2. ACQUISITIONS

~~Xenith~~

Access Acquisition

On ~~January~~February 1, ~~2018,~~2019, the Company completed its acquisition of ~~Xenith,~~Access National Corporation (and its subsidiaries), a bank holding company based in ~~Richmond,~~Reston, Virginia. Holders of shares of ~~Xenith's~~Access’s common stock received ~~0.9354~~0.75 shares of the ~~Company's~~Company’s common stock in exchange for each share of ~~Xenith's~~Access’s common stock, resulting in the Company issuing ~~21,922,077~~15,842,026 shares of the ~~Company's~~Company’s common stock at a fair value of ~~$794.8~~approximately $500.0 million. In addition, the Company paid ~~$6.2 million~~cash of approximately $12,000 in ~~exchange for Xenith's outstanding stock options.~~

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. Measurement period adjustments that were made in the third quarter of ~~2018~~2019 include immaterial changes to the fair value of ~~loans, accrued interest,~~deferred tax assets and ~~deferred rent.~~other assets. The Company will continue to keep the measurement period open for certain accounts, including loans, real estate, and deferred tax assets, where its review procedures of any updated information related to the transaction are ongoing. If considered necessary, additional adjustments to the fair value measurement of these accounts will be made until all information is finalized, the ~~Company's~~Company’s review procedures are complete, and the measurement period is closed. The goodwill is not expected to be deductible for tax purposes.

The following table provides a preliminary assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):


Purchase Price:
Fair value of shares of the Company's common stock issued			$	499,974
Cash paid for fractional shares				12
Total purchase price			$	499,986

Fair value of assets acquired:
Cash and cash equivalents	$	46,164
Investments		464,742
Loans		2,173,481
Premises and equipment		28,001
Core deposit intangibles		40,860
Other assets		102,745
Total assets	$	2,855,993

Fair value of liabilities assumed:
Deposits	$	2,227,073
Short-term borrowings		220,685
Long-term borrowings		70,535
Other liabilities		40,345
Total liabilities	$	2,558,638

Net assets acquired			$	297,355
Preliminary goodwill			$	202,631

Purchase Price:
Fair value of shares of the Company's common stock issued & warrants converted $ 794,809
Cash paid for Xenith stock options 6,170
Total purchase price $ 800,979

Fair value of assets acquired:
Cash and cash equivalents $ 174,218

AFS securities 295,782

Restricted stock, at cost 27,569

Net loans 2,454,151

Premises and equipment 44,912

OREO 5,250

Core deposit intangibles 38,470

Other assets 202,871

Total assets $ 3,243,223

Fair value of liabilities assumed:
Deposits $ 2,549,683

Other short-term borrowings 235,000

Borrowings 55,542

Other liabilities 26,664

Total liabilities $ 2,866,889

Net assets acquired $ 376,334
Preliminary goodwill $ 424,645

The acquired loans were recorded at fair value at the acquisition date without carryover of ~~Xenith’s~~Access’s previously established ALL. The fair value of the loans was 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 leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans) and past due status. For

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valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). If new information is obtained about facts and circumstances about expected cash flows that existed as of the acquisition date, management will adjust fair values in accordance with accounting for business combinations.

The acquired loans were divided into loans with evidence of credit quality deterioration which are accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, (acquired impaired) and loans that do not meet these criteria, which are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, (acquired performing). The fair values of the acquired performing loans were ~~$2.4~~$2.1 billion and the fair values of the acquired impaired loans were ~~$79.3~~$33.1 million. The gross contractually required principal and interest payments receivable for acquired performing loans was ~~$2.7~~$2.5 billion. The best estimate of contractual cash flows not expected to be collected related to the acquired performing loans is ~~$20.6~~$17.9 million.

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):


Contractually required principal and interest payments	$	44,232
Nonaccretable difference		(6,062)
Cash flows expected to be collected		38,170
Accretable difference		(5,060)
Fair value of loans acquired with a deterioration of credit quality	$	33,110

Contractually required principal and interest payments $ 114,270
Nonaccretable difference (19,800 )
Cash flows expected to be collected 94,470
Accretable difference (15,206 )
Fair value of loans acquired with a deterioration of credit quality $ 79,264

The following table presents certain pro forma information as if ~~Xenith~~Access had been acquired on January 1, ~~2017.~~2018. These results combine the historical results of ~~Xenith~~Access in the ~~Company's~~Company’s Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, ~~2017.~~2018. In particular, no adjustments have been made to eliminate the amount of ~~Xenith’s~~Access’s provision for credit losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, ~~2017.~~2018. Pro forma adjustments below include the net impact of accretion for ~~2017~~2018 and the elimination of merger-related costs for ~~2018.~~ 2019.

The Company expects to achieve further operating cost savings and other business synergies, including branch closures, as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):


	Pro forma for the three				Pro forma for the nine
	months ended				months ended
	September 30,				September 30,
	2019		2018		2019		2018
Total revenues ⁽¹⁾	$	184,707	$	159,128	$	517,016	$	500,505
Net income	$	54,847	$	47,625	$	160,635	$	130,201
EPS	$	0.67	$	0.58	$	1.99	$	1.60

Pro forma for the three months ended Pro forma for the nine months ended
September 30, September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Total revenues ⁽¹⁾
$ 125,850
$ 118,039
$ 398,354
$ 350,465
Net income $ 39,326
$ 28,997
$ 132,065
$ 83,675
EPS $ 0.60
$ 0.44
$ 2.01
$ 1.27

~~(1)~~

(1)	Includes net interest income and noninterest income.

The revenue and ~~noninterest income.~~

earnings amounts specific to Access since the acquisition date that are included in the consolidated results for 2019 are not readily determinable. The disclosures of these amounts are impracticable due to the merging of certain processes and systems at the acquisition date.

Merger-related costs associated with the acquisition of ~~Xenith~~Access were ~~$1.4~~$2.0 million and ~~$732,000~~$25.6 for the three ~~months ended September 30, 2018~~ and ~~2017, respectively, and $37.4 million and $3.5 million for the~~ nine months ended September 30, ~~2018 and 2017, respectively.~~2019 respectively; there were 0 merger-related costs associated with the acquisition of Access during the first nine months of 2018. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.

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~~DHFB Acquisition~~

~~On April 1, 2018, the Bank completed its acquisition~~

Table of DHFB, a Roanoke, Virginia-based investment advisory firm with approximately $600.0 million in assets under management and advisement at the time of the acquisition. The acquisition date fair value of consideration transferred totaled $7.4 million, which consisted of $4.8 million in cash and the remainder being contingent on achieving certain performance metrics. The contingent consideration is carried at fair value and is reported as a component of "Other Liabilities" in the Company's Consolidated Balance Sheet. The fair value of this liability will be assessed at each reporting period.Contents

In connection with this transaction, the Company recorded $3.6 million in goodwill and $4.1 million of amortizable intangible assets, which primarily relate to the value of customer relationships. The Company is amortizing these intangible assets over the period of expected benefit, which ranges from 5 to 16 years using various methods. 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. The fair values are subject to refinement for up to one year after

~~the closing date of the acquisition, in accordance with ASC 350,~~ ~~Intangibles-Goodwill and Other~~. Measurement period adjustments that were made in the third quarter of 2018 include immaterial changes to the fair value of intangible assets. The Company did not incur any material expenses related to the acquisition of DHFB.

~~OAL Acquisition~~

On July 1, 2018, ODCM, a subsidiary of the Bank, completed its acquisition of OAL, a McLean, Virginia-based investment advisory firm with approximately $400 million in assets under management and advisement at the time of the acquisition. The acquisition date fair value of consideration transferred totaled $5.9 million, which consisted of $3.4 million in cash and the remainder being contingent on achieving certain performance metrics. The contingent consideration is carried at fair value and is reported as a component of "Other Liabilities" in the Company's Consolidated Balance Sheet. The fair value of this liability will be assessed at each reporting period.

In connection with this transaction, the Company recorded $1.8 million in goodwill and $3.8 million of amortizable intangible assets, which primarily relate to the value of customer relationships. The Company is amortizing these intangible assets over the period of expected benefit, which ranges from 1 to 14 years using various methods. 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. The fair values are 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 Company did not incur any material expenses related to the acquisition of OAL.~~

3. SECURITIES

Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 are summarized as follows (dollars in thousands):


	Amortized		Gross Unrealized				Estimated
	Cost		Gains		(Losses)		Fair Value
September 30, 2019
U.S. government and agency securities	$	4,475	$	15	$	—	$	4,490
Obligations of states and political subdivisions		411,690		26,935		(12)		438,613
Corporate and other bonds ⁽¹⁾		224,854		5,044		(374)		229,524
Mortgage-backed securities		1,215,263		28,872		(970)		1,243,165
Other securities		3,067		—		—		3,067
Total AFS securities	$	1,859,349	$	60,866	$	(1,356)	$	1,918,859

December 31, 2018
Obligations of states and political subdivisions	$	466,588	$	3,844	$	(1,941)	$	468,491
Corporate and other bonds ⁽¹⁾		167,561		1,118		(983)		167,696
Mortgage-backed securities		1,138,034		4,452		(12,621)		1,129,865
Other securities		8,769		—		—		8,769
Total AFS securities	$	1,780,952	$	9,414	$	(15,545)	$	1,774,821

(1)	Other bonds includes asset-backed securities.

