽²⁾for the quarter ended June 30, 2020 increased $8.3 million, or ~~0.3%~~9.2%, compared to the ~~third~~second 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 $5.4 million primarily related to annual merit adjustments; increases in benefits and equity-based compensation; and increased expenses related to investments in the Company's growth, including the acquisition of ODCM.2019. The increase in ~~other taxes~~the second quarter of 2020 was ~~partially offset~~primarily driven by the ~~decrease in FDIC expenses, including assessment premiums and other insurance, due to~~recognition of an approximately $10.3 million loss on debt extinguishment resulting from 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~~prepayment of approximately ~~$900,000 related to the Company's investment~~$200.0 million in ~~a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016. Technology~~long-term FHLB advances. In addition, 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~~by approximately $715,000.The increases were partially offset by ~~lower intangible amortization~~declines in marketing and advertising expense of $807,000, declines in professional fees of $698,000 due to lower legal and consulting fees, and declines in fraud-related and other losses of $371,000 in each case as compared to the first nine months of 2016.

~~SEGMENT INFORMATION~~

~~Community Bank Segment~~

For the three months ended September 30, 2017, the community bank segment reported net income of $20.3 million, which was an increase of $695,000 compared to the third quarter of 2016. Excluding after-tax merger-related costs of $661,000, net operating earnings for the community bank segment for the quarter ended September 30, 2017 were $21.0 million, which was an increase of $1.4 million compared to the net income for the third quarter of 2016. Net interest income increased $4.1 million

year-over-year to $70.7 million for the quarter ended September 30, 2017, primarily driven by higher average loan balances. The provision for credit losses for the quarter ended September 30, 2017 was $3.1 million, which was an increase of $601,000 compared to the provision for credit losses for the quarter ended 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 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 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~~$865,000, OREO and credit-related expenses of approximately $1.1 million due to ~~losses on sales of~~lower 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~~and training and other personnel costs of approximately $601,000. Noninterest expense also included approximately $1.6 million in real estate-related branch closure costs and approximately $1.8 million in severance expenses related 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~~Company’s expense reduction plans. Also included in noninterest expense are costs related to the ~~first nine months~~Company’s response to COVID-19 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 comparedapproximately $620,000.

(2) Refer to the ~~net income~~“Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP financial measure, including a reconciliation of these measures to the ~~first nine months~~most directly comparable financial measures calculated in accordance with GAAP.

-70-

Table of ~~2016. Net interest income increased $10.0~~Contents


	For the Six Months Ended
	June 30,				Change
	2020		2019⁽¹⁾		$		%

	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	100,013	$	98,398	$	1,615	1.6	%
Occupancy expenses		14,357		14,935		(578)	(3.9)	%
Furniture and equipment expenses		7,147		6,938		209	3.0	%
Printing, postage, and supplies		2,289		2,494		(205)	(8.2)	%
Technology and data processing		12,623		11,415		1,208	10.6	%
Professional services		6,297		5,587		710	12.7	%
Marketing and advertising expense		4,782		5,291		(509)	(9.6)	%
FDIC assessment premiums and other insurance		5,768		5,239		529	10.1	%
Other taxes		8,240		7,808		432	5.5	%
Loan-related expenses		5,198		4,685		513	10.9	%
OREO and credit-related expenses		1,099		2,157		(1,058)	(49.0)	%
Amortization of intangible assets		8,624		9,154		(530)	(5.8)	%
Training and other personnel costs		2,446		2,621		(175)	(6.7)	%
Merger-related costs		—		24,493		(24,493)	(100.0)	%
Rebranding expense		—		4,420		(4,420)	(100.0)	%
Loss on debt extinguishment		10,306		—		10,306	NM
Other expenses		9,270		6,700		2,570	38.4	%
Total noninterest expense	$	198,459	$	212,335	$	(13,876)	(6.5)	%

NM – Not meaningful

Noninterest expense decreased $13.9 million, ~~year-over-year~~or 6.5%, to ~~$205.5~~$198.5 million for the ~~nine~~six months ended ~~September~~June 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~~2020 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 $3.0 million, or 6.7%, from $44.1 million in the first nine months of 2016 to $47.1 million in the first nine months of 2017. 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 $998,000 higher due to the acquisition of ODCM in the second quarter of 2016; bank owned life insurance income increased $715,000 primarily related to death benefit proceeds received in 2017; and gains on sales of securities were $637,000 higher, in each case as compared to the first nine months of 2016.

~~Noninterest expense increased $8.6 million, or 5.5%, from $159.0~~$212.3 million for the ~~first nine months of 2016 to $167.6 million for the nine~~six months ended ~~September~~June 30, ~~2017.~~2019. Excluding merger-related costs, amortization of ~~$3.5 million,~~intangible assets, and rebranding-related costs, operating noninterest expense ⁽²⁾for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 increased ~~$5.2~~$15.6 million, or ~~3.3%~~8.9%, compared to the ~~first nine months~~same period in 2019. The increase was primarily driven by the recognition of ~~2016. Salaries and benefits expenses increased by $5.6~~an approximately $10.3 million ~~primarily related to annual merit adjustments; increases in benefits and equity-based compensation; and increased expenses related to investments in~~loss on debt extinguishment resulting from the ~~Company's growth, including the acquisition of ODCM. The net increase in FDIC and other insurance expenses and other taxes was primarily related to a nonrecurring reduction in expenses~~prepayment of approximately ~~$900,000 related to the Company's investment~~$200.0 million in ~~a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016. Technology~~long-term FHLB advances. In addition, 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~~$1.2 million. The increases were partially offset by ~~lower intangible amortization~~declines in marketing and advertising expense of ~~$807,000, declines~~$509,000, and in ~~professional fees~~OREO and credit-related expenses of ~~$792,000~~ approximately $1.1 million due to lower ~~legal~~OREO valuation adjustments. Noninterest expense also included approximately $1.7 million in real estate-related branch closure costs and ~~consulting fees, and declines~~approximately $1.8 million in ~~fraud-related and other losses of $371,000 in each case as compared~~severance expenses related to the ~~first nine months~~Company’s expense reduction plans. Also included in noninterest expense are costs related to the Company’s response to COVID-19 of ~~2016.~~approximately $996,000.

(2) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP

financial measure, including a reconciliation of these measures to the most directly comparable financial measures

calculated in accordance with GAAP.

~~Mortgage Segment~~

-71-

~~The mortgage segment reported net income~~

Table of $347,000 for the third quarter of 2017, compared to net income of $785,000 in the third quarter of 2016. Mortgage banking income, net of commissions, decreased $902,000, primarily related to declines in mortgage loan originations 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. Mortgage loan originations decreased $29.4 million, or 18.7%, from $156.7 million for the quarter ended September 30, 2016 to $127.3 million for the quarter endedContents

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

The mortgage segment reported net income of $901,000 for the first nine months of 2017, compared to net income of $1.4 million for the first nine months of 2016. Mortgage banking income, net of commissions, decreased $1.2 million, primarily related to declines in mortgage loan originations and lower unrealized gains on mortgage banking derivatives in the first nine months of 2017 compared to the first nine months of 2016. Mortgage loan originations decreased $30.8 million, or 7.8%, from $394.9 million for the nine months ended September 30, 2016 to $364.1 million for the nine months ended September 30, 2017. Noninterest expense decreased $366,000, largely a result of declines in personnel-related costs and equipment-related 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~~Bank 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 historically generated losses ~~on a consolidated basis~~ for state income tax ~~purposes which the Company is currently unable to utilize.~~purposes. State net operating loss carryovers will begin to expire after 2026.

The effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 was ~~26.7%~~15.2% and ~~23.3%~~16.0%, ~~respectively; the~~respectively. The effective tax rate for the ~~nine~~six months ended ~~September~~ June 30, ~~2017~~2020 and ~~2016~~2019 was ~~26.9%~~14.7% and ~~25.0%~~15.5%, respectively. The ~~increase~~decrease in the effective tax ~~rate~~rates 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~~proportion of ~~2016 related~~tax-exempt income to ~~the Company's investment in a historic rehabilitation project that was completed in such quarter.~~

pre-tax income.

~~BALANCE SHEET~~

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

Overview

Assets

At ~~September~~June 30, ~~2017,~~2020, total assets were ~~$9.0~~$19.8 billion, an increase of ~~$602.6 million,~~$2.2 billion, or ~~9.6%~~approximately 25.1% (annualized), from ~~$8.4~~$17.6 billion at December 31, ~~2016.~~2019. The increase in assets was ~~mostly related to~~primarily a result of loan ~~growth.~~

growth in connection with the PPP.

Loans held for investment ~~net~~(net of deferred fees and ~~costs,~~costs) were ~~$6.9~~$14.3 billion at ~~September~~June 30, ~~2017,~~2020, an increase of ~~$591.7 million,~~$1.7 billion, or ~~12.5%~~27.1% (annualized), from December 31, ~~2016. Loan growth occurred across all categories.~~ 2019. Excluding the effects of the PPP, loans held for investment (net of deferred fees and costs) increased $99.0 million, or 1.6% (annualized) during this period. Quarterly average loans increased ~~$788.8 million,~~$1.9 billion, or ~~13.1%~~15.5%, for the quarter ended ~~September~~June 30, ~~2017~~2020 compared to the quarter ended ~~September~~June 30, ~~2016. For~~2019. Excluding the effects of the PPP, quarterly average loans increased $598.9 million, or 5.0% from the prior year. Refer to "Loan Portfolio" within Item 2 and Note 4 "Loans and Allowance for Loan and Lease Losses" in Part I of Item I for additional information on the Company’s loan ~~activity, please refer~~activity. Refer to ~~“Loan Portfolio”~~"Non-GAAP Financial Measures" within ~~this~~ Item 2 ~~or Note 3 “Loans and Allowance~~ for ~~Loan Losses” in Part I, Item 1 “Financial Statements”~~additional information on PPP adjusted impacts, including a reconciliation of this ~~report.~~

non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP.

Liabilities and Stockholders’ Equity

At ~~September~~June 30, ~~2017,~~2020, total liabilities were ~~$8.0~~$17.1 billion, an increase of ~~$562.3 million~~$2.1 billion from $15.0 billion at December 31, ~~2016.~~

2019.

Total deposits were ~~$6.9~~$15.6 billion at ~~September~~June 30, ~~2017,~~2020, an increase of ~~$502.3 million,~~$2.3 billion, or ~~10.5%~~approximately 34.8% (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.2019. Quarterly average deposits increased ~~$592.9 million,~~$2.5 billion, or ~~9.6%~~20.1%, for the quarter ended ~~September~~June 30, ~~2017~~2020 compared to the quarter ended ~~September~~June 30, ~~2016. For~~2019 primarily due to the impact of PPP loan related deposits and government stimulus check deposits. Refer to “Deposits” within this Item 2 for further discussion on this ~~topic, see “Deposits” within this Item 2.~~

topic.

At ~~September~~June 30, ~~2017,~~2020, stockholders’ equity was ~~$1.0~~$2.6 billion, an increase of ~~$40.3~~$105.1 million from December 31, ~~2016.~~2019. The increase in stockholders’ equity is primarily related to the issuance and sale of Series A preferred stock that took place on June 9, 2020. Refer to “Capital Resources” within this Item 2 and Note 10 "Stockholders’ Equity" in Part I of Item I for additional information on 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.~~ ratios.

The total risk-based capital ratios at September 30, 2017 and December 31, 2016 were 12.94% and 13.56%, respectively. The Tier 1 risk-based capital ratios were 10.56% and 10.97% at September 30, 2017 and December 31, 2016, respectively. The common equity Tier 1 risk-based capital ratios were 9.40% and 9.72% at September 30, 2017 and December 31, 2016, respectively. The Company’s common equity to total asset ratios at September 30, 2017 and December 31, 2016 were 11.53% and 11.88%, respectively, while its tangible common equity to tangible assets ratios were 8.34% and 8.41%, respectively, at the same dates.

~~Also, the~~ Company declared and paid a cash dividend of ~~$0.20~~$0.25 per share during the ~~third~~second quarter of ~~2017,~~2020, an increase of ~~$0.01~~$0.02 per share, or ~~5.3%~~8.7%, compared to the dividend paid during the ~~same~~second quarter ~~in the prior year.~~of 2019. Dividends for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 were ~~$0.60~~$0.50, an increase of $0.04 per share, or 8.7% compared to ~~$0.57 for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019.

-72-

~~Securities~~

Table of Contents

Securities

At ~~September~~June 30, ~~2017,~~2020, the Company had total investments in the amount of ~~$1.2~~$2.7 billion, or ~~13.8 %~~13.5% of total assets, as compared to ~~$1.2~~$2.6 billion, or ~~14.3%~~15.0% of total assets, at December 31, ~~2016.~~2019. 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.~~agency-backed securities, which have a government guarantee. The investment portfolio has a high percentage of ~~municipals and mortgage-backed~~municipal securities; therefore, the Company earns a higher taxable equivalent yield on its portfolio as compared to many of its peers. ~~The Company does not engage~~For information regarding the hedge transaction related to available for sale securities, see Note 9 "Derivatives" in ~~structured derivative or hedging activities within the investment portfolio.~~

Part I of Item I of this Form 10-Q.