Amortized Gross Unrealized Estimated
Cost Gains (Losses) Fair Value
September 30, 2018

Obligations of states and political subdivisions $ 566,268
$ 3,380
$ (6,175 ) $ 563,473
Corporate and other bonds ⁽¹⁾
163,117
382
(2,007 ) 161,492
Mortgage-backed securities 1,170,410
798
(24,295 ) 1,146,913
Other securities 11,447
—
(184 ) 11,263
Total AFS securities $ 1,911,242
$ 4,560
$ (32,661 ) $ 1,883,141

December 31, 2017

Obligations of states and political subdivisions $ 295,546
$ 6,842
$ (564 ) $ 301,824
Corporate and other bonds 113,625
1,131
(876 ) 113,880
Mortgage-backed securities 552,431
2,596
(6,169 ) 548,858
Other securities 9,737
—
(77 ) 9,660
Total AFS securities $ 971,339
$ 10,569
$ (7,686 ) $ 974,222

~~(1)~~ ~~Other bonds includes asset-backed securities.~~

The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands). These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2019
Obligations of states and political subdivisions	$	2,296	$	(12)	$	—	$	—	$	2,296	$	(12)
Corporate bonds and other securities		25,341		(149)		25,306		(225)		50,647		(374)
Mortgage-backed securities		89,649		(390)		74,540		(580)		164,189		(970)
Total AFS securities	$	117,286	$	(551)	$	99,846	$	(805)	$	217,132	$	(1,356)

December 31, 2018
Obligations of states and political subdivisions	$	133,513	$	(1,566)	$	10,145	$	(375)	$	143,658	$	(1,941)
Corporate bonds and other securities		35,478		(315)		33,888		(668)		69,366		(983)
Mortgage-backed securities		306,038		(3,480)		341,400		(9,141)		647,438		(12,621)
Total AFS securities	$	475,029	$	(5,361)	$	385,433	$	(10,184)	$	860,462	$	(15,545)

Less than 12 months More than 12 months Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
September 30, 2018

Obligations of states and political subdivisions $ 377,882
$ (5,814 ) $ 7,674
$ (361 ) $ 385,556
$ (6,175 )
Mortgage-backed securities 794,067
(14,057 ) 245,879
(10,237 ) 1,039,946
(24,294 )
Corporate bonds and other securities 89,225
(1,003 ) 38,557
(1,189 ) 127,782
(2,192 )
Total AFS securities $ 1,261,174
$ (20,874 ) $ 292,110
$ (11,787 ) $ 1,553,284
$ (32,661 )

December 31, 2017

Obligations of states and political subdivisions $ 25,790
$ (132 ) $ 16,934
$ (432 ) $ 42,724
$ (564 )
Mortgage-backed securities 298,439
(3,267 ) 136,298
(2,902 ) 434,737
(6,169 )
Corporate bonds and other securities 10,976
(99 ) 44,408
(854 ) 55,384
(953 )
Total AFS securities $ 335,205
$ (3,498 ) $ 197,640
$ (4,188 ) $ 532,845
$ (7,686 )

As of September 30, ~~2018,~~2019, there were ~~$292.1~~$99.9 million, or ~~108~~56 issues, of individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of ~~$11.8 million.~~$805,000. As of December 31, ~~2017,~~2018, there were ~~$197.6~~$385.4 million, or 71138 issues, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of ~~$4.2~~$10.2 million. The Company has determined that these securities ~~are~~were temporarily impaired at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 for the reasons set out below:

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~~Mortgage-backed securities.~~ ~~This category’s unrealized losses are primarily the result~~

Table of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and 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 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.Contents

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

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

Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and 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 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.

The following table presents the amortized cost and estimated fair value of AFS securities as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2019				December 31, 2018
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	22,682	$	22,805	$	22,653	$	22,789
Due after one year through five years		161,289		163,908		191,003		188,999
Due after five years through ten years		263,488		269,757		218,211		217,304
Due after ten years		1,411,890		1,462,389		1,349,085		1,345,729
Total AFS securities	$	1,859,349	$	1,918,859	$	1,780,952	$	1,774,821

September 30, 2018 December 31, 2017

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value
Due in one year or less $ 40,367
$ 40,342
$ 25,179
$ 25,326
Due after one year through five years 213,662
209,552
145,276
145,980
Due after five years through ten years 273,207
271,360
223,210
226,251
Due after ten years 1,384,006
1,361,887
577,674
576,665
Total AFS securities $ 1,911,242
$ 1,883,141
$ 971,339
$ 974,222

Refer to Note 78 "Commitments and Contingencies" for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, ~~2018~~2019 and December 31, ~~2017.~~

2018.

Held to Maturity

~~During the second quarter of 2018, the Company adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 825): Targeted Improvements to Accounting for Hedging Activities.~~” As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. These securities had a carrying value of $187.4 million on the date of the transfer.

The Company reports HTM securities on the ~~Company's~~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 to HTM securities. Investment securities transferred into the HTM category from the 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 HTM securities. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.

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Table of Contents

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 are summarized as follows (dollars in thousands):

Carrying Gross Unrealized Estimated

Value ⁽¹⁾
Gains (Losses) Fair Value
September 30, 2018

Obligations of states and political subdivisions $ 235,333
$ 25
$ (2,648 ) $ 232,710

December 31, 2017

Obligations of states and political subdivisions $ 199,639
$ 4,014
$ (170 ) $ 203,483

~~(1)~~ The carrying value includes $125,000 as of September 30, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from AFS securities, net of any accretion.


	Carrying		Gross Unrealized				Estimated
	Value		Gains		(Losses)		Fair Value
September 30, 2019
Obligations of states and political subdivisions	$	546,515	$	51,002	$	—	$	597,517
Mortgage-backed securities		10,064		135		—		10,199
Total held-to-maturity securities	$	556,579	$	51,137	$	—	$	607,716
December 31, 2018
Obligations of states and political subdivisions	$	492,272	$	7,375	$	(146)	$	499,501

The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s HTM securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands). These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.


	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2019
Obligations of states and political subdivisions	$	—	$	—	$	—	$	—	$	—	$	—

December 31, 2018
Obligations of states and political subdivisions	$	43,206	$	(146)	$	—	$	—	$	43,206	$	(146)

Less than 12 months More than 12 months Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
September 30, 2018

Obligations of states and political subdivisions $ 213,882
$ (2,648 ) $ —
$ —
$ 213,882
$ (2,648 )

December 31, 2017
Obligations of states and political subdivisions $ 18,896
$ (139 ) $ 1,084
$ (31 ) $ 19,980
$ (170 )

As of September 30, 2019 there were 0 unrealized losses for individual HTM securities. As of December 31, 2018 there were no0 issues of individual HTM securities that had been in a continuous loss position for more than 12 months. As of December 31, 2017, there was $1.1 million, or two issues, of individual HTM securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $31,000. These securities were municipal bonds with minimal credit exposure. For this reason, the Company has determined that these securities in a loss position were temporarily impaired as of December 31, 2017. Because the Company does not intend to sell these investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of HTM securities as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2019				December 31, 2018
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Due in one year or less	$	504	$	507	$	—	$	—
Due after one year through five years		8,934		9,165		3,893		3,900
Due after five years through ten years		3,160		3,247		3,480		3,507
Due after ten years		543,981		594,797		484,899		492,094
Total HTM securities	$	556,579	$	607,716	$	492,272	$	499,501

September 30, 2018 December 31, 2017

Carrying
Value ⁽¹⁾

Estimated
Fair Value

Carrying
Value ⁽¹⁾

Estimated
Fair Value
Due in one year or less $ —
$ —
$ 3,221
$ 3,230
Due after one year through five years 3,917
3,889
44,289
44,601
Due after five years through ten years 3,500
3,479
79,114
80,532
Due after ten years 227,916
225,342
73,015
75,120
Total HTM securities $ 235,333
$ 232,710
$ 199,639
$ 203,483

~~(1)~~The carrying value includes $125,000 as of September 30, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from AFS securities, net of any accretion.

Refer to Note 78 "Commitments and Contingencies" for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of September 30, ~~2018~~2019 and December 31, ~~2017.~~

~~Marketable Equity Securities~~

In connection with the Shore Premier sale, the Company received 1,250,000 shares of the purchasing company's common stock. For a limited time the purchasing company has agreed to pay additional cash consideration to the Company to the extent any sales of its common stock by the Company are at prices lower than agreed upon value at the time of entry into the agreement. The fair value of the common stock is evaluated quarterly and amounts that fall below the original purchase price are recorded as a miscellaneous receivable on the Company's Consolidated Balance Sheets. At September 30, 2018, the fair value of the purchasing company's common stock was $27.4 million and was included as "Marketable Equity Securities" in the Company's Consolidated Balance Sheet. Refer to Note 1 "Accounting Policies" and Note 8 "Derivatives" for more information regarding the Shore Premier sale.

2018.

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of the ~~Bank's~~Bank’s outstanding capital at both September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Restricted equity securities consist of Federal Reserve Bank stock in the

-15-

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amount of ~~$52.6~~$67.0 million and ~~$27.6~~$52.6 million for September 30, ~~2018~~2019 and December 31, ~~2017~~2018 and FHLB stock in the amount of ~~$59.8~~$65.4 million and ~~$47.7~~$72.0 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Other-Than-Temporary-Impairment

During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three and nine months ended September 30, ~~2018,~~2019, and in accordance with accounting guidance, no0 OTTI was recognized.

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (dollars in thousands).


	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Realized gains (losses):
Gross realized gains	$	7,104	$	9,161
Gross realized losses		—		(1,855)
Net realized gains	$	7,104	$	7,306

Proceeds from sales of securities	$	98,975	$	486,925


	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
Realized gains (losses):
Gross realized gains	$	97	$	2,890
Gross realized losses		—		(2,668)
Net realized gains	$	97	$	222

Proceeds from sales of securities	$	27,593	$	337,109

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Three Months Ended
September 30, 2018 Nine Months Ended September 30, 2018
Realized gains (losses):

Gross realized gains $ 97
$ 2,890
Gross realized losses —
(2,668 )
Net realized gains $ 97
$ 222

Proceeds from sales of securities $ 27,593
$ 337,109

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

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):


	September 30, 2019		December 31, 2018
Construction and Land Development	$	1,201,149	$	1,194,821
Commercial Real Estate - Owner Occupied		1,979,052		1,337,345
Commercial Real Estate - Non-Owner Occupied		3,198,580		2,467,410
Multifamily Real Estate		659,946		548,231
Commercial & Industrial		2,058,133		1,317,135
Residential 1-4 Family - Commercial		721,185		640,419
Residential 1-4 Family - Consumer		913,245		673,909
Auto		328,456		301,943
HELOC		660,963		613,383
Consumer		386,848		379,694
Other Commercial		199,440		241,917
Total loans held for investment, net ⁽¹⁾	$	12,306,997	$	9,716,207

(1)	Loans, as presented, are net of deferred fees and costs totaling $8.1 million and $5.1 million as of September 30, 2019 and December 31, 2018, respectively.

September 30, 2018 December 31, 2017
Construction and Land Development $ 1,178,054
$ 948,791
Commercial Real Estate - Owner Occupied 1,283,125
943,933
Commercial Real Estate - Non-Owner Occupied 2,427,251
1,713,659
Multifamily Real Estate 542,662
357,079
Commercial & Industrial 1,154,583
612,023
Residential 1-4 Family - Commercial 719,798
612,395
Residential 1-4 Family - Mortgage 611,728
485,690
Auto 306,196
282,474
HELOC 612,116
537,521
Consumer 345,320
408,667
Other Commercial 230,765
239,320
Total loans held for investment, net ⁽¹⁾
$ 9,411,598
$ 7,141,552

~~(1)Loans, as presented, are net of deferred fees and costs totaling $3.5 million and $1.3 million as of September 30, 2018 and December 31, 2017, respectively.~~

The following table shows the aging of the Company’s loan portfolio, by segment, at September 30, ~~2018~~2019 (dollars in thousands):


					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	$	1,062	$	351	$	171	$	8,387	$	7,785	$	1,183,393	$	1,201,149
Commercial Real Estate - Owner Occupied		4,977		—		2,571		27,817		5,684		1,938,003		1,979,052
Commercial Real Estate - Non-Owner Occupied		5,757		1,878		36		17,285		381		3,173,243		3,198,580
Multifamily Real Estate		107		164		1,212		93		—		658,370		659,946
Commercial & Industrial		2,079		1,946		265		3,262		1,585		2,048,996		2,058,133
Residential 1-4 Family - Commercial		1,842		3,081		916		12,237		3,879		699,230		721,185
Residential 1-4 Family - Consumer		1,527		5,182		3,815		14,977		8,292		879,452		913,245
Auto		1,787		407		183		7		604		325,468		328,456
HELOC		4,965		1,747		1,674		4,275		1,641		646,661		660,963
Consumer		2,000		1,666		1,163		682		84		381,253		386,848
Other Commercial		579		9		30		713		97		198,012		199,440
Total loans held for investment	$	26,682	$	16,431	$	12,036	$	89,735	$	30,032	$	12,132,081	$	12,306,997

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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 $ 1,351
$ 1,826
$ 442
$ 5,042
$ 9,221
$ 1,160,172
$ 1,178,054
Commercial Real Estate - Owner Occupied 4,218
539
3,586
25,896
3,202
1,245,684
1,283,125
Commercial Real Estate - Non-Owner Occupied 492
—
—
21,575
1,812
2,403,372
2,427,251
Multifamily Real Estate 553
—
—
86
—
542,023
542,662
Commercial & Industrial 2,239
428
256
2,299
1,404
1,147,957
1,154,583
Residential 1-4 Family - Commercial 2,535
1,892
378
16,073
1,956
696,964
719,798
Residential 1-4 Family - Mortgage 4,506
3,793
2,543
16,761
8,535
575,590
611,728
Auto 2,414
299
211
9
525
302,738
306,196
HELOC 4,783
1,392
1,291
6,179
1,273
597,198
612,116
Consumer and all
other⁽¹⁾
2,640
1,140
825
826
182
570,472
576,085
Total loans held for investment $ 25,731
$ 11,309
$ 9,532
$ 94,746
$ 28,110
$ 9,242,170
$ 9,411,598

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

Table of Contents

The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, ~~2017~~2018 (dollars in thousands):


					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	$	759	$	6	$	180	$	8,654	$	8,018	$	1,177,204	$	1,194,821
Commercial Real Estate - Owner Occupied		8,755		1,142		3,193		25,644		3,636		1,294,975		1,337,345
Commercial Real Estate - Non-Owner Occupied		338		41		—		17,335		1,789		2,447,907		2,467,410
Multifamily Real Estate		—		146		—		88		—		547,997		548,231
Commercial & Industrial		3,353		389		132		2,156		1,524		1,309,581		1,317,135
Residential 1-4 Family - Commercial		6,619		1,577		1,409		13,601		2,481		614,732		640,419
Residential 1-4 Family - Consumer		12,049		5,143		2,437		16,872		7,276		630,132		673,909
Auto		3,320		403		195		7		576		297,442		301,943
HELOC		4,611		1,644		440		5,115		1,518		600,055		613,383
Consumer		1,504		1,096		870		32		135		376,057		379,694
Other Commercial		126		—		—		717		—		241,074		241,917
Total loans held for investment	$	41,434	$	11,587	$	8,856	$	90,221	$	26,953	$	9,537,156	$	9,716,207

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 $ 1,248
$ 898
$ 1,340
$ 2,838
$ 5,610
$ 936,857
$ 948,791
Commercial Real Estate - Owner Occupied 444
81
—
14,790
2,708
925,910
943,933
Commercial Real Estate - Non-Owner Occupied 187
84
194
6,610
2,992
1,703,592
1,713,659
Multifamily Real Estate —
—
—
80
—
356,999
357,079
Commercial & Industrial 1,147
109
214
408
316
609,829
612,023
Residential 1-4 Family - Commercial 1,682
700
579
9,414
1,085
598,935
612,395
Residential 1-4 Family - Mortgage 3,838
2,541
546
3,733
6,269
468,763
485,690
Auto 3,541
185
40
—
413
278,295
282,474
HELOC 2,382
717
217
950
2,075
531,180
537,521
Consumer and all other⁽¹⁾
2,404
2,052
402
198
275
642,656
647,987
Total loans held for investment $ 16,873
$ 7,367
$ 3,532
$ 39,021
$ 21,743
$ 7,053,016
$ 7,141,552

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

The following table shows the PCI loan portfolios, by segment and their delinquency status, at September 30, ~~2018~~2019 (dollars in thousands):


	30-89 Days		Greater than
	Past Due		90 Days		Current		Total
Construction and Land Development	$	126	$	399	$	7,862	$	8,387
Commercial Real Estate - Owner Occupied		526		3,262		24,029		27,817
Commercial Real Estate - Non-Owner Occupied		137		980		16,168		17,285
Multifamily Real Estate		—		—		93		93
Commercial & Industrial		—		1,043		2,219		3,262
Residential 1-4 Family - Commercial		421		479		11,337		12,237
Residential 1-4 Family - Consumer		844		1,912		12,221		14,977
Auto		—		—		7		7
HELOC		208		287		3,780		4,275
Consumer		4		15		663		682
Other Commercial		—		—		713		713
Total	$	2,266	$	8,377	$	79,092	$	89,735

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30-89 Days Past
Due

Greater than 90
Days
Current Total
Construction and Land Development $ 78
$ 1,324
$ 3,640
$ 5,042
Commercial Real Estate - Owner Occupied 435
3,487
21,974
25,896
Commercial Real Estate - Non-Owner Occupied 33
1,811
19,731
21,575
Multifamily Real Estate —
—
86
86
Commercial & Industrial —
1,134
1,165
2,299
Residential 1-4 Family - Commercial 3,677
2,011
10,385
16,073
Residential 1-4 Family - Mortgage 1,242
2,826
12,693
16,761
Auto —
—
9
9
HELOC 337
447
5,395
6,179
Consumer and all other⁽¹⁾
41
12
773
826
Total $ 5,843
$ 13,052
$ 75,851
$ 94,746

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

The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, ~~2017~~2018 (dollars in thousands):