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


	June 30,		December 31,
	2020		2019
Available for Sale:
U.S. government and agency securities	$	14,646	$	21,320
Obligations of states and political subdivisions		539,527		447,091
Corporate and other bonds		131,350		135,959
Mortgage-backed securities
Commercial		376,548		425,047
Residential		953,994		912,949
Total mortgage-back securities		1,330,542		1,337,996
Other securities		3,099		3,079
Total AFS securities, at fair value		2,019,164		1,945,445
Held to Maturity:
U.S. government and agency securities		2,781		2,813
Obligations of states and political subdivisions, at carrying value		539,187		545,148
Mortgage-backed securities
Commercial		5,593		7,183
Residential		—		—
Total mortgage-back securities		5,593		7,183
Total held to maturity securities		547,561		555,144
Restricted Stock:
Federal Reserve Bank stock		67,032		66,964
FHLB stock		38,800		63,884
Total restricted stock, at cost		105,832		130,848
Total investments	$	2,672,557	$	2,631,437

-73-

Table of Contents

September 30,
2017

December 31,
2016
Available for Sale:

Obligations of states and political subdivisions $ 292,199
$ 275,890
Corporate and other bonds 115,422
121,780
Mortgage-backed securities 546,904
535,286
Other securities 13,836
13,808
Total securities available for sale, at fair value 968,361
946,764

Held to Maturity:

Obligations of states and political subdivisions, at carrying value 204,801
201,526

Federal Reserve Bank stock 27,559
23,808
Federal Home Loan Bank stock 40,882
36,974
Total restricted stock, at cost 68,441
60,782
Total investments $ 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 nine months ended 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 AFS securities ~~available for sale~~ at fair value and their weighted average yields as of ~~September~~June 30, ~~2017~~2020 (dollars in thousands):


	1 Year or						5 – 10			Over 10
	Less			1 - 5 Years			Years			Years			Total
U.S. government and agency securities
Amortized cost	$	—		$	—		$	14,198		$	—		$	14,198
Fair value		—			—			14,646			—			14,646
Weighted average yield ⁽¹⁾		—	%		—	%		2.28	%		—	%		2.28	%

Obligations of states and political subdivisions:
Amortized cost	$	3,233		$	9,472		$	46,150		$	446,011		$	504,866
Fair value		3,276			9,785			47,815			478,651			539,527
Weighted average yield ⁽¹⁾		5.66	%		4.14	%		2.69	%		3.36	%		3.33	%

Corporate bonds and other securities:
Amortized cost	$	3,099		$	3,343		$	87,445		$	41,701		$	135,588
Fair value		3,099			3,259			87,719			40,372			134,449
Weighted average yield ⁽¹⁾		1.76	%		1.45	%		4.50	%		1.92	%		3.57	%

Mortgage backed securities:
Commercial
Amortized cost	$	21,019		$	121,313		$	28,041		$	187,601		$	357,974
Fair value		21,191			128,494			29,164			197,699			376,548
Weighted average yield ⁽¹⁾		2.56	%		2.66	%		2.85	%		3.06	%		2.88	%
Residential
Amortized cost	$	53		$	14,161		$	57,195		$	845,952		$	917,361
Fair value		55			13,966			58,630			881,343			953,994
Weighted average yield ⁽¹⁾		2.62	%		2.82	%		2.66	%		2.50	%		2.51	%
Total mortgage-backed securities
Amortized cost	$	21,072		$	135,474		$	85,236		$	1,033,553		$	1,275,335
Fair value		21,246			142,460			87,794			1,079,042			1,330,542
Weighted average yield ⁽¹⁾		2.56	%		2.68	%		2.72	%		2.60	%		2.62	%

Total AFS securities:
Amortized cost	$	27,404		$	148,289		$	233,029		$	1,521,265		$	1,929,987
Fair value		27,621			155,504			237,974			1,598,065			2,019,164
Weighted average yield ⁽¹⁾		2.83	%		2.74	%		3.36	%		2.81	% ��		2.87	%

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

1 Year or Less 1 - 5 Years 5 - 10 Years Over 10 Years Total
Mortgage backed securities:

Amortized cost $ 197
$ 82,828
$ 121,469
$ 341,544
$ 546,038
Fair value 202
83,072
121,515
342,115
546,904
Weighted average yield ⁽¹⁾
3.08 % 2.16 % 2.19 % 2.43 % 2.34 %

Obligations of states and political subdivisions:

Amortized cost 11,795
44,929
82,296
146,901
285,921
Fair value 11,968
46,531
85,491
148,209
292,199
Weighted average yield ⁽¹⁾
5.69 % 4.92 % 4.34 % 3.80 % 4.21 %

Corporate bonds and other securities:

Amortized cost 11,395
504
63,727
53,261
128,887
Fair value 11,340
504
64,824
52,590
129,258
Weighted average yield ⁽¹⁾
0.93 % 1.04 % 4.46 % 2.31 % 3.24 %

Total securities available for sale:

Amortized cost 23,387
128,261
267,492
541,706
960,846
Fair value 23,510
130,107
271,830
542,914
968,361
Weighted average yield ⁽¹⁾
3.35 % 3.12 % 3.39 % 2.79 % 3.01 %

-74-

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

Table of Contents

The following table summarizes the contractual maturity of HTM securities ~~held to maturity~~ at carrying value and their weighted average yields as of ~~September~~June 30, ~~2017~~2020 (dollars in thousands):


	1 Year or						5 – 10			Over 10
	Less			1 - 5 Years			Years			Years			Total
U.S. government and agency securities
Carrying value	$	—		$	1,591		$	1,190		$	—		$	2,781
Fair value		—			1,577			1,177			—			2,754
Weighted average yield ⁽¹⁾		—	%		4.69	%		4.11	%		—	%		4.44	%

Obligations of states and political subdivisions:
Carrying value	$	1,007		$	7,542		$	564		$	530,074		$	539,187
Fair value		1,028			7,913			600			595,590			605,131
Weighted average yield ⁽¹⁾		3.35	%		2.48	%		3.16	%		4.10	%		4.07	%

Mortgage backed securities:
Commercial
Amortized cost	$	—		$	—		$	—		$	5,593		$	5,593
Fair value		—			—			—			5,544			5,544
Weighted average yield ⁽¹⁾		—	%		—	%		—	%		5.27	%		5.27	%
Residential
Amortized cost	$	—		$	—		$	—		$	—		$	—
Fair value		—			—			—			—			—
Weighted average yield ⁽¹⁾		—	%		—	%		—	%		—	%		—	%
Total mortgage-backed securities
Amortized cost	$	—		$	—		$	—		$	5,593		$	5,593
Fair value		—			—			—			5,544			5,544
Weighted average yield ⁽¹⁾		—	%		—	%		—	%		5.27	%		5.27	%

Total HTM securities:
Carrying value	$	1,007		$	9,133		$	1,754		$	535,667		$	547,561
Fair value		1,028			9,490			1,777			601,134			613,429
Weighted average yield ⁽¹⁾		3.35	%		2.87	%		3.81	%		4.12	%		4.09	%

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

1 Year or Less 1 - 5 Years 5 - 10 Years Over 10 Years Total
Obligations of states and political subdivisions:

Carrying Value $ 5,879
$ 41,196
$ 65,893
$ 91,833
$ 204,801
Fair value 5,902
41,959
67,444
94,530
209,835
Weighted average yield ⁽¹⁾
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 ~~September~~June 30, ~~2017,~~2020, the Company maintained a diversified municipal bond portfolio with approximately ~~75%~~64% of its holdings in general obligation issues and the majority of the remainder backed by revenue bonds. Issuances within the State of Texas represented ~~12% and issuances within the State of Washington and the Commonwealth of Virginia both represented 11%~~19% 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.

-75-

~~Liquidity~~

Table of Contents

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 Federal Reserve Discount Window, the purchase of brokered certificates of deposit, ~~and a~~ corporate line of credit with a large correspondent ~~bank.~~bank, and debt and capital issuance. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

On June 9, 2020, the Company announced the closing of an offering of 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.

As a result of adverse market conditions including the impacts of COVID-19, the Company has seen an increase during the second quarter in customer deposits. These increases are due primarily to the combination of government stimulus programs, the deferral of the tax payment deadline, and customer expense and savings habits in response to the pandemic. As a result of the increases in customer deposits, the Company has reduced its wholesale borrowings. The Company considers a portion of the increases in customer deposits to be temporary which it expects will result in outflows in subsequent quarters.

During the second quarter of 2020, in connection with the loans originated as part of the PPP, the Company borrowed under the Federal Reserve’s PPPLF. Under the terms of the PPPLF, the Company can borrow funds which are secured by the Company’s Paycheck Protection Program loans. As of ~~September~~June 30, ~~2017,~~2020 the Company’s outstanding advances under the PPPLF, were $189.9 million. The interest rate on the advances is fixed at a rate of 0.35% through the advance maturities in April 2022. The Company’s available borrowing capacity under the PPPLF as of June 30, 2020 was $1.5 billion.

In response to the current rate environment, the Company prepaid approximately $200.0 million in long-term FHLB advances, which resulted in a prepayment penalty of approximately $10.3 million, and sold several securities, which resulted in a gain of approximately $10.3 million.

As of June 30, 2020, liquid assets totaled ~~$2.6~~$6.9 billion, or ~~29.2%~~34.9%, of total assets, and liquid earning assets totaled ~~$2.5~~$6.7 billion, or ~~30.6%~~37.9% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of ~~September~~June 30, ~~2017,~~2020, approximately ~~$2.3~~$5.6 billion, or ~~32.9%~~39.2% of total loans, are scheduled to mature within one year based on contractual maturity, adjusted for expected prepayments, and approximately ~~$156.3~~$392.6 million, or ~~12.6%~~14.7% 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~~Refer to Note 7 “Borrowings” in Part I of Item 1 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” of this report.~~credit. 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~~Refer to “Deposits” within this Item 2 for additional information and outstanding balances on purchased certificates of ~~deposits, please refer to “Deposits” within this Item 2.~~

deposits.

-76-

Table of Contents

Loan Portfolio

Loans held for investment, net of deferred fees and costs, were ~~$6.9~~$14.3 billion at ~~September~~June 30, ~~2017, $6.3~~2020, $12.6 billion at December 31, ~~2016,~~2019, and ~~$6.1~~$12.2 billion at ~~September~~June 30, ~~2016, respectively.~~2019. Commercial ~~real estate - non-owner occupied~~& industrial loans ~~continue to~~ represent the Company’s largest category, comprising ~~25.3%~~24.9% of the total loan portfolio at ~~September~~June 30, ~~2017.~~

2020 compared to commercial real estate – non-owner occupied loans in previous periods. The increase in commercial and industrial loans is primarily due to $1.6 billion in new loans from the PPP loan program.

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):

September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
Construction and Land Development $ 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 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 1,748,039
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 368,686
5.4 % 367,257
5.4 % 353,769
5.4 % 334,276
5.3 % 339,313
5.5 %
Commercial & Industrial 554,522
8.0 % 568,602
8.4 % 576,567
8.8 % 551,526
8.7 % 509,857
8.3 %
Residential 1-4 Family 1,083,112
15.7 % 1,066,519
15.8 % 1,057,439
16.1 % 1,029,547
16.3 % 999,361
16.3 %
Auto 276,572
4.0 % 274,162
4.0 % 271,466
4.1 % 262,071
4.2 % 255,188
4.2 %
HELOC 535,446
7.8 % 535,088
7.9 % 527,863
8.1 % 526,884
8.4 % 524,097
8.5 %
Consumer and all other 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 $ 6,898,729
100.0 % $ 6,771,490
100.0 % $ 6,554,046
100.0 % $ 6,307,060
100.0 % $ 6,148,918
100.0 %


	June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				June 30, 2019
Construction and Land Development	$	1,247,939	8.7	%	$	1,318,252	10.3	%	$	1,250,924	9.9	%	$	1,201,149	9.8	%	$	1,267,712	10.4	%
Commercial Real Estate - Owner Occupied		2,067,087	14.4	%		2,051,904	16.1	%		2,041,243	16.2	%		1,979,052	16.1	%		1,966,776	16.1	%
Commercial Real Estate - Non-Owner Occupied		3,455,125	24.1	%		3,328,012	26.1	%		3,286,098	26.1	%		3,198,580	26.0	%		3,104,823	25.4	%
Multifamily Real Estate		717,719	5.0	%		679,390	5.3	%		633,743	5.0	%		659,946	5.4	%		602,115	4.9	%
Commercial & Industrial		3,555,971	24.9	%		2,177,932	17.1	%		2,114,033	16.8	%		2,058,133	16.7	%		2,032,799	16.6	%
Residential 1-4 Family - Commercial		715,384	5.0	%		721,800	5.7	%		724,337	5.7	%		721,185	5.9	%		723,636	6.0	%
Residential 1-4 Family - Consumer		841,051	5.9	%		854,550	6.7	%		890,503	7.1	%		913,245	7.4	%		928,130	7.6	%
Residential 1-4 Family - Revolving		627,765	4.4	%		652,135	5.1	%		659,504	5.2	%		660,963	5.4	%		660,621	5.4	%
Auto		380,053	2.7	%		358,039	2.8	%		350,419	2.8	%		328,456	2.7	%		311,858	2.6	%
Consumer		311,362	2.2	%		352,572	2.8	%		372,853	3.0	%		386,848	3.1	%		383,653	3.1	%
Other Commercial		389,190	2.7	%		274,255	2.0	%		287,279	2.2	%		199,440	1.5	%		238,391	1.9	%
Total loans held for investment	$	14,308,646	100.0	%	$	12,768,841	100.0	%	$	12,610,936	100.0	%	$	12,306,997	100.0	%	$	12,220,514	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 ~~September~~June 30, ~~2017~~2020 (dollars in thousands):

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
Construction and Land Development $ 841,738
$ 481,566
$ 220,078
$ 170,885
$ 49,193
$ 140,094
$ 102,639
$ 37,455
Commercial Real Estate - Owner Occupied 903,523
106,283
252,090
31,982
220,108
545,150
384,557
160,593
Commercial Real Estate - Non-Owner Occupied 1,748,039
173,965
601,345
198,386
402,959
972,729
693,236
279,493
Multifamily Real Estate 368,686
29,313
145,063
37,143
107,920
194,310
169,340
24,970
Commercial & Industrial 554,522
165,346
153,500
111,836
41,664
235,676
157,121
78,555
Residential 1-4 Family 1,083,112
76,215
337,860
11,569
326,291
669,037
370,497
298,540
Auto 276,572
2,188
—
—
—
274,384
135,387
138,997
HELOC 535,446
39,610
493,368
46,379
446,989
2,468
2,025
443
Consumer and all other 587,091
54,890
70,097
11,524
58,573
462,104
193,576
268,528
Total loans held for investment $ 6,898,729
$ 1,129,376
$ 2,273,401
$ 619,704
$ 1,653,697
$ 3,495,952
$ 2,208,378
$ 1,287,574


					Variable Rate						Fixed Rate
	Total		Less than 1						More than 5						More than 5
	Maturities		year		Total		1-5 years		years		Total		1-5 years		years
Construction and Land Development	$	1,247,939	$	539,821	$	462,789	$	323,780	$	139,009	$	245,329	$	178,269	$	67,060
Commercial Real Estate - Owner Occupied		2,067,087		174,231		587,528		120,495		467,033		1,305,328		660,593		644,735
Commercial Real Estate - Non-Owner Occupied		3,455,125		382,651		1,555,743		560,524		995,219		1,516,731		1,099,104		417,627
Multifamily Real Estate		717,719		70,898		365,786		98,381		267,405		281,035		223,343		57,692
Commercial & Industrial		3,555,971		464,997		893,963		721,047		172,916		2,197,011		1,923,430		273,581
Residential 1-4 Family - Commercial		715,384		107,298		157,137		22,133		135,004		450,949		377,222		73,727
Residential 1-4 Family - Consumer		841,051		6,671		351,623		3,047		348,576		482,757		16,980		465,777
Residential 1-4 Family - Revolving		627,765		57,683		559,975		65,923		494,052		10,107		802		9,305
Auto		380,053		2,770		—		—		—		377,283		164,754		212,529
Consumer		311,362		19,554		17,979		15,922		2,057		273,829		138,883		134,946
Other Commercial		389,190		35,637		62,779		7,410		55,369		290,774		146,475		144,299
Total loans held for investment	$	14,308,646	$	1,862,211	$	5,015,302	$	1,938,662	$	3,076,640	$	7,431,133	$	4,929,855	$	2,501,278

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 ~~September~~June 30, ~~2017,~~2020, the largest components of the Company’s

-77-

Table of Contents

loan portfolio consisted of commercial real estate, ~~loans, residential 1-4 family loans,~~commercial & industrial, 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

At ~~September~~June 30, ~~2017,~~2020, the Company ~~had higher levels of~~experienced increases in NPAs compared to December 31, ~~2016 and September 30, 2016,~~2019, primarily due to the ~~increase in nonaccrual~~inclusion of assets not previously reported as nonperforming that are now considered such under CECL. Past due loan levels ~~primarily related to three unrelated credit relationships that~~as a percentage of total loans held for investment at June 30, 2020 were ~~classified as nonaccrual during the first and second quarters of 2017. Partially offsetting this increase, OREO balances declined compared to the same periods. The Company experienced increases in~~down from past due loan levels ~~compared to~~at December 31, ~~2016 and September 30, 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.

2019.

Net charge-offs ~~increased~~decreased for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019. Total net charge-offs as ~~some~~a percentage of ~~the nonaccrual additions earlier in 2017 were charged off during the third quarter of 2017. The provision for loan losses~~total average loans on an annualized basis also ~~increased~~decreased for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019. The allowance for credit losses increased from December 31, 2019, as a result of the ~~increased charge-offs and loan growth during 2017. The allowance~~adoption of ASC 326 as well as a worsening economic forecast due to the impact of COVID-19, which also led to an increase in the provision for ~~loan losses at September 30, 2017 was consistent with December 31, 2016.~~

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

credit losses.

Troubled Debt Restructurings

The total recorded investment in TDRs as of ~~September~~June 30, ~~2017~~2020 was ~~$19.2~~$20.3 million, an increase of ~~$3.8 million,~~$849,000, or ~~24.9%~~4.4%, from ~~$15.4~~$19.5 million at December 31, ~~2016~~2019 and ~~an increase~~a decrease of ~~$5.9~~$3.4 million, or ~~45.0%~~14.1%, from ~~$13.3~~$23.7 million at ~~September~~June 30, ~~2016.~~2019. Of the ~~$19.2~~$20.3 million of TDRs at ~~September~~June 30, ~~2017, $16.5~~2020, $15.3 million, or ~~85.8%~~75.2%, were considered performing while the remaining ~~$2.7~~$5.0 million were considered nonperforming.

~~Loans removed from TDR status represent restructured loans~~

Loan Modifications for Borrowers Affected by COVID-19

On March 22, 2020, the five federal bank regulatory agencies and the Conference of State Bank Supervisors issued joint

guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19 (the “March 22 Joint Guidance”). The March 22 Joint Guidance encourages banks, savings associations, and credit unions to make loan modifications for borrowers affected by COVID-19 and, importantly, assures those financial institutions that they will not (i) receive supervisory criticism for such prudent loan modifications and (ii) be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The federal banking regulators have confirmed with the FASB that short-term loan modifications made on a ~~market rate of interest at the time~~good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) prior to any loan modification are not TDRs.

In addition, Section 4013 of the ~~restructuring. These~~CARES Act, provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans ~~have performed in accordance with~~that were not more than thirty days past due as of December 31, 2019.

The Company has made certain loan modifications pursuant to the March 22 Joint Guidance or Section 4013 of the CARES Act and as of June 30, 2020 approximately $1.6 billion remain under their modified ~~terms for twelve consecutive months and~~terms. The majority of the Company’s modifications 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~~Commercial & Industrial and Commercial Real Estate portfolios.

The Company’s modification program included ~~in the Company's general reserve. Impairment is measured based on historical loss experience taking into consideration environmental factors. The significant~~payment deferrals, interest only, and other forms of modifications. A 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.

modifications were three-month deferrals.

Nonperforming Assets

At ~~September~~June 30, ~~2017,~~2020, NPAs totaled ~~$28.9~~$44.0 million, an increase of ~~$8.8~~$11.1 million ~~or 44.0%,~~ from December 31, ~~2016 and an increase of $5.6 million, or 24.2%, from September 30, 2016. In addition,~~2019. NPAs as a percentage of total outstanding loans ~~increased 10~~at June 30, 2020 were 0.31%, an increase of 5 basis points ~~to 0.42% at September 30, 2017~~ from ~~0.32%~~0.26% at December 31, ~~2016 and increased 4~~2019. Excluding the impact of the PPP loans⁽²⁾, NPAs as a percentage of total outstanding loans were 0.35%, an increase of 9 basis points from ~~0.38%~~December 31, 2019. The Company’s adoption of ASC 326 resulted in a change in the accounting and reporting

-78-

Table of Contents

related to PCI loans which are now defined as PCD and evaluated at ~~September 30, 2016. These increases are~~the loan level instead of being evaluated in pools under PCI accounting. All prior period nonaccrual and past due ~~to the higher levels of nonaccrual loans at September 30, 2017 compared to the prior periods.~~

loan metrics discussed herein have not been restated for CECL accounting and exclude PCI-related loan balances.

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,			March 31,			December 31,			September 30,			June 30,
	2020			2020			2019			2019			2019
Nonaccrual loans⁽¹⁾	$	39,624		$	44,022		$	28,232		$	30,032		$	27,462
Foreclosed properties		4,397			4,444			4,708			6,385			6,506
Total NPAs		44,021			48,466			32,940			36,417			33,968
Loans past due 90 days and accruing interest⁽¹⁾		19,255			12,876			13,396			12,036			8,828
Total NPAs and loans past due 90 days and accruing interest	$	63,276		$	61,342		$	46,336		$	48,453		$	42,796

Performing TDRs	$	15,303		$	14,865		$	15,686		$	15,156		$	19,144

Balances
Allowance for loan and lease losses	$	169,977		$	141,043		$	42,294		$	43,820		$	42,463
Average loans, net of deferred fees and costs		13,957,711			12,593,923			12,327,692			12,240,254			12,084,961
Loans, net of deferred fees and costs		14,308,646			12,768,841			12,610,936			12,306,997			12,220,514

Ratios
NPAs to total loans		0.31	%		0.38	%		0.26	%		0.30	%		0.28	%
NPAs to total adjusted loans⁽²⁾		0.35	%		0.38	%		0.26	%		0.30	%		0.28	%
NPAs & loans 90 days past due to total loans		0.44	%		0.48	%		0.37	%		0.39	%		0.35	%
NPAs to total loans & foreclosed property		0.31	%		0.38	%		0.26	%		0.30	%		0.28	%
NPAs & loans 90 days past due to total loans & foreclosed property		0.44	%		0.48	%		0.37	%		0.39	%		0.35	%
ALL to nonaccrual loans		428.97	%		320.39	%		149.81	%		145.91	%		154.62	%
ALL to nonaccrual loans & loans 90 days past due		288.69	%		247.89	%		101.60	%		104.16	%		117.01	%

(1)

Amounts are not directly comparable due to the Company’s adoption of ASC 326 on January 1, 2020. Prior to January 1, 2020, nonaccrual and past due loan information excluded PCI-related loan balances. These balances also reflect the impact of Section 4013 of the CARES Act and the March 22 Guidance.

(2)

Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

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

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

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

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

-79-

Table of Contents

NPAs at ~~September~~June 30, ~~2017~~2020 included ~~$20.1~~$39.6 million in nonaccrual loans, a net increase of ~~$10.1~~$11.4 million ~~or 101.8%,~~ from December 31, ~~2016 and a net increase of $7.4 million, or 58.7%, from September 30, 2016.~~2019. The following table shows the activity in nonaccrual loans for the ~~quarter~~quarters ended (dollars in thousands):

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

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


	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Beginning Balance	$	44,022	$	28,232	$	30,032	$	27,462	$	24,841
Impact of ASC 326 adoption		—		14,381		—		—		—
Additions		3,206		6,059		5,631		8,327		6,321
Net customer payments		(6,524)		(3,451)		(5,741)		(3,612)		(3,108)
Charge-offs		(1,088)		(1,199)		(1,690)		(884)		(592)
Loans returning to accruing status		8		—		—		(1,103)		—
Transfers to foreclosed property		—		—		—		(158)		—
Ending Balance	$	39,624	$	44,022	$	28,232	$	30,032	$	27,462

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

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


	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Construction and Land Development	$	3,977	$	3,234	$	3,703	$	7,785	$	5,619
Commercial Real Estate - Owner Occupied		8,924		11,250		6,003		5,684		4,062
Commercial Real Estate - Non-owner Occupied		1,877		1,642		381		381		1,685
Multifamily Real Estate		33		53		—		—		—
Commercial & Industrial		2,708		3,431		1,735		1,585		1,183
Residential 1-4 Family - Commercial		5,784		7,040		4,301		3,879		4,135
Residential 1-4 Family - Consumer		12,029		13,088		9,292		8,292		8,677
Residential 1-4 Family - Revolving		3,626		3,547		2,080		1,641		1,432
Auto		584		550		563		604		449
Consumer and all other		82		187		174		181		220
Total	$	39,624	$	44,022	$	28,232	$	30,032	$	27,462

NPAs at ~~September~~June 30, ~~2017~~2020 also included ~~$8.8~~$4.4 million in ~~OREO,~~foreclosed property, a ~~decline~~decrease of ~~$1.3 million,~~$311,000, or ~~13.1%~~6.6%, from December 31, ~~2016~~2019 and a ~~decline~~decrease of ~~$1.8~~$2.1 million, or ~~17.2%~~32.4%, from ~~September~~June 30, ~~2016.~~2019. The following table shows the activity in ~~OREO~~foreclosed property for the quarters ended (dollars in thousands):

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


	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Beginning Balance	$	4,444	$	4,708	$	6,385	$	6,506	$	7,353
Additions of foreclosed property		—		615		62		645		271
Valuation adjustments		—		(44)		(375)		(62)		(433)
Proceeds from sales		(55)		(854)		(1,442)		(737)		(638)
Gains (losses) from sales		8		19		78		33		(47)
Ending Balance	$	4,397	$	4,444	$	4,708	$	6,385	$	6,506

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


	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Land	$	1,245	$	1,251	$	1,615	$	1,842	$	1,842
Land Development		1,965		1,965		1,978		2,788		2,809
Residential Real Estate		793		834		721		1,214		1,304
Commercial Real Estate		394		394		394		541		551
Total	$	4,397	$	4,444	$	4,708	$	6,385	$	6,506

-80-

Table of Contents

September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
Land $ 2,755
$ 3,205
$ 3,328
$ 3,328
$ 3,440
Land Development 1,993
2,050
2,111
2,379
2,320
Residential Real Estate 1,562
1,399
1,338
1,549
1,806
Commercial Real Estate 139
174
174
174
361
Former Bank Premises ⁽¹⁾
2,315
2,654
2,654
2,654
2,654
Total $ 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 ~~September~~June 30, ~~2017,~~2020, total accruing past due loans were ~~$34.3~~$40.5 million, or ~~0.50%~~0.28% of total loans held for investment, compared to ~~$27.9~~$76.6 million, or ~~0.44%~~0.61% of total loans held for investment, at December 31, ~~2016~~2019 and ~~$26.9~~$43.1 million, or ~~0.44%~~0.35% of total loans held for investment, at ~~September~~June 30, ~~2016.~~2019. Excluding the impact of the PPP loans⁽¹⁾, past due loans still accruing interest were 0.32% of total loans held for investment at June 30, 2020. Of the total past due loans still accruing interest at ~~September~~June 30, ~~2017, $4.5~~2020, $19.3 million, or ~~0.07%~~0.13% of total loans held for investment, were past due 90 days or more, compared to ~~$3.0~~$13.4 million, or ~~0.05%~~0.11% of total loans held for investment, at December 31, ~~2016~~2019 and ~~$3.5~~$8.8 million, or ~~0.06%~~0.07% of total loans held for investment, at ~~September~~June 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.