	30-89 Days		Greater than
	Past Due		90 Days		Current		Total
Construction and Land Development	$	108	$	1,424	$	7,122	$	8,654
Commercial Real Estate - Owner Occupied		658		4,281		20,705		25,644
Commercial Real Estate - Non-Owner Occupied		61		1,810		15,464		17,335
Multifamily Real Estate		—		—		88		88
Commercial & Industrial		47		1,092		1,017		2,156
Residential 1-4 Family - Commercial		871		3,454		9,276		13,601
Residential 1-4 Family - Consumer		1,959		2,422		12,491		16,872
Auto		—		—		7		7
HELOC		498		252		4,365		5,115
Consumer		5		9		18		32
Other Commercial		57		—		660		717
Total	$	4,264	$	14,744	$	71,213	$	90,221

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30-89 Days Past
Due

Greater than 90
Days
Current Total
Construction and Land Development $ 8
$ 57
$ 2,773
$ 2,838
Commercial Real Estate - Owner Occupied 381
478
13,931
14,790
Commercial Real Estate - Non-Owner Occupied 188
233
6,189
6,610
Multifamily Real Estate —
—
80
80
Commercial & Industrial —
—
408
408
Residential 1-4 Family - Commercial 433
351
8,630
9,414
Residential 1-4 Family - Mortgage 343
626
2,764
3,733
HELOC 291
214
445
950
Consumer and all other⁽¹⁾
—
—
198
198
Total $ 1,644
$ 1,959
$ 35,418
$ 39,021

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

The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans, by segment at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):


	September 30, 2019						December 31, 2018
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Loans without a specific allowance
Construction and Land Development	$	9,776	$	14,131	$	—	$	10,290	$	12,038	$	—
Commercial Real Estate - Owner Occupied		9,362		9,966		—		8,386		9,067		—
Commercial Real Estate - Non-Owner Occupied		2,028		2,578		—		6,578		6,929		—
Multifamily Real Estate		1,212		1,212		—		—		—		—
Commercial & Industrial		2,205		2,221		—		3,059		3,251		—
Residential 1-4 Family - Commercial		4,330		4,598		—		3,378		3,439		—
Residential 1-4 Family - Consumer		9,432		10,006		—		9,642		10,317		—
HELOC		864		867		—		1,150		1,269		—
Consumer		—		—		—		30		102		—
Other Commercial		—		—		—		478		478		—
Total impaired loans without a specific allowance	$	39,209	$	45,579	$	—	$	42,991	$	46,890	$	—
Loans with a specific allowance
Construction and Land Development	$	829	$	868	$	78	$	372	$	491	$	63
Commercial Real Estate - Owner Occupied		3,570		3,685		234		4,304		4,437		359
Commercial Real Estate - Non-Owner Occupied		336		384		3		391		391		1
Commercial & Industrial		1,783		1,810		866		1,183		1,442		752
Residential 1-4 Family - Commercial		1,763		1,807		170		2,120		2,152		89
Residential 1-4 Family - Consumer		10,047		10,631		805		6,389		6,645		470
Auto		605		905		239		576		830		231
HELOC		1,177		1,312		262		724		807		188
Consumer		180		345		50		178		467		64
Other Commercial		565		569		27		—		—		—
Total impaired loans with a specific allowance	$	20,855	$	22,316	$	2,734	$	16,237	$	17,662	$	2,217
Total impaired loans	$	60,064	$	67,895	$	2,734	$	59,228	$	64,552	$	2,217

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Table of Contents

September 30, 2018 December 31, 2017

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance
Loans without a specific allowance

Construction and Land Development $ 11,265
$ 11,973
$ —
$ 16,035
$ 16,214
$ —
Commercial Real Estate - Owner Occupied 9,957
10,082
—
5,427
5,527
—
Commercial Real Estate - Non-Owner Occupied 6,922
7,199
—
6,017
6,103
—
Commercial & Industrial 1,683
2,116
—
1,681
1,933
—
Residential 1-4 Family - Commercial 4,599
4,863
—
4,098
4,879
—
Residential 1-4 Family - Mortgage 10,878
11,464
—
9,512
9,786
—
HELOC 686
793
—
2,056
2,144
—
Consumer and all other⁽¹⁾
534
721
—
567
734
—
Total impaired loans without a specific allowance $ 46,524
$ 49,211
$ —
$ 45,393
$ 47,320
$ —

Loans with a specific allowance

Construction and Land Development $ 483
$ 545
$ 139
$ 1,536
$ 1,573
$ 122
Commercial Real Estate - Owner Occupied 1,852
1,937
149
1,161
1,161
94
Commercial & Industrial 855
867
317
1,295
1,319
128
Residential 1-4 Family - Commercial 1,452
1,527
227
1,062
1,068
35
Residential 1-4 Family - Mortgage 3,448
3,595
301
1,953
2,070
36
Auto 525
734
215
413
577
2
HELOC 988
1,056
173
464
535
51
Consumer and all other⁽¹⁾
145
299
75
204
309
35
Total impaired loans with a specific allowance $ 9,748
$ 10,560
$ 1,596
$ 8,088
$ 8,612
$ 503
Total impaired loans $ 56,272
$ 59,771
$ 1,596
$ 53,481
$ 55,932
$ 503

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

The following tables show the average recorded investment and interest income recognized for the Company’s impaired loans, excluding PCI loans, by segment for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2019				September 30, 2019
			Interest				Interest
	Average		Income		Average		Income
	Investment		Recognized		Investment		Recognized
Construction and Land Development	$	13,581	$	40	$	13,601	$	351
Commercial Real Estate - Owner Occupied		13,301		85		13,436		339
Commercial Real Estate - Non-Owner Occupied		2,748		26		3,543		82
Multifamily Real Estate		1,217		15		1,234		46
Commercial & Industrial		3,986		41		4,046		129
Residential 1-4 Family - Commercial		6,334		41		6,521		125
Residential 1-4 Family - Consumer		19,802		75		20,007		264
Auto		691		—		781		9
HELOC		2,125		5		2,242		31
Consumer		184		2		192		5
Other Commercial		570		7		579		21
Total impaired loans	$	64,539	$	337	$	66,182	$	1,402


	Three Months Ended				Nine Months Ended
	September 30, 2018				September 30, 2018
			Interest				Interest
	Average		Income		Average		Income
	Investment		Recognized		Investment		Recognized
Construction and Land Development	$	12,481	$	63	$	12,083	$	203
Commercial Real Estate - Owner Occupied		11,873		102		11,966		322
Commercial Real Estate - Non-Owner Occupied		6,932		57		7,141		175
Commercial & Industrial		2,607		15		2,713		57
Residential 1-4 Family - Commercial		4,233		29		4,322		105
Residential 1-4 Family - Consumer		16,570		48		16,693		162
Auto		609		—		685		12
HELOC		1,800		4		1,871		14
Consumer		180		—		218		—
Other Commercial		509		7		538		22
Total impaired loans	$	57,794	$	325	$	58,230	$	1,072

-21-

Three Months Ended
September 30, 2018 Nine Months Ended
September 30, 2018

Average
Investment

Interest Income
Recognized

Average
Investment

Interest Income
Recognized
Construction and Land Development $ 12,481
$ 63
$ 12,083
$ 203
Commercial Real Estate - Owner Occupied 11,873
102
11,966
322
Commercial Real Estate - Non-Owner Occupied 6,932
57
7,141
175
Commercial & Industrial 2,607
15
2,713
57
Residential 1-4 Family - Commercial 6,087
51
6,192
154
Residential 1-4 Family - Mortgage 14,716
26
14,823
113
Auto 609
—
685
12
HELOC 1,800
4
1,871
14
Consumer and all other⁽¹⁾
689
7
756
22
Total impaired loans $ 57,794
$ 325
$ 58,230
$ 1,072

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

Table of Contents

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 - Commercial 4,467
36
4,536
121
Residential 1-4 Family - Mortgage 9,751
58
9,822
140
Auto 192
—
223
2
HELOC 2,460
7
2,492
29
Consumer and all other⁽¹⁾
800
8
690
20
Total impaired loans $ 52,414
$ 392
$ 52,335
$ 1,231

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

The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s ~~ALL~~allowance for loan loss methodology and are included in the preceding impaired loan tables. For the three and nine months ended September 30, ~~2018,~~2019, the recorded investment in TDRs prior to modifications was not materially impacted by the ~~modification.~~

modifications.