2019.

Net Charge-offs

For the quarter ended ~~September~~June 30, ~~2017,~~2020, net charge-offs were ~~$4.1~~$3.3 million, or ~~0.24%~~0.09% of total average loans on an annualized basis, compared to ~~$929,000,~~$4.3 million, or ~~0.06%~~0.14%, for the same quarter ~~ended September 30, 2016. Of~~last year. Excluding the ~~net charge-offs in~~impact of the ~~third quarter of 2017, the majority were previously considered impaired. For the nine months ended September 30, 2017,~~PPP loans⁽¹⁾, net charge-offs were ~~$7.4~~ 0.10% of total average loans on an annualized basis. For the six months ended June 30, 2020, net charge-offs were $8.3 million, or ~~0.15%~~ 0.13% of total average loans on annualized basis, compared to ~~$4.7~~$8.5 million, or ~~0.11%~~0.15%, for the same period in ~~2016. Of~~2019. Excluding the impact of the PPP loans⁽¹⁾, net charge-offs ~~during 2017,~~were 0.14% of total average loans on an annualized basis. The majority of net charge-offs in 2020 were related to the ~~majority were previously considered impaired.~~

third-party consumer loan portfolio.

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses for the quarter ended ~~September~~June 30, ~~2017~~2020 was ~~$3.1~~$34.2 million, an increase of ~~$653,000~~$28.9 million compared with the same quarter ~~ended September 30, 2016.~~last year. The provision for credit losses for the second quarter of 2020 included $32.2 million in provision for loan losses and $2.0 million in provision for unfunded commitments. The provision for credit losses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 was ~~$7.4~~$94.4 million compared to ~~$7.2~~$9.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2019. The provision for credit losses for the six months ended June 30, 2020 included $88.5 million in provision for loan losses ~~increased~~and $5.9 million in provision for unfunded commitments. The increase in the ~~first nine months of 2017 compared~~provision for credit losses was due to the ~~same period in 2016, primarily driven by higher loan balances and higher charge-off levels.~~

impact of the worsening economic forecast due to the impact of COVID-19 under CECL accounting for credit losses.

Allowance for ~~Loan~~Credit Losses

At ~~both September~~June 30, ~~2017~~2020, the ACL was $181.0 million and included an ALLL of $170.0 million and an RUC of $11.0 million. The ACL increased $137.8 million from December 31, ~~2016,~~2019, primarily due to the ~~allowance for loan losses was $37.2~~adoption of CECL (the “CECL Day 1 impact”) as well as the impact of the worsening economic forecast related to COVID-19 subsequent to the adoption of CECL (the “CECL Day 2 impact”).

The ALLL increased $127.7 million from December 31, 2019, due to the CECL Day 1 impact of $47.5 million and the CECL Day 2 impact of $80.2 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 lossesALLL as a percentage of the total loan portfolio was ~~0.54%~~1.19% at ~~September~~June 30, ~~2017 compared to 0.59%~~2020, 0.34% at ~~both~~ December 31, ~~2016~~2019, and ~~September~~0.35% at June 30, ~~2016.~~2019. When excluding PPP loans⁽¹⁾, which are 100% guaranteed by the SBA, the ALLL as a percentage of adjusted loans increased 100 bps to 1.34% from December 31, 2019 and increased 99 bps from June 30, 2019. The ~~decline is primarily related~~ratio of the ALLL to ~~lower specific reserves~~nonaccrual loans was 428.97% at June 30, 2020 and 149.81% at December 31, 2019.

The ACL as ~~well~~a percentage of the total loan portfolio was 1.26% at June 30, 2020, 0.34% at December 31, 2019, and 0.36% at June 30, 2019. The ACL as ~~declining historical loss factors.~~a percentage of adjusted loans⁽¹⁾ increased 108 bps to 1.42% from December 31, 2019 and increased 106 bps from June 30, 2019.

The RUC increased $10.1 million from December 31, 2019, due to the CECL Day 1 impact of $4.2 million and the CECL Day 2 impact of $5.9 million.

(1)	Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

-81-

Table of Contents

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

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

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


	June 30,			March 31,			December 31,			September 30,			June 30,
	2020			2020			2019			2019			2019
Balance, beginning of period	$	141,043		$	42,294		$	43,820		$	42,463		$	40,827
Day 1 impact from adoption of CECL		—			47,484			—			—			—
Loans charged-off:
Commercial		1,590			2,968			2,092			4,184			1,331
Consumer		3,087			4,183			4,826			5,133			4,603
Total loans charged-off		4,677			7,151			6,918			9,317			5,934
Recoveries:
Commercial		708			1,154			1,096			611			469
Consumer		703			1,006			1,196			963			1,201
Total recoveries		1,411			2,160			2,292			1,574			1,670
Net charge-offs		3,266			4,991			4,626			7,743			4,264
Provision for loan losses		32,200			56,256			3,100			9,100			5,900
Balance, end of period	$	169,977		$	141,043		$	42,294		$	43,820		$	42,463

Total ACL	$	180,977		$	150,043		$	43,194		$	44,920		$	43,563

ACL to loans		1.26	%		1.18	%		0.34	%		0.36	%		0.36	%
ACL to adjusted loans⁽¹⁾		1.42	%		1.18	%		0.34	%		0.36	%		0.36	%
ALLL to loans		1.19	%		1.10	%		0.34	%		0.36	%		0.35	%
ALLL to adjusted loans⁽¹⁾		1.34	%		1.10	%		0.34	%		0.36	%		0.35	%
Net charge-offs to average loans		0.09	%		0.16	%		0.15	%		0.25	%		0.14	%
Net charge-offs to adjusted average loans⁽¹⁾		0.10	%		0.16	%		0.15	%		0.25	%		0.14	%
Provision for loan losses to average loans		0.93	%		1.80	%		0.10	%		0.29	%		0.20	%
Provision for loan losses to adjusted average loans⁽¹⁾		1.02	%		1.80	%		0.10	%		0.29	%		0.20	%

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


	June 30,				March 31,				December 31,				September 30,				June 30,
	2020				2020				2019				2019				2019
	$		% ⁽²⁾		$		% ⁽²⁾		$		% ⁽²⁾		$		% ⁽²⁾		$		% ⁽²⁾
Commercial	$	111,954	84.8	%	$	77,843	82.6	%	$	30,941	81.9	%	$	31,936	81.4	%	$	30,636	81.3	%
Consumer		58,023	15.2	%		63,200	17.4	%		11,353	18.1	%		11,884	18.6	%		11,827	18.7	%
Total	$	169,977	100.0	%	$	141,043	100.0	%	$	42,294	100.0	%	$	43,820	100.0	%	$	42,463	100.0	%

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

September 30,
2016
$
% ⁽¹⁾
$
% ⁽¹⁾
$
% ⁽¹⁾
$
% ⁽¹⁾
$
% ⁽¹⁾
Commercial $ 5,363
8.0 % $ 5,614
8.4 % $ 5,279
8.8 % $ 4,627
8.7 % $ 5,403
8.3 %
Real estate 27,518
79.5 % 28,450
79.1 % 29,356
79.6 % 29,441
80.3 % 28,064
81.0 %
Consumer 4,281
12.5 % 4,150
12.5 % 3,779
11.6 % 3,124
11.0 % 3,075
10.7 %
Total $ 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.~~

(1)	Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

(2)	Represents the loan balance divided by total loans held for investment.

~~Deposits~~

-82-

Table of Contents

Deposits

As of ~~September~~June 30, ~~2017,~~2020, total deposits were ~~$6.9~~$15.6 billion, an increase of ~~$502.3 million,~~$2.3 billion, or ~~10.5% (annualized),~~34.8% annualized, from December 31, ~~2016.~~2019. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of ~~$1.3~~$2.7 billion accounted for ~~24.7%~~23.6% of total interest-bearing deposits at ~~September~~June 30, ~~2017.~~

2020.

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


	June 30, 2020				December 31, 2019
			% of total				% of total
Deposits:	Amount		deposits		Amount		deposits
Non-interest bearing	$	4,345,960	27.8	%	$	2,970,139	22.3	%
NOW accounts		3,618,523	23.2	%		2,905,714	21.8	%
Money market accounts		4,158,325	26.6	%		3,951,856	29.7	%
Savings accounts		824,164	5.3	%		727,847	5.5	%
Time deposits of $100,000 and over⁽¹⁾		1,554,772	10.0	%		1,618,637	12.2	%
Other time deposits		1,103,395	7.1	%		1,130,788	8.5	%
Total Deposits	$	15,605,139	100.0	%	$	13,304,981	100.0	%

(1)	Includes time deposits of $250,000 and over of $689.7 million and $684.8 million as of June 30, 2020 and December 31, 2019, respectively.

September 30, 2017 December 31, 2016
Deposits: Amount
% of total
deposits
Amount
% of total
deposits
Non-interest bearing $ 1,535,149
22.3 % $ 1,393,625
21.8 %
NOW accounts 1,851,327
26.9 % 1,765,956
27.7 %
Money market accounts 1,621,443
23.6 % 1,435,591
22.5 %
Savings accounts 553,082
8.0 % 591,742
9.3 %
Time deposits of $100,000 and over 621,070
9.0 % 530,275
8.3 %
Other time deposits 699,755
10.2 % 662,300
10.4 %
Total Deposits $ 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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were ~~$19.4~~$111.4 million and ~~$0,~~$190.7 million, respectively, purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance Sheets.

Maturities of time deposits of $100,000 or more as of ~~September~~June 30, ~~2017~~2020 were as follows (dollars in thousands):

Within 3
Months

3 - 12
Months

Over 12
Months
Total
Maturities of time deposits of $100,000 and over $ 57,493
$ 201,742
$ 361,835
$ 621,070
Maturities of other time deposits 62,724
273,340
363,691

699,755
Total time deposits $ 120,217
$ 475,082
$ 725,526
$ 1,320,825


	Amount
Within 3 Months	$	324,324
3 - 6 Months		250,120
6 - 12 Months		517,650
Over 12 Months		462,678
Total	$	1,554,772

-83-

Table of Contents

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 ~~stockholders.~~

Inshareholders.

On June 9, 2020, the Company announced the closing of an offering of 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional Depositary Shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.

On July ~~2013,~~24, 2020 the Company announced that its Board of Directors declared a quarterly dividend of $0.25 per share of common stock. The common stock dividend is payable on August 21, 2020 to common shareholders on record as of August 7, 2020. The Board also declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400^th ownership interest in a share of Series A preferred stock. The dividend of $156.60 per share (equivalent to $0.39 per outstanding depositary share) is payable on September 1, 2020 to preferred shareholders of record as of August 14, 2020.

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 requirerequires 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%~~7.0% of risk-weighted assets; (ii) a Tier 1 capital ratio of ~~6.0%~~8.5% of risk-weighted ~~assets (increased from the prior requirement of 4.0%);~~assets; (iii) a total capital ratio of ~~8.0%~~10.5% of risk-weighted ~~assets (unchanged from the prior requirement);~~assets; and (iv) a leverage ratio of 4.0% of total ~~assets (unchanged from~~assets. These ratios, with the ~~prior requirement). These capital requirements will be phased in over~~exception of the leverage ratio, include 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 September 30, 2017, the capital conservation buffer was 1.25% of risk-weighted assets. The capital conservation bufferwhich 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.

On July 10, 2019, the Company announced that its Board of Directors has authorized a share repurchase program to purchase up to $150.0 million of the Company’s common stock through June 30, 2021 in open market transactions or privately negotiated transactions. On March 20, 2020, the Company suspended its share repurchase program, which had approximately $20 million remaining in authorization at the time. The Company repurchased an aggregate of approximately 3.7 million shares, at an average price of $35.48 per share, under the authorization prior to suspension.

On March 27, 2020, the banking agencies issued an interim final rule that allows the Company to phase in the impact of adopting CECL up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay. The Company is allowed to include the impact of the CECL transition, which is defined as the Day 1 impact to capital plus 25% of the Company’s provision for credit losses during 2020, in regulatory capital through 2021. Beginning in 2022, the transition amount will begin to impact regulatory capital by phasing it in over a three-year period ending in 2024.

-84-

Table of Contents

The table summarizes the Company’s ~~regulatory~~ capital and related ratios for the periods presented ~~(dollars~~⁽³⁾(dollars in thousands):


	June 30,	December 31,	June 30,
	2020	2019	2019
Common equity Tier 1 capital	$ 1,422,004	$ 1,437,908	$ 1,433,871
Tier 1 capital	1,588,367	1,437,908	1,433,871
Tier 2 capital	399,261	335,927	335,861
Total risk-based capital	1,987,628	1,773,835	1,769,732
Risk-weighted assets	14,502,454	14,042,949	13,616,951
Capital ratios:
Common equity Tier 1 capital ratio	9.81%	10.24%	10.53%
Tier 1 capital ratio	10.95%	10.24%	10.53%
Total capital ratio	13.71%	12.63%	13.00%
Leverage ratio (Tier 1 capital to average assets)	8.82%	8.79%	9.00%
Capital conservation buffer ratio ⁽¹⁾	4.95%	4.24%	4.53%
Common equity to total assets	12.41%	14.31%	14.64%
Tangible common equity to tangible assets ⁽²⁾	7.74%	9.08%	9.28%

September 30,
2017

December 31,
2016

September 30,
2016
Common equity Tier 1 capital $ 734,892
$ 699,728
$ 685,329
Tier 1 capital 825,392
790,228
775,829
Tier 2 capital 186,012
185,917
37,032
Total risk-based capital 1,011,404
976,145
812,861
Risk-weighted assets 7,817,079
7,200,778
7,010,112

Capital ratios:

Common equity Tier 1 capital ratio 9.40 % 9.72 % 9.78 %
Tier 1 capital ratio 10.56 % 10.97 % 11.07 %
Total capital ratio 12.94 % 13.56 % 11.60 %
Leverage ratio (Tier 1 capital to average assets) 9.52 % 9.87 % 9.89 %
Capital conservation buffer ratio ⁽¹⁾
4.56 % 4.97 % 3.60 %
Common equity to total assets 11.53 % 11.88 % 12.12 %
Tangible common equity to tangible assets 8.34 % 8.41 % 8.57 %

~~(1)~~ ~~Calculated by subtracting the regulatory minimum capital ratio requirements from the Company's~~

(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.

(2)	Refer to “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP financial measure, including a reconciliation of this measure to the most directly comparable financial measure calculated in accordance with GAAP.

(3)	All ratios and amounts at June 30, 2020are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

SUPERVISION AND REGULATION

The following information is intended to update, and should be read in conjunction with, the information contained under the caption “Supervision and Regulation” in the Company’s 2019 Form 10-K and the supplemental disclosure related thereto contained under the same caption in the Company’s first quarter Form 10-Q filed on May 8, 2020.

The CARES Act

On March 27, 2020, the CARES Act was passed by Congress and signed into law by the President. The CARES Act provided approximately $2.2 trillion in direct economic relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs are, and remain, dependent upon the direct involvement of U.S. financial institutions like the Company and the Bank. These programs have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve, and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including new bills comparable in scope to the CARES Act, prior to the end of 2020.

-85-

Table of Contents

Set forth below is a brief overview of select provisions of the CARES Act and other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Company and its subsidiaries, including the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Future legislation and/or amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the Company. Such legislation and related regulations and supervisory guidance will be implemented over time and will remain subject to review by Congress and the implementing regulations issued by federal regulatory authorities. The Company continues to assess the impact of the CARES Act, the potential impact of new COVID-19 legislation, and other statutes, regulations, and supervisory guidance related to the COVID-19 pandemic.

Paycheck Protection Program. A principal provision of the CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations, and self-employed persons during COVID-19. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (“PPPFA”) into law, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of the COVID-19 pandemic, the President signed additional legislation authorizing the SBA to resume accepting PPP applications on July 6, 2020 and extending the PPP application deadline to August 8, 2020. It is anticipated that additional revisions to the SBA’s interim final rules on forgiveness and loan review procedures will be forthcoming to address these and related changes. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers. The CARES Act permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so.

Federal Reserve Programs and Other Recent Initiatives

Main Street Lending Program. The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020, the Federal Reserve proposed the creation of the MSLP to implement certain of these recommendations. On June 15, 2020, the Federal Reserve Bank of Boston opened the MSLP for lender registration. The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP operates through three ~~measures represents~~facilities: the ~~Company's~~Main Street New Loan Facility, the Main Street Priority Loan Facility, and the Main Street Expanded Loan Facility. The Federal Reserve is currently working to refine the MSLP’s operational infrastructure and facilities and is expected to release further rules and operational guidance. The Bank has not registered as a lender under the MSLP, butcontinues to monitor developments related thereto.

Supervisory Developments. On June 25, 2020, the Federal Reserve announced that it would take several actions to ensure large banks, such as the Bank, remain resilient despite the ongoing economic impact of COVID-19. Specifically, in the third quarter, the Federal Reserve will require large banks to preserve capital ~~conservation buffer ratio.~~by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. The Company and the Bank continue to monitor these developments.

Modification of the Volcker Rule. Also on June 25, 2020, the Federal Reserve – along with the Commodity Futures Trading Commission, FDIC, the Office of the Comptroller of the Currency, and the SEC – issued a final rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds (“covered funds”). The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring or having certain relationships with a hedge fund or private equity fund. The final rule modifies three areas of the Volcker Rule by: (1) streamlining the covered funds portion of the rule; (2) addressing the extraterritorial treatment of certain foreign funds; and (3) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The new rule becomes effective October 1, 2020. The Company and the Bank are currently reviewing this new rule to determine what effect (if any) it will have, but do not anticipate any material impact at this time.

-86-

Table of Contents

NON-GAAP FINANCIAL MEASURES

In reporting the results of ~~September~~the three and six months ended June 30, ~~2017,~~2020 and 2019, the Company has provided supplemental performance measures on a tax-equivalent, tangible, operating, adjusted and/or ~~operating~~pre-tax pre-provision basis. These non-GAAP financial measures are a supplement to GAAP used to prepare the ~~Company's~~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~~Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies.

The Company uses the non-GAAP measures discussed herein in its analysis of the Company’s performance.

Net interest income (FTE) and total revenue (FTE), which isare used in computing net interest margin (FTE) and operating efficiency ratio (FTE), ~~provides~~respectively, provide valuable additional insight into the net interest margin and the efficiency ratio by adjusting for differences in tax treatment of interest income sources.

The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Interest Income (FTE)
Interest and dividend income (GAAP)	$	162,867		$	181,125		$	334,193		$	346,777
FTE adjustment		2,805			2,920			5,562			5,668
Interest and dividend income FTE (non-GAAP)	$	165,672		$	184,045		$	339,755		$	352,445
Average earning assets	$	17,106,132		$	15,002,726		$	16,334,901		$	14,450,057
Yield on interest-earning assets (GAAP)		3.83	%		4.84	%		4.11	%		4.84	%
Yield on interest-earning assets (FTE) (non-GAAP)		3.90	%		4.92	%		4.18	%		4.92	%
Net Interest Income (FTE)
Net Interest Income (GAAP)	$	137,305		$	138,594		$	272,313		$	266,141
FTE adjustment		2,805			2,920			5,562			5,668
Net Interest Income FTE (non-GAAP)		140,110			141,514			277,875			271,809
Noninterest income (GAAP)		35,932			30,578			64,838			55,515
Total Revenue (FTE) (non-GAAP)	$	176,042		$	172,902		$	342,713		$	327,324
Average earning assets	$	17,106,132		$	15,002,726		$	16,334,901		$	14,450,057
Net interest margin (GAAP)		3.23	%		3.71	%		3.35	%		3.71	%
Net interest margin (FTE) (non-GAAP)		3.29	%		3.78	%		3.42	%		3.79	%

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~~The Company believes tangible common equity and related 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.

-87-

Table of Contents

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Tangible Assets
Ending Assets (GAAP)	$	19,752,317		$	17,159,384		$	19,752,317		$	17,159,384
Less: Ending goodwill		935,560			930,449			935,560			930,449
Less: Ending amortizable intangibles		65,105			82,976			65,105			82,976
Ending tangible assets (non-GAAP)	$	18,751,652		$	16,145,959		$	18,751,652		$	16,145,959
Tangible Common Equity
Ending Equity (GAAP)	$	2,618,226		$	2,512,295		$	2,618,226		$	2,512,295
Less: Ending goodwill		935,560			930,449			935,560			930,449
Less: Ending amortizable intangibles		65,105			82,976			65,105			82,976
Less: Perpetual preferred stock		166,364			—			166,364			—
Ending tangible common equity (non-GAAP)	$	1,451,197		$	1,498,870		$	1,451,197		$	1,498,870
Average equity (GAAP)	$	2,489,969		$	2,490,049		$	2,487,807		$	2,379,834
Less: Average goodwill		935,560			929,455			935,560			894,252
Less: Average amortizable intangibles		67,136			85,566			69,210			80,653
Less: Average perpetual preferred stock		40,325			—			20,162			—
Average tangible common equity (non-GAAP)	$	1,446,948		$	1,475,028		$	1,462,875		$	1,404,929
ROE (GAAP)		4.96	%		7.86	%		3.06	%		7.16	%
Common equity to assets (GAAP)		12.41	%		14.64	%		12.41	%		14.64	%
Tangible common equity to tangible assets (non-GAAP)		7.74	%		9.28	%		7.74	%		9.28	%
Book value per share (GAAP)	$	31.32		$	30.78		$	31.32		$	30.78
Tangible book value per share (non-GAAP)	$	18.54		$	18.36		$	18.54		$	18.36

Operating measures exclude merger-related and rebranding-related costs unrelated to the Company’s normal operations. Such costs were only incurred during the second and third quarters 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. 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 financial measures from ~~their respective U.S.~~the most directly comparable GAAP ~~basis~~financial measures for each of the periods presented (dollars in thousands, except per share amounts):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Operating Measures
Net income (GAAP)	$	30,709		$	48,823		$	37,798		$	84,453
Merger and rebranding-related costs, net of tax		—			8,266			—			23,154
Net operating earnings (non-GAAP)	$	30,709		$	57,089		$	37,798		$	107,607
Less: Dividends on preferred stock		—			—			—			—
Net operating earnings available to common shareholders (non-GAAP)	$	30,709		$	57,089		$	37,798		$	107,607

Weighted average common shares outstanding, diluted		78,722,690			82,125,194			79,020,036			79,344,573
Earnings per common share, diluted (GAAP)	$	0.39		$	0.59		$	0.48		$	1.06
Operating earnings per share, diluted (non-GAAP)	$	0.39		$	0.70		$	0.48		$	1.36

Average assets (GAAP)	$	19,157,238		$	16,997,531		$	18,358,579		$	16,352,222
ROA (GAAP)		0.64	%		1.15	%		0.41	%		1.04	%
Operating ROA (non-GAAP)		0.64	%		1.35	%		0.41	%		1.33	%

Average common equity (GAAP)	$	2,489,969		$	2,490,049		$	2,487,807		$	2,379,834
ROE (GAAP)		4.96	%		7.86	%		3.06	%		7.16	%
Operating ROE (non-GAAP)		4.96	%		9.20	%		3.06	%		9.12	%

-88-

Table of Contents

The operating efficiency ratio (FTE) excludes the amortization of intangible assets and merger-related costs. This measure is similar to the measure utilized by the Company when analyzing corporate performance and is also similar to the measure utilized for incentive compensation. The Company believes this measure is useful to investors as it excludes certain costs resulting from acquisition activity allowing for greater comparability with others in the industry and allowing investors to more clearly see the combined economic results of the organization’s operations. In prior periods, the Company has not excluded the amortization of intangibles from noninterest expense when calculating the operating efficiency ratio (FTE). The Company has adjusted its presentation for all periods in this release to exclude the amortization of intangibles from noninterest expense.

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019

Noninterest expense (GAAP)	$	102,814		$	105,608		$	198,459		$	212,335
Less: Merger-related costs		—			6,371			—			24,493
Less: Rebranding-related costs		—			4,012			—			4,420
Less: Amortization of intangible assets		4,223			4,937			8,624			9,154
Operating noninterest expense (non-GAAP)	$	98,591		$	90,288		$	189,835		$	174,268

Net interest income (GAAP)	$	137,305		$	138,594		$	272,313		$	266,141
Net interest income (FTE) (non-GAAP)	$	140,110		$	141,514		$	277,875		$	271,809
Noninterest income (GAAP)	$	35,932		$	30,578		$	64,838		$	55,515

Efficiency ratio (GAAP)		59.35	%		62.43	%		58.86	%		66.01	%
Operating efficiency ratio (FTE) (non-GAAP)		56.00	%		52.46	%		55.39	%		53.24	%

The Company believes that operating ROTCE is a meaningful supplement to GAAP financial measures and useful to investors because it measures the performance of a business consistently across time without regard to whether components of the business were acquired or developed internally.

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Operating ROTCE
Net operating earnings available to common shareholders (non-GAAP)	$	30,709		$	57,089		$	37,798		$	107,607
Plus: Amortization of intangibles, tax effected		3,336			3,900			6,813			7,232
Net operating earnings available to common shareholders before amortization of intangibles (non-GAAP)	$	34,045		$	60,989		$	44,611		$	114,839

Average tangible common equity (non-GAAP)	$	1,446,948		$	1,475,028		$	1,462,875		$	1,404,929
Operating return on average tangible common equity (non-GAAP)		9.46	%		16.58	%		6.13	%		16.48	%

Pre-tax pre-provision earnings exclude the provision for credit losses, which can fluctuate significantly from period-to-period under the recently adopted CECL methodology, merger and rebranding-related costs unrelated to the Company’s normal operations, and income tax expense. The Company believes this measure is useful to investors as it excludes certain costs resulting from acquisition activity as well as the potentially volatile provision measure, allowing for greater comparability with others in the industry and allowing investors to more clearly see the combined economic results of the organization’s operations.