The following table provides a summary, by segment, 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):

September 30, 2018 December 31, 2017

No. of
Loans

Recorded
Investment

Outstanding
Commitment

No. of
Loans

Recorded
Investment

Outstanding
Commitment
Performing

Construction and Land Development 5
$ 2,527
$ —
7
$ 2,803
$ —
Commercial Real Estate - Owner Occupied 10
3,444
—
5
2,221
—
Commercial Real Estate - Non-Owner Occupied 4
4,440
—
2
715
—
Commercial & Industrial 5
1,035
—
12
2,057
—
Residential 1-4 Family - Commercial 27
2,473
—
16
1,048
—
Residential 1-4 Family - Mortgage 28
5,380
—
24
5,194
—
HELOC 2
58
—
1
20
—
Consumer and all other ⁽¹⁾
2
497
—
1
495
—
Total performing 83
$ 19,854
$ —
68
$ 14,553
$ —
Nonperforming

Construction and Land Development 4
$ 4,371
$ —
2
$ 702
$ —
Commercial Real Estate - Owner Occupied 2
205
—
2
134
—
Commercial & Industrial 8
719
—
2
108
—
Residential 1-4 Family - Commercial 2
67
—
5
558
—
Residential 1-4 Family - Mortgage 14
2,989
—
7
1,264
—
HELOC 2
64
—
1
59
—
Consumer and all other ⁽¹⁾
1
10
—
1
24
—
Total nonperforming 33
$ 8,425
$ —
20
$ 2,849
$ —
Total performing and nonperforming 116
$ 28,279
$ —
88
$ 17,402
$ —

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


	September 30, 2019					December 31, 2018
	No. of	Recorded		Outstanding		No. of	Recorded		Outstanding
	Loans	Investment		Commitment		Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	1,130	$	—	5	$	2,496	$	—
Commercial Real Estate - Owner Occupied	6		2,228		—	8		2,783		—
Commercial Real Estate - Non-Owner Occupied	1		1,089		—	4		4,438		—
Commercial & Industrial	5		1,123		—	4		978		—
Residential 1-4 Family - Commercial	5		293		—	8		1,075		—
Residential 1-4 Family - Consumer	64		8,738		—	52		6,882		—
HELOC	2		56		—	2		58		—
Consumer	4		31		—	1		13		—
Other Commercial	1		468		—	1		478		—
Total performing	92	$	15,156	$	—	85	$	19,201	$	—
Nonperforming
Construction and Land Development	—	$	—	$	—	2	$	3,474	$	—
Commercial Real Estate - Owner Occupied	2		180		—	2		198		—
Commercial & Industrial	1		56		—	6		461		—
Residential 1-4 Family - Commercial	—		—		—	1		60		—
Residential 1-4 Family - Consumer	18		3,288		—	15		3,135		—
HELOC	2		58		—	2		62		—
Consumer	—		—		—	1		7		—
Total nonperforming	23	$	3,582	$	—	29	$	7,397	$	—
Total performing and nonperforming	115	$	18,738	$	—	114	$	26,598	$	—

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 nine months ended September 30, 2019 and 2018, 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.

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Table of Contents

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


	All Restructurings
	Three Months Ended September 30, 2019			Nine Months Ended September 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
Commercial & Industrial	1	$	376	1	$	376
Residential 1-4 Family - Commercial	—		—	1		73
Residential 1-4 Family - Consumer	1		461	4		761
Consumer	2		18	3		26
Total loan term extended at a market rate	4	$	855	9	$	1,236

Term modification, below market rate
Construction and Land Development	2	$	164	2	$	164
Residential 1-4 Family - Consumer	5		883	17		2,211
Consumer	—		—	1		5
Total loan term extended at a below market rate	7	$	1,047	20	$	2,380

Total	11	$	1,902	29	$	3,616

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The following table shows, by segment and modification type, TDRs that occurred during the three and nine months ended September 30, 2018 ~~and TDRs that were identified by the Company as going into default during the period shown that were restructured in the prior 12-month period~~ (dollars in thousands):


	All Restructurings
	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
		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
Construction and Land Development	2	$	3,545	4	$	4,809
Commercial Real Estate - Owner Occupied	—		—	5		1,371
Commercial Real Estate - Non-Owner Occupied	1		1,089	1		1,089
Commercial & Industrial	2		278	3		339
Residential 1-4 Family - Commercial	—		—	1		71
Residential 1-4 Family - Consumer	—		—	6		759
Consumer	1		14	1		14
Total loan term extended at a market rate	6	$	4,926	21	$	8,452

Term modification, below market rate
Commercial Real Estate - Non-Owner Occupied	1	$	2,782	1	$	2,782
Residential 1-4 Family - Consumer	9		1,598	16		2,612
HELOC	2		46	2		46
Total loan term extended at a below market rate	12	$	4,426	19	$	5,440

Total	18	$	9,352	40	$	13,892

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Table of Contents

All Restructurings Restructurings with Payment Default
Three Months Ended
September 30, 2018 Nine Months Ended
September 30, 2018 Three Months Ended
September 30, 2018 Nine Months Ended
September 30, 2018

No. of
Loans

Recorded
Investment at
Period End

No. of
Loans

Recorded
Investment at
Period End

No. of
Loans

Recorded
Investment

No. of
Loans

Recorded
Investment
Modified to interest only, at a market rate
Total interest only at market rate of interest —
$ —
—
$ —
—
$ —
—
$ —

Term modification, at a market rate

Construction and Land Development 2
$ 3,545
4
$ 4,809
—
$ —
3
$ 1,270
Commercial Real Estate - Owner Occupied —
—
5
1,371
—
—
—
—
Commercial Real Estate - Non-Owner Occupied 1
1,089
1
1,089
—
—
—
—
Commercial & Industrial 2
278
3
339
—
—
—
—
Residential 1-4 Family - Commercial —
—
2
220
—
—
1
60
Residential 1-4 Family - Mortgage —
—
5
610
1
323
1
323
Consumer and all other⁽¹⁾
1
14
1
14
—
—
—
—
Total loan term extended at a market rate 6
$ 4,926
21
$ 8,452
1
$ 323
5
$ 1,653

Term modification, below market rate
Commercial Real Estate - Non-Owner Occupied

1
$ 2,782
1
$ 2,782
—
$ —
—
$ —
Residential 1-4 Family - Commercial 5
297
8
901
—
—
—
—
Residential 1-4 Family - Mortgage 4
1,301
8
1,711
—
—
—
—
HELOC 2
46
2
46
—
—
—
—
Total loan term extended at a below market rate 12
$ 4,426
19
$ 5,440
—
$ —
—
$ —

Total 18
$ 9,352
40
$ 13,892
1
$ 323
5
$ 1,653

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

The following table shows, by segment and modification type, TDRs that occurred during the three and nine months ended September 30, 2017 and TDRs that were identified by the Company as going into default during the period shown that were restructured in the prior 12-month period (dollars in thousands):

All Restructurings Restructurings with Payment Default
Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017 Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017

No. of
Loans

Recorded
Investment at
Period End

No. of
Loans

Recorded
Investment at
Period End

No. of
Loans

Recorded
Investment

No. of
Loans

Recorded
Investment
Modified to interest only, at a market rate
Construction and Land Development —
$ —
—
$ —
—
$ —
2
$ 198
Commercial Real Estate - Owner Occupied —
—
—
—
—
—
1
469
Commercial & Industrial 3
936
8
1,596
1
350
1
350
Residential 1-4 Family - Commercial —
—
—
—
—
—
1
158
Total interest only at market rate of interest 3
$ 936
8
$ 1,596
1
$ 350
5
$ 1,175

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 - Commercial 1
61
2
266
—
—
—
—
Residential 1-4 Family - Mortgage 2
1,586
6
2,308
1
88
1
88
Consumer and all other⁽¹⁾
1
26
2
522
—
—
—
—
Total loan term extended at a market rate 7
$ 2,784
22
$ 7,791
1
$ 88
1
$ 88

Term modification, below market rate
Commercial Real Estate - Owner Occupied —
$ —
1
$ 841
—
$ —
—
$ —
Commercial & Industrial —
—
3
179
—
—
—
—
Residential 1-4 Family - Commercial 1
40
3
126
—
—
—
—
Residential 1-4 Family - Mortgage —
—
5
1,017
1
99
2
359
Total loan term extended at a below market rate 1
$ 40
12
$ 2,163
1
$ 99
2
$ 359

Total 11
$ 3,760
42
$ 11,550
3
$ 537
8
$ 1,622

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

The following tables show the ALL activity by segment for the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. The tables below include 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):


	Nine Months Ended September 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	$	269	$	(4,028)	$	2,863	$	5,907
Commercial Real Estate - Owner Occupied		4,023		118		(483)		361		4,019
Commercial Real Estate - Non-Owner Occupied		8,865		95		(270)		996		9,686
Multifamily Real Estate		649		85		—		46		780
Commercial & Industrial		7,636		936		(2,162)		2,739		9,149
Residential 1-4 Family - Commercial		1,692		244		(397)		50		1,589
Residential 1-4 Family - Consumer		1,492		256		(108)		158		1,798
Auto		1,443		452		(957)		614		1,552
HELOC		1,297		589		(570)		(179)		1,137
Consumer and all other⁽¹⁾		7,145		1,896		(12,215)		11,377		8,203
Total	$	41,045	$	4,940	$	(21,190)	$	19,025	$	43,820

Nine Months Ended September 30, 2018
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 $ 9,709
$ 400
$ (703 ) $ (1,218 ) $ 8,188
Commercial Real Estate - Owner Occupied 2,931
488
(174 ) (300 ) 2,945
Commercial Real Estate - Non-Owner Occupied 7,544
82
(94 ) 806
8,338
Multifamily Real Estate 1,092
5
—
525
1,622
Commercial & Industrial 4,552
413
(692 ) 2,429
6,702
Residential 1-4 Family - Commercial 4,437
306
(137 ) (2,147 ) 2,459
Residential 1-4 Family - Mortgage 1,524
235
(640 ) 405
1,524
Auto 975
365
(759 ) 760
1,341
HELOC 1,360
554
(488 ) (70 ) 1,356
Consumer and all other⁽¹⁾
4,084
1,234
(6,412 ) 7,913
6,819
Total $ 38,208
$ 4,082
$ (10,099 ) $ 9,103
$ 41,294

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


	Nine Months Ended September 30, 2018
	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	$	9,709	$	400	$	(703)	$	(1,218)	$	8,188
Commercial Real Estate - Owner Occupied		2,931		488		(174)		(300)		2,945
Commercial Real Estate - Non-Owner Occupied		7,544		82		(94)		806		8,338
Multifamily Real Estate		1,092		5		—		525		1,622
Commercial & Industrial		4,552		413		(692)		2,429		6,702
Residential 1-4 Family - Commercial		4,437		306		(137)		(2,512)		2,094
Residential 1-4 Family - Consumer		1,524		235		(640)		770		1,889
Auto		975		365		(759)		760		1,341
HELOC		1,360		554		(488)		(70)		1,356
Consumer and all other⁽¹⁾		4,084		1,234		(6,412)		7,913		6,819
Total	$	38,208	$	4,082	$	(10,099)	$	9,103	$	41,294

Nine Months Ended September 30, 2017
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 - Commercial 3,698
249
(451 ) 55
3,551
Residential 1-4 Family - Mortgage 2,701
83
(364 ) (90 ) 2,330
Auto 946
352
(761 ) 398
935
HELOC 1,328
240
(861 ) 675
1,382
Consumer and all other⁽¹⁾
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.