-89-

Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016 2017 2016
Interest Income (FTE)
Interest Income (GAAP) $ 84,850
$ 74,433
$ 242,712
$ 217,964
FTE adjustment 2,648
2,427
7,836
7,367
Interest Income FTE (non-GAAP) $ 87,498
$ 76,860
$ 250,548
$ 225,331
Average earning assets $ 8,167,919
$ 7,354,684
$ 7,922,944
$ 7,159,813
Yield on interest-earning assets (GAAP) 4.12 % 4.03 % 4.10 % 4.07 %
Yield on interest-earning assets (FTE) (non-GAAP) 4.25 % 4.16 % 4.23 % 4.20 %
Net Interest Income (FTE)
Net Interest Income (GAAP) $ 71,198
$ 67,028
$ 206,765
$ 196,535
FTE adjustment 2,648
2,427
7,836
7,367
Net Interest Income FTE (non-GAAP) 73,846
69,455
214,601
203,902
Average earning assets $ 8,167,919
$ 7,354,684
$ 7,922,944
$ 7,159,813
Net interest margin (GAAP) 3.46 % 3.63 % 3.49 % 3.67 %
Net interest margin (FTE) (non-GAAP) 3.59 % 3.76 % 3.62 % 3.80 %
Tangible Assets
Ending Assets (GAAP) $ 9,029,436
$ 8,258,230
$ 9,029,436
$ 8,258,230
Less: Ending goodwill 298,191
298,191
298,191
298,191
Less: Ending amortizable intangibles 16,017
22,343
16,017
22,343
Ending tangible assets (non-GAAP) $ 8,715,228
$ 7,937,696
$ 8,715,228
$ 7,937,696
Tangible Common Equity

Ending Equity (GAAP) $ 1,041,371
$ 1,000,964
$ 1,041,371
$ 1,000,964
Less: Ending goodwill 298,191
298,191
298,191
298,191
Less: Ending amortizable intangibles 16,017
22,343
16,017
22,343
Ending tangible common equity (non-GAAP) $ 727,163
$ 680,430
$ 727,163
$ 680,430
Average equity (GAAP) $ 1,037,792
$ 996,668
$ 1,024,853
$ 991,097
Less: Average goodwill 298,191
297,707
298,191
295,380
Less: Average amortizable intangibles 16,681
22,653
18,184
22,249
Average tangible common equity (non-GAAP) $ 722,920
$ 676,308
$ 708,478
$ 673,468
ROE (GAAP) 7.90 % 8.14 % 7.53 % 7.64 %
ROTCE (non-GAAP) 11.34 % 12.00 % 10.90 % 11.25 %
Common equity to assets (GAAP) 11.53 % 12.12 % 11.53 % 12.12 %
Tangible common equity to tangible assets (non-GAAP) 8.34 % 8.57 % 8.34 % 8.57 %

Table of Contents

PPP adjustment impact excludes the SBA guaranteed PPP loans funded during the first half of 2020. The Company believes loans held for investment (net of deferred fees and costs), excluding PPP is useful to investors as it provides more clarity on the Company’s organic growth. The Company also believes that the related non-GAAP financial measures of past due loans still accruing interest as a percentage of total loans held for investment (net of deferred fees and costs), excluding impacts from the PPP, are useful to investors as loans originated under the PPP carry an SBA guarantee. The Company believes that the ALLL as a percentage of loans held for investment (net of deferred fees and costs), excluding impacts from the PPP, is useful to investors because of the size of the Company’s PPP loan originations and the impact of the embedded credit enhancement provided by the SBA guarantee.

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands, except per share amounts):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Pre-tax pre-provision earnings
Net Income (GAAP)	$	30,709	$	48,823	$	37,798	$	84,453
Plus: Provision for credit losses		34,200		5,300		94,396		9,092
Plus: Income tax expenses		5,514		9,356		6,498		15,606
Plus: Merger and rebranding-related costs		—		10,383		—		28,913
Pre-tax pre-provision earnings (non-GAAP)	$	70,423	$	73,862	$	138,692	$	138,064

Weighted average common shares outstanding, diluted		78,722,690		82,125,194		79,020,036		79,344,573
Earnings per common share, diluted (GAAP)	$	0.39	$	0.59	$	0.48	$	1.06
Pre-tax pre-provision earnings per common share, diluted (non-GAAP)	$	0.89	$	0.90	$	1.76		1.74

Paycheck Protection Program adjustment impact
Loans held for investment (net of deferred fees and costs)(GAAP)	$	14,308,646	$	12,220,514	$	14,308,646	$	12,220,514
Less: PPP adjustments		1,598,718		—		1,598,718		—
Loans held for investment (net of deferred fees and costs),net adjustments, excluding PPP (non-GAAP)	$	12,709,928	$	12,220,514	$	12,709,928	$	12,220,514

Average loans held for investment (GAAP)	$	13,957,711	$	12,084,961	$	13,275,817	$	11,608,821
Less: Average PPP adjustments		1,273,883		—		1,273,883		—
Average loans held for investment, net adjustments, excluding PPP (non-GAAP)	$	12,683,828	$	12,084,961	$	12,001,934	$	11,608,821

-90-

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Operating Measures
Net income (GAAP) $ 20,658
$ 20,401
$ 57,737
$ 56,699
Merger-related costs, net of tax 661
—
3,020
—
Net operating earnings (non-GAAP) $ 21,319
$ 20,401
$ 60,757
$ 56,699

Weighted average common shares outstanding, diluted 43,792,058
43,754,915
43,767,502
43,967,725
Earnings per common share, diluted (GAAP) $ 0.47
$ 0.47
$ 1.32
$ 1.29
Operating earnings per common share, diluted (non-GAAP) $ 0.49
$ 0.47
$ 1.39
$ 1.29

Average assets (GAAP) $ 8,973,964
$ 8,153,951
$ 8,730,815
$ 7,956,841
ROA (GAAP) 0.91 % 1.00 % 0.88 % 0.95 %
Operating ROA (non-GAAP) 0.94 % 1.00 % 0.93 % 0.95 %

Average common equity (GAAP) $ 1,037,792
$ 996,668
$ 1,024,853
$ 991,097
ROE (GAAP) 7.90 % 8.14 % 7.53 % 7.64 %
Operating ROE (non-GAAP) 8.15 % 8.14 % 7.93 % 7.64 %

Average tangible common equity (non-GAAP) $ 722,920
$ 676,308
$ 708,478
$ 673,468
ROTCE (non-GAAP) 11.34 % 12.00 % 10.90 % 11.25 %
Operating ROTCE (non-GAAP) 11.70 % 12.00 % 11.47 % 11.25 %

Noninterest expense (GAAP) $ 57,496
$ 56,913
$ 174,821
$ 166,436
Less: Merger-related costs 732
—
3,476
—
Operating noninterest expense (non-GAAP) $ 56,764
$ 56,913
$ 171,345
$ 166,436

Net interest income (GAAP) $ 71,198
$ 67,028
$ 206,765
$ 196,535
Net interest income (FTE) (non-GAAP) 73,846
69,455
214,601
203,902
Noninterest income (GAAP) 17,536
18,950
54,430
52,857

Efficiency ratio (GAAP) 64.80 % 66.19 % 66.93 % 66.74 %
Efficiency ratio (FTE) (non-GAAP) 62.92 % 64.38 % 64.98 % 64.82 %
Operating efficiency ratio (FTE) (non-GAAP) 62.12 % 64.38 % 63.69 % 64.82 %

Community Bank Segment Operating Measures
Community bank segment net income (GAAP) $ 20,311
$ 19,616
$ 56,836
$ 55,321
Merger-related costs, net of tax 661
—
3,020
—
Community bank segment net operating earnings (non-GAAP) $ 20,972
$ 19,616
$ 59,856
$ 55,321

Weighted average common shares outstanding, diluted 43,792,058
43,754,915
43,767,502
43,967,725
Earnings per common share, diluted (GAAP) $ 0.46
$ 0.45
$ 1.30
$ 1.26
Operating earnings per common share, diluted (non-GAAP) $ 0.48
$ 0.45
$ 1.37
$ 1.26

Community bank segment noninterest expense (GAAP) $ 55,133
$ 54,353
$ 167,643
$ 158,964
Less: Merger-related costs 732
—
3,476
—
Community bank segment operating noninterest expense (non-GAAP) $ 54,401
$ 54,353
$ 164,167
$ 158,964

Table of Contents

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~~

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~~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.~~rates and futures curves. The analysis assesses the impact on net interest income over a ~~12 month~~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.

-91-

Table of Contents

The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled for balances as of ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):

Change In Net Interest Income
September 30,
2017 2016
% $ % $
Change in Yield Curve:

+300 basis points 7.65
23,401
11.25
31,821
+200 basis points 5.24
16,034
7.65
21,636
+100 basis points 2.82
8,634
3.91
11,051
Most likely rate scenario —
—
—
—
-100 basis points (3.21 ) (9,828 ) (3.30 ) (9,338 )
-200 basis points (6.69 ) (20,459 ) (4.66 ) (13,197 )
-300 basis points (7.04 ) (21,528 ) (4.76 ) (13,464 )


	Change In Net Interest Income
	June 30,
	2020		2019
	%	$	%	$
Change in Yield Curve:
+300 basis points	9.03	51,743	9.79	55,444
+200 basis points	6.21	35,547	6.73	38,104
+100 basis points	3.01	17,229	3.45	19,534
Most likely rate scenario	—	—	—	—
-100 basis points	(1.16)	(6,652)	(4.08)	(23,119)
-200 basis points	(1.28)	(7,355)	(7.81)	(44,222)

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 September 30, 2017,~~

From a net interest income perspective, the Company was less asset sensitive ~~in a rising interest rate environment scenario when~~as of June 30, 2020, compared to ~~September~~its position as of June 30, ~~2016~~2019. This shift is in part due to the ~~composition~~changing market characteristics of ~~the balance sheet~~certain loan and deposit products and in part due to ~~the market characteristics of certain deposit products.~~various other balance sheet strategies. 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

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 ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):

Change In Economic Value of Equity
September 30,
2017 2016
% $ % $
Change in Yield Curve:

+300 basis points (1.11 ) (16,200 ) 2.67
35,364
+200 basis points (0.05 ) (800 ) 2.65
35,109
+100 basis points 0.41
5,960
1.85
24,533
Most likely rate scenario —
—
—
—
-100 basis points (2.72 ) (39,795 ) (4.68 ) (61,889 )
-200 basis points (8.27 ) (120,822 ) (8.92 ) (117,988 )
-300 basis points (9.58 ) (139,886 ) (5.86 ) (77,480 )


	Change In Economic Value of Equity
	June 30,
	2020		2019
	%	$	%	$
Change in Yield Curve:
+300 basis points	1.83	54,590	(5.60)	(177,771)
+200 basis points	2.13	63,473	(3.58)	(113,504)
+100 basis points	1.82	54,301	(1.70)	(53,777)
Most likely rate scenario	—	—	—	—
-100 basis points	(5.34)	(159,239)	(1.51)	(47,943)
-200 basis points	(3.00)	(89,321)	(5.47)	(173,389)

As of ~~September~~June 30, ~~2017,~~2020, the ~~Company was~~Company’s economic value of equity is less sensitive ~~to market~~in a rising interest rate ~~fluctuations in the shock down 100, shock down 200 and shock up 100, 200, and 300 basis points scenarios when~~environment compared to ~~September~~June 30, ~~2016. The Company believes that~~2019 primarily due to the ~~shock down 200 or 300 basis points analyses are not as meaningful since interest rates across most~~composition of the ~~yield curve are near historic lows~~Consolidated Balance Sheets and ~~are not likely~~due in part 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.~~market characteristics of certain loans and deposits.

-92-

Table of Contents

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2020. The ~~Company maintains~~term “disclosure controls and procedures,” as ~~such term is~~ defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures that are designed to ~~ensure~~provide reasonable assurance that information required to be disclosed by the Company 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 to ensure that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2020, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating ~~its~~the Company’s 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~~

Changes in Internal Control Over Financial ~~Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level.~~

~~There was no change in~~Reporting

Management has taken measures to maintain the internal control over financial reporting ~~that occurred~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~September~~June 30, ~~2017~~2020. There have been no changes that ~~has~~have materially affected, or isare reasonably likely to materially affect, the internal control over financial reporting.

-93-

Table of Contents

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.~~

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.

ITEM 1A – RISK FACTORS

~~There~~

During the quarter ended June 30, 2020, there have been no material changes ~~with respect to~~from the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in the Company’s 2019 Annual Report, except as described below.

An investment in the Company’s securities involves risks. In addition to the other information set forth in this Quarterly Report, including the information addressed under “Forward-Looking Statements,” investors in the Company’s securities should carefully consider the factors discussed below, as well as the factors discussed in the Company’s 2019 Annual Report. These factors could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position and could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline.

Risks Related to the Company’s Operations

The COVID-19 pandemic and resulting adverse economic conditions have already adversely impacted the Company’s business and results, and could have a more material adverse impact on ~~Form 10-K~~its business, financial condition, and results of operations.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and international economies and financial markets. The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. In March 2020, almost all states, including Virginia, where the Company is headquartered, and Maryland and North Carolina, in which the Company has significant operations, issued “stay-at-home orders” and declared states of emergency. Recently, state and local governments have implemented phased regulations and guidelines for reopening communities and economies, often with reduced capacity and social distancing restrictions.

Although banks have generally been permitted to continue operating, the COVID-19 pandemic has caused disruptions to the Company’s business and could cause material disruptions to its business and operations in the future. Impacts to the business have included increases in costs and reductions in operating effectiveness due to additional health and safety precautions implemented at the Company’s branches and the transition of a portion of its workforce to home locations, decreases in customer traffic in its branches, and increases in requests for and the making of loan modifications. The Company anticipates that additional future impacts to its business will include increases in the Company’s customers’ inability to make scheduled loan payments and increases in requests for forbearance. Further, loan payment deferment programs implemented by the Company or under government stimulus programs, like the PPP, may mask credit deterioration in its loan portfolio by making less applicable standard measures of identifying developing financial weakness in a client or portfolio, such as past due monitoring and non-accrual assessments. To the extent that commercial and social restrictions remain in place or increase, the Company’s expenses, delinquencies, charge-offs, foreclosures, and credit losses may materially increase, and the Company could experience reductions in fee income. In addition, any declines in credit quality could significantly affect the adequacy of the Company’s ACL, which would lead to increases in the provision for credit losses and related declines in its net income.

Unfavorable economic conditions and increasing unemployment figures may also make it more difficult for the ~~fiscal year ended December 31, 2016~~Company to maintain deposit levels and loan origination volume and to obtain additional financing. Furthermore, such conditions have and may continue to cause the ~~Company's Quarterly Report on Form 10-Q~~value of the Company’s investment portfolio and of collateral associated with its existing loans to decline. In addition,in March 2020, the Federal Reserve lowered the target range for the ~~quarter ended June 30, 2017.~~federal funds rate to a range from 0 to 0.25 percent in part as a result of the pandemic. A prolonged period of very low interest rates could reduce the Company’s net interest income and have a material adverse impact on its cash flows.

-94-

Table of Contents

While the Company has taken and is continuing to take precautions to protect the safety and well-being of its employees and customers, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can the Company predict the continued level of disruption which will occur to its employee's ability to provide customer support and service. The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct the Company’s business, the business and operations of its third-party service providers who perform critical services for the business, or the businesses of many of the Company’s customers and borrowers. Despite phased regulations and guidelines for reopening communities and economies, health advisors warn that a “second wave” of the pandemic is possible if reopening is pursued too soon or in the wrong manner. If COVID-19 is not successfully contained, the Company could experience a material adverse effect on its business, financial condition, results of operations, and cash flow.

Among the factors outside the Company’s control that are likely to affect the impact the COVID-19 pandemic will ultimately have on its business are, without limitation:

●

the pandemic’s duration, nature, and severity;

●

the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, the residential housing market, consumer spending and real estate and investment securities market values;

●

political, legal, and regulatory actions and policies in response to the pandemic, including the effects of restrictions on commerce and banking, such as current temporary or required continuing moratoria and other suspensions of collections, foreclosures, and related obligations;

●

the timing, magnitude, and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits, and commercial activity;

●

effects on the Company’s liquidity position due to changes in customers’ deposit and loan activity in response to the pandemic and its economic effects;

●

the timing and availability of direct and indirect governmental support for various financial assets, including mortgage loans;

●

the long-term effect of the economic downturn on the Company’s intangible assets such as its deferred tax asset and goodwill;

●

potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;

●

the ability of the Company’s employees to work effectively during the course of the pandemic;

●

the ability of the Company’s third-party vendors to maintain a high-quality and effective level of service;

●

the possibility of increased fraud, cybercrime, and similar incidents, due to vulnerabilities posed by the significant increase in Company employees and customers handling their banking interactions remotely from home, the quick roll-out of various government-sponsored lending programs, like the PPP, or otherwise;

●

required changes to the Company’s internal controls over financial reporting to reflect a rapidly changing work environment;

●

potential longer-term shifts toward mobile banking, telecommuting, and telecommerce;

●

short- and long-term health impacts;

●

unforeseen effects of the pandemic; and

-95-

Table of Contents

●

geographic variation in the severity and duration of the COVID-19 pandemic, including in states in which the Company operates physically such as Virginia, Maryland, and North Carolina.

The ongoing COVID-19 pandemic has contributed to severe volatility in the financial markets and meaningfully lower stock prices for many companies, including the Company’s common stock. Depending on the extent and duration of the COVID-19 pandemic and perceptions regarding national and global recovery from the pandemic, the price of the Company’s common stock may continue to experience volatility and declines.

The Company is continuing to monitor the COVID-19 pandemic and related risks, including phased reopenings of the states in which the Company physically operates, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on the Company. However, if the pandemic continues to spread or otherwise result in a continuation or worsening of the current economic and commercial environments, the Company’s business, financial condition, results of operations, and cash flows could be materially adversely affected.

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

(a) Sales of Unregistered Securities – ~~None.~~

None

(b) Use of Proceeds – Not Applicable.

Stock Repurchase Program; Other

On July 8, 2019, the Company’s Board of Directors authorized a share repurchase program to purchase up to $150 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. The repurchase program was authorized through June 30, 2021, but, on March 20, 2020, the Company announced the suspension of the program.

The following information describes the Company’s common stock repurchases for the three months ended June 30, 2020:


Period	Total number of shares purchased⁽¹⁾	Average price paid per share ($)	Total number of shares purchased as part of publicly announced plans or programs⁽²⁾	Approximate dollar value of shares that may yet be purchased under the plans or programs ($)
April 1 - April 30, 2020	2,912	21.48	0	19,951,000
May 1 - May 31, 2020	817	22.28	0	19,951,000
June 1 - June 30, 2020	4,444	22.14	0	19,951,000
Total	8,173	21.92	0

(1)

For the three months ended June 30, 2020, 8,173 shares were withheld upon vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations.

(2)

On March 20, 2020, the Company announced the suspension of its share repurchase program, which had approximately $20 million of shares authorized to be purchased under the program remaining when it was suspended.

-96-

Table of Contents

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
~~Exhibit No.~~		~~Description~~
~~2.01~~ 2.1		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~~ 2.2		Agreement and Plan of Reorganization, dated as of October 4, 2018, as amended on December 7, 2018, by and between Union Bankshares Corporation and Access National Corporation (incorporated by reference to Annex A to Form S-4/A Registration Statement filed on December 10, 2018; SEC file no. 333-228455).

3.1		Amended and Restated Articles of Incorporation of Atlantic Union Bankshares Corporation, ~~as amended April 25, 2014~~effective May 7, 2020 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on ~~April 29, 2014)~~May 7, 2020).

~~3.02~~ 3.1.1		~~Bylaws~~Articles of ~~Union Bankshares Corporation, as amended January 21, 2017~~Amendment designating the 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, effective June 9, 2020 (incorporated by reference to Exhibit ~~3.02~~3.1 to Current Report on Form 8-K filed on June 9, 2020).

3.2		Amended and Restated Bylaws of Atlantic Union Bankshares Corporation, effective as of December 5, 2019 (incorporated by reference to Exhibit 3.3 to Annual Report on Form 10-K filed on February ~~28, 2017)~~25, 2020).

~~10.24~~ 4.1		Deposit Agreement, dated June 9, 2020, by and among Atlantic Union Bankshares Corporation, ~~Executive Severance Plan (as amended~~Computershare Inc. and ~~restated effective January 1, 2018)~~Computershare Trust Company, N.A., and the holders from time to time of Depositary Receipts described therein (incorporated by reference to Exhibit ~~10.24~~4.1 to Current Report on Form 8-K filed ~~September 26, 2017)~~on June 9, 2020).

~~10.32~~ 4.2		~~Severance Agreement and Release~~Form of ~~Claims, dated October 24, 2017, by and between Union Bankshares Corporation, Union Bank & Trust and Elizabeth M. Bentley~~Depositary Receipt representing Depositary Shares (included as Exhibit A to Exhibit 4.1) (incorporated by reference to Exhibit ~~10.32~~4.1 to Current Report on Form 8-K filed ~~October 24, 2017)~~on June 9, 2020).

~~15.01~~ 10.1		Underwriting Agreement, dated June 2, 2020, by and among Atlantic Union Bankshares Corporation, Morgan Stanley & Co. LLC, BofA Securities, Inc., Keefe, Bruyette & Woods, Inc., Raymond James & Associates, Inc., RBC Capital Markets, LLC, UBS Securities LLC and Piper Sandler & Co. (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on June 3, 2020).
15.1		Letter regarding unaudited interim financial information.

~~31.01~~ 31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.02~~ 31.2		Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.01~~ 32.1		Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101.00~~ 101.0		Interactive data files formatted in Inline eXtensible Business Reporting Language for the quarter ended ~~September~~June 30, ~~2017~~2020 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 Stockholders’ Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to ~~the~~ Consolidated Financial Statements (unaudited).

104.0		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).

-97-

Table of Contents

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.



	Atlantic Union Bankshares Corporation

	(Registrant)

Date: ~~November 7, 2017~~August 4, 2020	By:	/s/ John C. Asbury
		John C. Asbury,
		President and Chief Executive Officer
		(principal executive officer)

Date: ~~November 7, 2017~~August 4, 2020	By:	/s/ Robert M. Gorman
		Robert M. Gorman,
		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

-98-

~~-76-~~


ITEM				PAGE
~~ITEM~~			~~PAGE~~

	PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements

		Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 (unaudited) and December 31, ~~2016~~2019 (audited)		2

		Consolidated Statements of Income (unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019		3

		Consolidated Statements of Comprehensive Income (unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019		4

		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019		5

		Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019		6 7

		Notes to Consolidated Financial Statements (unaudited)		7 9

		Review Report of Independent Registered Public Accounting Firm		44 58

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		45 59

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		70 91

Item 4.		Controls and Procedures		72 93

		PART II - OTHER INFORMATION

Item 1.		Legal Proceedings		73 94

Item 1A.		Risk Factors		74 94

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		74 96

Item 6.	~~Exhibits~~	Exhibits	75	97

	~~Signatures~~	Signatures	76	98



	September 30, 2017		December 31, 2016
	(Unaudited)		(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	115,776	$	120,758
Interest-bearing deposits in other banks	60,294		58,030
Federal funds sold	891		449
Total cash and cash equivalents	176,961		179,237
Securities available for sale, at fair value	968,361		946,764
Securities held to maturity, at carrying value	204,801		201,526
Restricted stock, at cost	68,441		60,782
Loans held for sale, at fair value	30,896		36,487
Loans held for investment, net of deferred fees and costs	6,898,729		6,307,060
Less allowance for loan losses	37,162		37,192
Net loans held for investment	6,861,567		6,269,868
Premises and equipment, net	120,808		122,027
Other real estate owned, net of valuation allowance	8,764		10,084
Goodwill	298,191		298,191
Amortizable intangibles, net	16,017		20,602
Bank owned life insurance	181,451		179,318
Other assets	93,178		101,907
Total assets	$	9,029,436	$	8,426,793
LIABILITIES
Noninterest-bearing demand deposits	$	1,535,149	$	1,393,625
Interest-bearing deposits	5,346,677		4,985,864
Total deposits	6,881,826		6,379,489
Securities sold under agreements to repurchase	43,337		59,281
Other short-term borrowings	574,000		517,500
Long-term borrowings	434,750		413,308
Other liabilities	54,152		56,183
Total liabilities	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, 43,729,229 shares and 43,609,317 shares, respectively.	57,708		57,506
Additional paid-in capital	608,884		605,397
Retained earnings	373,468		341,938
Accumulated other comprehensive income	1,311		(3,809		)
Total stockholders' equity	1,041,371		1,001,032
Total liabilities and stockholders' equity	$	9,029,436	$	8,426,793



	Three Months Ended				Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Interest and dividend income:
Interest and fees on loans	$	75,948	$	66,190	$	216,644	$	193,884
Interest on deposits in other banks	181		65		367		178
Interest and dividends on securities:
Taxable	5,175		4,732		15,081		13,558
Nontaxable	3,546		3,446		10,620		10,344
Total interest and dividend income	84,850		74,433		242,712		217,964

Interest expense:
Interest on deposits	7,234		4,552		18,410		12,945
Interest on short-term borrowings	1,871		765		4,221		2,098
Interest on long-term borrowings	4,547		2,088		13,316		6,386
Total interest expense	13,652		7,405		35,947		21,429

Net interest income	71,198		67,028		206,765		196,535
Provision for credit losses	3,050		2,472		7,345		7,376
Net interest income after provision for credit losses	68,148		64,556		199,420		189,159

Noninterest income:
Service charges on deposit accounts	5,153		4,965		14,945		14,454
Other service charges and fees	4,529		4,397		13,575		12,971
Fiduciary and asset management fees	2,794		2,844		8,313		7,315
Mortgage banking income, net	2,305		3,207		7,123		8,324
Gains on securities transactions, net	184		—		782		145
Bank owned life insurance income	1,377		1,389		4,837		4,122
Loan-related interest rate swap fees	416		1,303		2,627		3,056
Other operating income	778		845		2,228		2,470
Total noninterest income	17,536		18,950		54,430		52,857

Noninterest expenses:
Salaries and benefits	29,769		30,493		92,499		87,061
Occupancy expenses	4,939		4,841		14,560		14,627
Furniture and equipment expenses	2,559		2,635		7,882		7,867
Printing, postage, and supplies	1,154		1,147		3,710		3,566
Communications expense	798		948		2,580		2,964
Technology and data processing	4,232		3,917		12,059		11,340
Professional services	1,985		1,895		5,734		6,432
Marketing and advertising expense	1,944		1,975		5,963		5,838
FDIC assessment premiums and other insurance	1,141		1,262		2,793		4,003
Other taxes	2,022		639		6,065		3,864
Loan-related expenses	1,349		1,531		3,959		3,638
OREO and credit-related expenses	1,139		503		2,023		1,965
Amortization of intangible assets	1,480		1,843		4,661		5,468
Training and other personnel costs	887		863		2,900		2,512
Merger-related costs	732		—		3,476		—
Other expenses	1,366		2,421		3,957		5,291
Total noninterest expenses	57,496		56,913		174,821		166,436