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Table of Contents

The following tables show the loan and ALL balances based on impairment methodology by segment as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):


	September 30, 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	$	10,605	$	78	$	1,182,157	$	5,829	$	8,387	$	—	$	1,201,149	$	5,907
Commercial Real Estate - Owner Occupied		12,932		234		1,938,303		3,785		27,817		—		1,979,052		4,019
Commercial Real Estate - Non-Owner Occupied		2,364		3		3,178,931		9,683		17,285		—		3,198,580		9,686
Multifamily Real Estate		1,212		—		658,641		780		93		—		659,946		780
Commercial & Industrial		3,988		866		2,050,883		8,066		3,262		217		2,058,133		9,149
Residential 1-4 Family - Commercial		6,093		170		702,855		1,419		12,237		—		721,185		1,589
Residential 1-4 Family - Consumer		19,479		805		878,789		993		14,977		—		913,245		1,798
Auto		605		239		327,844		1,313		7		—		328,456		1,552
HELOC		2,041		262		654,647		875		4,275		—		660,963		1,137
Consumer and all other⁽¹⁾		745		77		584,148		8,126		1,395		—		586,288		8,203
Total loans held for investment, net	$	60,064	$	2,734	$	12,157,198	$	40,869	$	89,735	$	217	$	12,306,997	$	43,820

September 30, 2018
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 $ 11,748
$ 139
$ 1,161,264
$ 8,049
$ 5,042
$ —
$ 1,178,054
$ 8,188
Commercial Real Estate - Owner Occupied 11,809
149
1,245,420
2,796
25,896
—
1,283,125
2,945
Commercial Real Estate - Non-Owner Occupied 6,922
—
2,398,754
8,338
21,575
—
2,427,251
8,338
Multifamily Real Estate —
—
542,576
1,622
86
—
542,662
1,622
Commercial & Industrial 2,538
317
1,149,746
6,385
2,299
—
1,154,583
6,702
Residential 1-4 Family - Commercial 6,051
227
697,674
2,232
16,073
—
719,798
2,459
Residential 1-4 Family - Mortgage 14,326
301
580,641
1,223
16,761
—
611,728
1,524
Auto 525
215
305,662
1,126
9
—
306,196
1,341
HELOC 1,674
173
604,263
1,183
6,179
—
612,116
1,356
Consumer and all other⁽¹⁾
679
75
574,580
6,744
826
—
576,085
6,819
Total loans held for investment, net $ 56,272
$ 1,596
$ 9,260,580
$ 39,698
$ 94,746
$ —
$ 9,411,598
$ 41,294

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

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Table of Contents


	December 31, 2018
	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	$	10,662	$	63	$	1,175,505	$	6,740	$	8,654	$	—	$	1,194,821	$	6,803
Commercial Real Estate - Owner Occupied		12,690		359		1,299,011		3,664		25,644		—		1,337,345		4,023
Commercial Real Estate - Non-Owner Occupied		6,969		1		2,443,106		8,864		17,335		—		2,467,410		8,865
Multifamily Real Estate		—		—		548,143		649		88		—		548,231		649
Commercial & Industrial		4,242		752		1,310,737		6,884		2,156		—		1,317,135		7,636
Residential 1-4 Family - Commercial		5,498		89		621,320		1,603		13,601		—		640,419		1,692
Residential 1-4 Family - Consumer		16,031		470		641,006		1,022		16,872		—		673,909		1,492
Auto		576		231		301,360		1,212		7		—		301,943		1,443
HELOC		1,874		188		606,394		1,109		5,115		—		613,383		1,297
Consumer and all other⁽¹⁾		686		64		620,176		7,081		749		—		621,611		7,145
Total loans held for investment, net	$	59,228	$	2,217	$	9,566,758	$	38,828	$	90,221	$	—	$	9,716,207	$	41,045

December 31, 2017

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 $ 17,571
$ 122
$ 928,382
$ 9,587
$ 2,838
$ —
$ 948,791
$ 9,709
Commercial Real Estate - Owner Occupied 6,588
94
922,555
2,837
14,790
—
943,933
2,931
Commercial Real Estate - Non-Owner Occupied 6,017
—
1,701,032
7,544
6,610
—
1,713,659
7,544
Multifamily Real Estate —
—
356,999
1,092
80
—
357,079
1,092
Commercial & Industrial 2,976
128
608,639
4,424
408
—
612,023
4,552
Residential 1-4 Family - Commercial 5,160
35
597,821
4,402
9,414
—
612,395
4,437
Residential 1-4 Family - Mortgage 11,465
36
470,492
1,488
3,733
—
485,690
1,524
Auto 413
2
282,061
973
—
—
282,474
975
HELOC 2,520
51
534,051
1,309
950
—
537,521
1,360
Consumer and all other⁽¹⁾
771
35
647,018
4,049
198
—
647,987
4,084
Total loans held for investment, net $ 53,481
$ 503
$ 7,049,050
$ 37,705
$ 39,021
$ —
$ 7,141,552
$ 38,208

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

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Table of Contents

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

Pass is determined by the following criteria:

●

Risk rated 0 loans have little or no risk and are 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;

●

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.

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

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

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

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

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

Substandard is determined by the following criteria:

●

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected; or

●

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

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

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

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

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

Doubtful is determined by the following criteria:

●

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined;

●

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted; or

●

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

•~~Risk rated 8 loans are doubtful~~

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Table of ~~collection and the possibility of loss is high but pending specific borrower plans for~~Contents

~~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, ~~2018~~2019 (dollars in thousands):

Pass Special Mention Substandard Doubtful Total
Construction and Land Development $ 1,112,422
$ 49,278
$ 11,299
$ 13
$ 1,173,012
Commercial Real Estate - Owner Occupied 1,191,608
37,261
28,360
—
1,257,229
Commercial Real Estate - Non-Owner Occupied 2,377,408
22,536
5,732
—
2,405,676
Multifamily Real Estate 530,613
11,963
—
—
542,576
Commercial & Industrial 1,107,669
36,496
8,119
—
1,152,284
Residential 1-4 Family - Commercial 686,249
12,729
4,747
—
703,725
Residential 1-4 Family - Mortgage 575,419
5,540
13,928
80
594,967
Auto 302,347
2,612
1,208
20
306,187
HELOC 596,925
5,177
3,835
—
605,937
Consumer and all other⁽¹⁾
570,951
3,486
800
22
575,259
Total $ 9,051,611
$ 187,078
$ 78,028
$ 135
$ 9,316,852

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


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,148,732	$	33,136	$	10,894	$	—	$	1,192,762
Commercial Real Estate - Owner Occupied		1,850,909		78,451		21,730		145		1,951,235
Commercial Real Estate - Non-Owner Occupied		3,124,018		54,884		2,297		96		3,181,295
Multifamily Real Estate		645,193		13,448		1,212		—		659,853
Commercial & Industrial		1,949,546		99,337		5,988		—		2,054,871
Residential 1-4 Family - Commercial		679,023		22,772		7,153		—		708,948
Residential 1-4 Family - Consumer		871,391		4,584		22,293		—		898,268
Auto		324,396		1,990		2,063		—		328,449
HELOC		644,019		6,529		6,140		—		656,688
Consumer		384,744		1,182		240		—		386,166
Other Commercial		196,511		2,057		159		—		198,727
Total	$	11,818,482	$	318,370	$	80,169	$	241	$	12,217,262

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of December 31, ~~2017~~2018 (dollars in thousands):

Pass Special Mention Substandard Doubtful Total
Construction and Land Development $ 869,111
$ 62,517
$ 14,325
$ —
$ 945,953
Commercial Real Estate - Owner Occupied 872,130
52,268
4,745
—
929,143
Commercial Real Estate - Non-Owner Occupied 1,681,314
19,899
5,836
—
1,707,049
Multifamily Real Estate 349,625
7,374
—
—
356,999
Commercial & Industrial 595,923
13,533
2,159
—
611,615
Residential 1-4 Family - Commercial 587,169
12,117
3,650
45
602,981
Residential 1-4 Family - Mortgage 470,646
7,190
1,642
2,479
481,957
Auto 278,063
4,131
119
161
282,474
HELOC 531,358
3,867
857
489
536,571
Consumer and all other⁽¹⁾
645,187
1,758
781
63
647,789
Total $ 6,880,526
$ 184,654
$ 34,114
$ 3,237
$ 7,102,531