Income before income taxes	28,188		26,593		79,029		75,580
Income tax expense	7,530		6,192		21,292		18,881
Net income	$	20,658	$	20,401	$	57,737	$	56,699
Basic earnings per common share	$	0.47	$	0.47	$	1.32	$	1.29
Diluted earnings per common share	$	0.47	$	0.47	$	1.32	$	1.29
Dividends declared per common share	$	0.20	$	0.19	$	0.60	$	0.57
Basic weighted average number of common shares outstanding	43,706,635		43,565,937		43,685,045		43,853,548
Diluted weighted average number of common shares outstanding	43,792,058		43,754,915		43,767,502		43,967,725



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

Net income	$	20,658		$	20,401		$	57,737		$	56,699
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges	41			(78		)	(766		)	(3,766		)
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, $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, $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	84			—			278			—
Other comprehensive income (loss)	(2,697		)	960			5,120			3,607
Comprehensive income	$	17,961		$	21,361		$	62,857		$	60,306



	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



	2017			2016
Operating activities:
Net income	$	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	8,307			7,617
Writedown of OREO	845			879
Amortization, net	10,500			10,241
Amortization (accretion) related to acquisition, net	(158		)	1,400
Provision for credit losses	7,345			7,376
Gains on securities transactions, net	(782		)	(145		)
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	51			97
Stock-based compensation expenses	3,472			2,284
Issuance of common stock for services	561			379
Net decrease (increase) in other assets	4,952			(11,169		)
Net increase in other liabilities	909			11,192
Net cash and cash equivalents provided by (used in) operating activities	95,363			71,666
Investing activities:
Purchases of securities available for sale and restricted stock	(205,965		)	(159,863		)
Purchases of securities held to maturity	(7,836		)	—
Proceeds from sales of securities available for sale and restricted stock	91,911			18,272
Proceeds from maturities, calls and paydowns of securities available for sale	88,675			83,942
Proceeds from maturities, calls and paydowns of securities held to maturity	818			1,841
Net increase in loans held for investment	(594,967		)	(479,346		)
Net increase in premises and equipment	(7,139		)	(5,102		)
Proceeds from BOLI settlements	2,497			—
Proceeds from sales of other real estate owned	1,028			4,982
Cash paid in acquisition	—			(4,077		)
Cash acquired in acquisitions	—			207
Net cash and cash equivalents provided by (used in) investing activities	(630,978		)	(539,144		)
Financing activities:
Net increase in noninterest-bearing deposits	141,524			69,331
Net increase in interest-bearing deposits	360,813			225,239
Net increase in short-term borrowings	40,556			276,748
Cash paid for contingent consideration	(3,003		)	—
Proceeds from issuance of long-term debt	20,000			—
Repayments of long-term debt	—			(32,500		)
Cash dividends paid - common stock	(26,207		)	(24,957		)
Repurchase of common stock	—			(33,176		)
Issuance of common stock	969			753
Vesting of restricted stock, net of shares held for taxes	(1,313		)	(445		)
Net cash and cash equivalents provided by (used in) financing activities	533,339			480,993
Increase (decrease) in cash and cash equivalents	(2,276		)	13,515
Cash and cash equivalents at beginning of the period	179,237			142,660
Cash and cash equivalents at end of the period	$	176,961		$	156,175
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	33,947		$	21,812
Income taxes	19,600			19,800
Supplemental schedule of noncash investing and financing activities
Transfers between loans and other real estate owned	$	585		$	865
Issuance of common stock in exchange for net assets in acquisition	—			453



	Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value
September 30, 2017
Obligations of states and political subdivisions	$	285,921	$	7,582	$	(1,304	)	$	292,199
Corporate bonds	114,997		1,241		(816		)	115,422
Mortgage-backed securities	546,038		4,119		(3,253		)	546,904
Other securities	13,890		—		(54		)	13,836
Total available for sale securities	$	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
Corporate bonds	123,674		892		(2,786		)	121,780
Mortgage-backed securities	536,031		4,626		(5,371		)	535,286
Other securities	13,885		—		(77		)	13,808
Total available for sale securities	$	947,597	$	10,480	$	(11,313	)	$	946,764



	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2017
Obligations of states and political subdivisions	$	55,319	$	(700	)	$	9,338	$	(604	)	$	64,657	$	(1,304	)
Mortgage-backed securities	283,466		(2,708		)	42,481		(545		)	325,947		(3,253		)
Corporate bonds and other securities	21,128		(353		)	32,674		(517		)	53,802		(870		)
Total available for sale securities	$	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	)
Mortgage-backed securities	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		)
Total available for sale securities	$	472,297	$	(9,523	)	$	83,152	$	(1,790	)	$	555,449	$	(11,313	)



	September 30, 2017				December 31, 2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	23,387	$	23,510	$	21,403	$	21,517
Due after one year through five years	128,261		130,107		108,198		109,778
Due after five years through ten years	267,492		271,830		300,552		301,888
Due after ten years	541,706		542,914		517,444		513,581
Total securities available for sale	$	960,846	$	968,361	$	947,597	$	946,764



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

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


	Three Months Ended June 30, 2020
	U.S. Government and Agency		Obligations of states and political		Mortgage-backed		Total HTM
	securities		subdivisions		securities		securities
Credit Rating:
AAA/AA/A	$	—	$	534,577	$	—	$	534,577
Not Rated - Agency⁽¹⁾		2,781		—		5,593		8,374
Not Rated - Non-Agency		—		4,610		—		4,610
Total	$	2,781	$	539,187	$	5,593	$	547,561



	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



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Realized gains (losses):
Gross realized gains	$	296		$	958
Gross realized losses	(112		)	(176		)
Net realized gains	$	184		$	782

Proceeds from sales of securities	$	39,284		$	91,911



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

Proceeds from sales of securities	$	2,848	$	18,272



	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	$	7,221	$	100	$	54	$	3,026	$	5,671	$	825,666	$	841,738
Commercial Real Estate - Owner Occupied	1,707		689		679		17,668		2,205		880,575		903,523
Commercial Real Estate - Non-Owner Occupied	909		571		298		14,376		2,701		1,729,184		1,748,039
Multifamily Real Estate	—		—		—		77		—		368,609		368,686
Commercial & Industrial	1,558		255		101		625		1,252		550,731		554,522
Residential 1-4 Family	5,633		1,439		2,360		14,077		6,163		1,053,440		1,083,112
Auto	2,415		293		143		—		174		273,547		276,572
HELOC	1,400		628		709		982		1,791		529,936		535,446
Consumer and all other	3,469		1,445		188		210		165		581,614		587,091
Total loans held for investment	$	24,312	$	5,420	$	4,532	$	51,041	$	20,122	$	6,793,302	$	6,898,729



	30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	62	$	—	$	2,964	$	3,026
Commercial Real Estate - Owner Occupied	463		643		16,562		17,668
Commercial Real Estate - Non-Owner Occupied	318		1,032		13,026		14,376
Multifamily Real Estate	—		—		77		77
Commercial & Industrial	—		—		625		625
Residential 1-4 Family	949		1,125		12,003		14,077
HELOC	132		128		722		982
Consumer and all other	34		—		176		210
Total	$	1,958	$	2,928	$	46,155	$	51,041



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

Loans with a specific allowance
Construction and Land Development	$	1,347	$	1,444	$	113	$	1,395	$	1,404	$	107
Commercial Real Estate - Owner Occupied	2,118		2,132		157		646		646		4
Commercial Real Estate - Non-Owner Occupied	2,032		2,032		42		2,809		2,809		474
Commercial & Industrial	2,511		2,562		909		857		880		14
Residential 1-4 Family	4,421		4,543		249		3,335		3,535		200
Auto	174		235		1		169		235		1
HELOC	766		800		56		323		433		15
Consumer and all other	242		310		43		62		298		1
Total impaired loans with a specific allowance	$	13,611	$	14,058	$	1,570	$	9,596	$	10,240	$	816
Total impaired loans	$	51,600	$	53,828	$	1,570	$	41,149	$	43,963	$	816



	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Construction and Land Development	$	15,654	$	128	$	15,378	$	368
Commercial Real Estate - Owner Occupied	7,354		62		7,407		245
Commercial Real Estate - Non-Owner Occupied	7,597		57		7,584		185
Commercial & Industrial	4,139		36		4,203		121
Residential 1-4 Family	14,218		94		14,358		261
Auto	192		—		223		2
HELOC	2,460		7		2,492		29
Consumer and all other	800		8		690		20
Total impaired loans	$	52,414	$	392	$	52,335	$	1,231



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

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

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


	December 31, 2019
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	1,114	$	—
Commercial Real Estate - Owner Occupied	6		2,228		26
Commercial Real Estate - Non-Owner Occupied	1		1,089		—
Commercial & Industrial	4		1,020		—
Residential 1-4 Family - Commercial	5		290		—
Residential 1-4 Family - Consumer	69		9,396		—
Residential 1-4 Family - Revolving	2		56		—
Consumer	4		29		—
Other Commercial	1		464		—
Total performing	96	$	15,686	$	26
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	176	$	—
Commercial & Industrial	1		55		—
Residential 1-4 Family - Consumer	19		3,522		—
Residential 1-4 Family - Revolving	2		57		—
Total nonperforming	24	$	3,810	$	—
Total performing and nonperforming	120	$	19,496	$	26



	Allowance for loan losses
	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	$	193	$	(2,115	)	$	535		$	8,668
Commercial Real Estate - Owner Occupied	3,801		84		(46		)	(620		)	3,219
Commercial Real Estate - Non-Owner Occupied	6,622		2		(1,181		)	1,825			7,268
Multifamily Real Estate	1,236		—		—			(136		)	1,100
Commercial & Industrial	4,627		451		(1,241		)	1,526			5,363
Residential 1-4 Family	6,399		332		(815		)	(35		)	5,881
Auto	946		352		(761		)	398			935
HELOC	1,328		240		(861		)	675			1,382
Consumer and all other	2,178		905		(2,929		)	3,192			3,346
Total	$	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		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	15,236	$	113	$	823,476	$	8,555	$	3,026	$	—	$	841,738	$	8,668
Commercial Real Estate - Owner Occupied	7,356		157		878,499		3,062		17,668		—		903,523		3,219
Commercial Real Estate - Non-Owner Occupied	7,580		42		1,726,083		7,226		14,376		—		1,748,039		7,268
Multifamily Real Estate	—		—		368,609		1,100		77		—		368,686		1,100
Commercial & Industrial	4,143		909		549,754		4,454		625		—		554,522		5,363
Residential 1-4 Family	13,931		249		1,055,104		5,632		14,077		—		1,083,112		5,881
Auto	174		1		276,398		934		—		—		276,572		935
HELOC	2,417		56		532,047		1,326		982		—		535,446		1,382
Consumer and all other	763		43		586,118		3,303		210		—		587,091		3,346
Total loans held for investment, net	$	51,600	$	1,570	$	6,796,088	$	35,592	$	51,041	$	—	$	6,898,729	$	37,162


	December 31, 2019
	Loans individually				Loans collectively				Loans acquired with
	evaluated for				evaluated for				deteriorated credit
	impairment				impairment				quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	6,861	$	49	$	1,233,119	$	5,709	$	10,944	$	—	$	1,250,924	$	5,758
Commercial Real Estate - Owner Occupied		11,621		146		2,002,184		3,773		27,438		—		2,041,243		3,919
Commercial Real Estate - Non-Owner Occupied		3,845		2		3,267,688		9,541		14,565		—		3,286,098		9,543
Multifamily Real Estate		—		—		633,649		632		94		—		633,743		632
Commercial & Industrial		6,236		619		2,106,218		7,768		1,579		217		2,114,033		8,604
Residential 1-4 Family - Commercial		5,773		162		706,359		1,203		12,205		—		724,337		1,365
Residential 1-4 Family - Consumer		20,446		1,242		855,344		771		14,713		—		890,503		2,013
Residential 1-4 Family - Revolving		3,048		510		652,329		813		4,127		—		659,504		1,323
Auto		563		221		349,852		1,232		4		—		350,419		1,453
Consumer and all other⁽¹⁾		730		76		658,390		7,608		1,012		—		660,132		7,684
Total loans held for investment, net	$	59,123	$	3,027	$	12,465,132	$	39,050	$	86,681	$	217	$	12,610,936	$	42,294



	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	768,206	$	57,190	$	13,201	$	115	$	838,712
Commercial Real Estate - Owner Occupied	834,265		47,019		4,571		—		885,855
Commercial Real Estate - Non-Owner Occupied	1,702,500		23,764		7,399		—		1,733,663
Multifamily Real Estate	361,175		7,434		—		—		368,609
Commercial & Industrial	534,594		16,400		2,903		—		553,897
Residential 1-4 Family	1,045,736		15,878		4,480		2,941		1,069,035
Auto	273,446		2,910		143		73		276,572
HELOC	530,263		2,427		1,051		723		534,464
Consumer and all other	583,728		2,618		530		5		586,881
Total	$	6,633,913	$	175,640	$	34,278	$	3,857	$	6,847,688


	For the Six Months Ended June 30,
	2019
Balance at beginning of period	$	31,201
Additions		2,432
Accretion		(6,510)
Reclass of nonaccretable difference due to improvement in expected cash flows		716
Measurement period adjustment		2,629
Other, net ⁽¹⁾		2,182
Balance at end of period	$	32,650



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



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



	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	%	4.08	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II	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	%	4.06	%	3/18/2034
FNB Statutory Trust II Indenture	12,000,000		372,000		3.10	%	4.43	%	6/26/2033
Total	$	90,500,000	$	2,801,000



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



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



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