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


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,130,577	$	43,894	$	11,696	$	—	$	1,186,167
Commercial Real Estate - Owner Occupied		1,231,422		50,939		29,340		—		1,311,701
Commercial Real Estate - Non-Owner Occupied		2,425,500		17,648		6,927		—		2,450,075
Multifamily Real Estate		537,572		10,571		—		—		548,143
Commercial & Industrial		1,273,549		34,864		6,566		—		1,314,979
Residential 1-4 Family - Commercial		606,955		14,876		4,987		—		626,818
Residential 1-4 Family - Consumer		624,346		17,065		15,626		—		657,037
Auto		296,907		3,590		1,439		—		301,936
HELOC		598,444		6,316		3,508		—		608,268
Consumer		378,873		547		242		—		379,662
Other Commercial		239,857		864		479		—		241,200
Total	$	9,344,002	$	201,174	$	80,810	$	—	$	9,625,986

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of September 30, ~~2018~~2019 (dollars in thousands):


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,233	$	3,993	$	3,161	$	—	$	8,387
Commercial Real Estate - Owner Occupied		8,273		10,845		8,699		—		27,817
Commercial Real Estate - Non-Owner Occupied		3,855		9,533		3,897		—		17,285
Multifamily Real Estate		—		93		—		—		93
Commercial & Industrial		115		57		3,090		—		3,262
Residential 1-4 Family - Commercial		6,490		2,780		2,967		—		12,237
Residential 1-4 Family - Consumer		10,074		233		4,670		—		14,977
Auto		3		—		4		—		7
HELOC		3,092		607		576		—		4,275
Consumer		660		4		18		—		682
Other Commercial		122		591		—		—		713
Total	$	33,917	$	28,736	$	27,082	$	—	$	89,735

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Table of Contents

Pass Special Mention Substandard Doubtful Total
Construction and Land Development $ 1,859
$ 1,232
$ 1,951
$ —
$ 5,042
Commercial Real Estate - Owner Occupied 3,546
16,571
5,779
—
25,896
Commercial Real Estate - Non-Owner Occupied 3,541
13,438
4,596
—
21,575
Multifamily Real Estate —
86
—
—
86
Commercial & Industrial 839
126
1,334
—
2,299
Residential 1-4 Family - Commercial 5,704
4,936
5,433
—
16,073
Residential 1-4 Family - Mortgage 9,735
830
6,196
—
16,761
Auto 9
—
—
—
9
HELOC 4,354
893
932
—
6,179
Consumer and all other⁽¹⁾
80
692
54
—
826
Total $ 29,667
$ 38,804
$ 26,275
$ —
$ 94,746

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

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, ~~2017~~2018 (dollars in thousands):

Pass Special Mention Substandard Doubtful Total
Construction and Land Development $ 1,462
$ 1,260
$ 116
$ —
$ 2,838
Commercial Real Estate - Owner Occupied 4,958
7,486
2,346
—
14,790
Commercial Real Estate - Non-Owner Occupied 3,920
1,394
1,296
—
6,610
Multifamily Real Estate —
80
—
—
80
Commercial & Industrial 85
123
200
—
408
Residential 1-4 Family - Commercial 5,234
2,877
1,303
—
9,414
Residential 1-4 Family - Mortgage 2,764
329
71
569
3,733
HELOC 446
291
94
119
950
Consumer and all other⁽¹⁾
148
41
9
—
198
Total $ 19,017
$ 13,881
$ 5,435
$ 688
$ 39,021

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


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,835	$	1,308	$	5,511	$	—	$	8,654
Commercial Real Estate - Owner Occupied		8,347		6,685		10,612		—		25,644
Commercial Real Estate - Non-Owner Occupied		4,789		7,992		4,554		—		17,335
Multifamily Real Estate		—		88		—		—		88
Commercial & Industrial		762		134		1,260		—		2,156
Residential 1-4 Family - Commercial		6,476		2,771		4,354		—		13,601
Residential 1-4 Family - Consumer		9,930		1,030		5,912		—		16,872
Auto		7		—		—		—		7
HELOC		3,438		1,031		646		—		5,115
Consumer		17		—		15		—		32
Other Commercial		57		660		—		—		717
Total	$	35,658	$	21,699	$	32,864	$	—	$	90,221

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

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


	For the Nine Months Ended September 30,
	2019		2018
Balance at beginning of period	$	31,201	$	14,563
Additions		2,432		12,225
Accretion		(9,830)		(6,666)
Reclass of nonaccretable difference due to improvement in expected cash flows		1,372		360
Measurement period adjustment		2,629		2,981
Other, net ⁽¹⁾		5,083		1,845
Balance at end of period	$	32,887	$	25,308

(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.

For the Nine Months Ended
September 30,
2018 2017
Balance at beginning of period $ 14,563
$ 19,739
Additions 12,225
—
Accretion (6,666 ) (4,896 )
Reclassification of nonaccretable difference due to improvement in expected cash flows 360
2,175
Measurement period adjustment 2,981
—
Other, net ⁽¹⁾
1,845
(452 )
Balance at end of period $ 25,308
$ 16,566

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

The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, totaled ~~$94.7~~$89.7 million at September 30, ~~2018~~2019 and ~~$39.0~~$90.2 million at December 31, ~~2017.~~2018. The outstanding balance of the Company’s PCI loan portfolio totaled ~~$119.1~~$113.8 million at September 30, ~~2018~~2019 and ~~$47.9~~$113.5 million at December 31, ~~2017.~~2018. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, totaled ~~$2.2~~$3.3 billion at September 30, ~~2018~~2019 and ~~$892.4 million~~$2.0 billion at December 31, ~~2017;~~2018; the remaining discount on these loans totaled ~~$33.4~~$54.1 million at September 30, ~~2018~~2019 and ~~$13.7~~$30.3 million at December 31, ~~2017.~~2018.

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5.INTANGIBLE ASSETS

~~During the nine months ended September 30, 2018, the Company acquired Xenith, DHFB, and OAL as part of the Company's strategic growth plan.~~

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 intangibles are being amortized over the period of expected benefit, which ranges from 45 to 1410 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 5 to 1610 years, using various methods. Refer to Note 2 "Acquisitions" for further information regarding intangible assets.

In accordance with ASC 350, Intangibles-Goodwill and Other, the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. The Company performed its annual impairment testing in the second quarter of ~~2018.~~2019 and determined that there was no impairment to its goodwill or intangible assets. In ~~connection with the wind down of UMG, during~~ the second quarter of 2018 the Company wrote off ~~the~~ goodwill in the amount of $864,000 in connection with the wind down of UMG, which is included in discontinued operations.

Amortization expense of intangibles for the three and nine months ended September 30, 2019 totaled $4.8 million and $13.9 million, respectively; and for the three and nine months ended September 30, 2018 totaled $3.5 million and $9.9 million, ~~respectively, and for the three and nine months ended September 30, 2017 totaled $1.5 million and $4.7 million,~~ respectively.

As of September 30, ~~2018,~~2019, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):


For the remaining three months of 2019	$	4,573
2020		16,483
2021		13,874
2022		11,490
2023		9,687
Thereafter		22,134
Total estimated amortization expense	$	78,241

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6. LEASES

The Company leases branch locations, office space, land, and equipment. The Company determines if an arrangement is a lease at inception. As of September 30, 2019, all leases have been classified as operating leases with approximately 160 non-cancellable operating leases where the Company is the lessee. The Company does not have any material arrangements where the Company is the lessor or in a sublease contract.

Leases where the Company is a lessee are primarily for real estate leases with remaining lease terms of up to 30 years. The Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. At September 30, 2019, the total ROU Asset was $57.0 million and total operating lease liabilities were $68.8 million. Total operating lease expenses for the three and nine months ended September 30, 2019 were $2.9 million and $8.9 million, respectively.

Operating leases have been reported on the Company’s Consolidated Balance Sheets as an operating ROU Asset within Other Assets and an operating lease liability within Other Liabilities. The ROU Asset represents the Company’s right to use an underlying asset over the course of the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating 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. The operating ROU Asset is 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.

Total lease expenses are recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statement of Income. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Most of the Company’s 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 ROU Asset and lease liabilities

As of September 30, 2019, the Company had 0 material operating leases that have not yet commenced that create significant rights and obligations, and 0 sales leaseback transactions.

Maturities of operating lease liabilities as of September 30, 2019 are as follows for the years ending (dollars in thousands):


For the remaining three months of 2019	$	3,335
2020		12,392
2021		10,713
2022		9,934
2023		9,022
2024		7,741
Thereafter		19,588
Total future lease payments		72,725
Less: Interest		3,917
Present value of lease liabilities	$	68,808

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Other lease information is as follows (dollars in thousands):


	September 30, 2019
Lease Term and Discount Rate of Operating leases:
Weighted-average remaining lease term (years)		8.56
Weighted-average discount rate ⁽¹⁾		2.78	%
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Operating Leases	$	10,327
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		5,979

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

For the remaining three months of 2018 $ 3,196
For the year ending December 31, 2019 11,521
For the year ending December 31, 2020 9,586
For the year ending December 31, 2021 7,498
For the year ending December 31, 2022 5,656
Thereafter 14,106
Total estimated amortization expense $ 51,563

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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 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):

September 30,
2018 December 31,
2017
Securities sold under agreements to repurchase $ 40,624
$ 49,152
Federal funds purchased 90,000
—
FHLB 926,250
745,000
Total short-term borrowings $ 1,056,874
$ 794,152

Maximum month-end outstanding balance $ 1,056,874
$ 794,152
Average outstanding balance during the period 972,224
602,553
Average interest rate (during the period) 1.76 % 1.00 %
Average interest rate at end of period 2.10 % 1.32 %


	September 30,			December 31,
	2019			2018
Securities sold under agreements to repurchase	$	67,260		$	39,197
Federal Funds Purchased		—			—
FHLB Advances		344,600			1,043,600
Other short-term borrowings		—			5,000
Total short-term borrowings	$	411,860		$	1,087,797

Maximum month-end outstanding balance	$	509,949		$	1,087,797
Average outstanding balance during the period		804,644			968,014
Average interest rate (during the period)		2.38	%		1.91	%
Average interest rate at end of period		1.97	%		2.43	%

The Bank maintains federal funds lines with several correspondent banks, the remaining available balance of which was ~~$292.0~~$647.0 million and ~~$227.0~~$382.0 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The Company maintains an alternate line of credit at a correspondent bank, the available balance of which was $25.0 million at both September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. 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 such covenants as of September 30, ~~2018.~~2019. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to ~~$3.9~~$5.1 billion and ~~$2.7~~$4.0 billion at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Long-term Borrowings

In connection with several previous bank acquisitions, the Company issued and acquired trust preferred capital notes of $58.5 million and ~~$32.0~~$87.0 million, respectively. InMost recently, in connection with the acquisition of ~~Xenith~~Access on ~~January~~February 1, ~~2018,~~2019, the Company acquired additional trust preferred capital notes totaling ~~$55.0 million with a fair value discount of $9.9~~$5.0 million. The remaining fair value discount on all acquired trust preferred capital notes was ~~$15.8~~$15.1 million at September 30, ~~2018.~~ 2019.

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The trust preferred capital notes currently qualify for Tier 12 capital of the Company for regulatory purposes. ~~Our trust~~Trust preferred capital notes consist of the following as of September 30, ~~2018:~~

2019:


	Trust
	Preferred
	Capital				Spread to
	Securities ⁽¹⁾		Investment ⁽¹⁾		3-Month LIBOR		Rate ⁽²⁾		Maturity
Trust Preferred Capital Note - Statutory Trust I	$	22,500,000	$	696,000	2.75	%	4.84	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II		36,000,000		1,114,000	1.40	%	3.49	%	6/15/2036
VFG Limited Liability Trust I Indenture		20,000,000		619,000	2.73	%	4.82	%	3/18/2034
FNB Statutory Trust II Indenture		12,000,000		372,000	3.10	%	5.19	%	6/26/2033
Gateway Capital Statutory Trust I		8,000,000		248,000	3.10	%	5.19	%	9/17/2033
Gateway Capital Statutory Trust II		7,000,000		217,000	2.65	%	4.74	%	6/17/2034
Gateway Capital Statutory Trust III		15,000,000		464,000	1.50	%	3.59	%	5/30/2036
Gateway Capital Statutory Trust IV		25,000,000		774,000	1.55	%	3.64	%	7/30/2037
MFC Capital Trust II		5,000,000		155,000	2.85	%	4.94	%	1/23/2034
Total	$	150,500,000	$	4,659,000

(1)

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

(2)	Rate as of September 30, 2019.

Trust
Preferred
Capital
Securities ⁽¹⁾

Investment ⁽¹⁾

Spread to
3-Month LIBOR

Rate ⁽²⁾
Maturity
Trust Preferred Capital Note - Statutory Trust I $ 22,500,000
$ 696,000
2.75 % 5.15 % 6/17/2034
Trust Preferred Capital Note - Statutory Trust II 36,000,000
1,114,000
1.40 % 3.80 % 6/15/2036
VFG Limited Liability Trust I Indenture 20,000,000
619,000
2.73 % 5.13 % 3/18/2034
FNB Statutory Trust II Indenture 12,000,000
372,000
3.10 % 5.50 % 6/26/2033
Gateway Capital Statutory Trust I 8,000,000
248,000
3.10 % 5.50 % 9/17/2033
Gateway Capital Statutory Trust II 7,000,000
217,000
2.65 % 5.05 % 6/17/2034
Gateway Capital Statutory Trust III 15,000,000
464,000
1.50 % 3.90 % 5/30/2036
Gateway Capital Statutory Trust IV 25,000,000
774,000
1.55 % 3.95 % 7/30/2037
Total $ 145,500,000
$ 4,504,000

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

~~(2)~~ ~~Rate as of September 30, 2018.~~

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 on 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 was ~~$180,000~~$77,000 at September 30, ~~2018.~~2019. The acquired subordinated notes have a fixed interest rate of 6.75% and a maturity date of June 30, 2025. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the contractual principal reported for subordinated notes was $158.5 ~~million and $150.0 million, respectively;~~million; remaining issuance discount as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 is ~~$1.6~~$1.4 million and ~~$1.8~~$1.6 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 is considered to be in compliance with these covenants as of September 30, ~~2018.~~

2019.

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~~advances. On August 29, 2019, the Company repaid the floating rate FHLB advances. In connection with this repayment, the remaining unamortized prepayment penalty of $7.4 million was immediately recognized as a component of ~~long-term borrowings on the Company’s Consolidated Balance Sheet. In accordance with ASC 470-50,~~ ~~Modifications and Extinguishments, the Company is amortizing this prepayment penalty over the term~~noninterest expense.

-35-

Table of the modified advances using the effective rate method. The amortization expense is included as a component of interest expense on long-term borrowings on the Company’s Consolidated Statements of Income. Amortization expense for the three and nine months ended September 30, 2018 and 2017 was $498,000 and $1,469,000 and $486,000 and $1,433,000, respectively.Contents

As of September 30, 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⁾		Maturity Date	Advance Amount
Convertible Flipper	(0.75)	%	1.34	%	8/17/2029	$	50,000
Convertible Flipper	(0.50)	%	1.59	%	5/15/2024		200,000
Convertible Flipper	(0.75)	%	1.34	%	5/22/2029		150,000
Convertible Flipper	(0.75)	%	1.34	%	5/30/2029		50,000
Convertible Flipper	(0.75)	%	1.34	%	6/21/2029		100,000
Fixed Rate Convertible	-		1.78	%	10/26/2028		200,000
Fixed Rate Hybrid	-		2.37	%	10/10/2019		25,000
Fixed Rate Hybrid	-		1.58	%	5/18/2020		20,000
Fixed Rate Hybrid	-		2.65	%	10/24/2019		25,000
Fixed Rate Credit	-		1.54	%	10/2/2020		10,000
Fixed Rate Credit	-		1.32	%	10/2/2019		10,000
						$	840,000

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

As of December 31, 2018, 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⁾		Maturity Date	Advance Amount
Adjustable Rate Credit	0.44	%	3.25	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	3.26	%	11/23/2022		65,000
Adjustable Rate Credit	0.45	%	3.26	%	11/23/2022		10,000
Adjustable Rate Credit	0.45	%	3.26	%	11/23/2022		10,000
Fixed Rate Convertible	-		1.78	%	10/26/2028		200,000
Fixed Rate Hybrid	-		2.37	%	10/10/2019		25,000
Fixed Rate Hybrid	-		1.58	%	5/18/2020		20,000
						$	385,000

Long-term Type
Spread to
3-Month LIBOR

Interest Rate ⁽¹⁾
Maturity Date Advance Amount
Adjustable Rate Credit 0.44 % 2.84 % 8/23/2022 $ 55,000
Adjustable Rate Credit 0.45 % 2.85 % 11/23/2022 65,000
Adjustable Rate Credit 0.45 % 2.85 % 11/23/2022 10,000
Adjustable Rate Credit 0.45 % 2.85 % 11/23/2022 10,000
Fixed Rate Hybrid —
0.99 % 10/19/2018 30,000
Fixed Rate Hybrid —
2.37 % 10/10/2019 25,000
Fixed Rate Hybrid —
1.58 % 5/18/2020 20,000

$ 215,000
(1)Interest rates calculated using non-rounded numbers.

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

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~~As of December 31, 2017, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):~~

Table of Contents

Long-term Type
Spread to
3-Month LIBOR

Interest Rate ⁽¹⁾
Maturity Date Advance Amount

Adjustable Rate Credit 0.44 % 2.13 % 8/23/2022 $ 55,000
Adjustable Rate Credit 0.45 % 2.15 % 11/23/2022 65,000
Adjustable Rate Credit 0.45 % 2.15 % 11/23/2022 10,000
Adjustable Rate Credit 0.45 % 2.15 % 11/23/2022 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

$ 200,000
(1)Interest rates calculated using non-rounded numbers.

For information on the carrying value of loans and securities pledged as collateral on FHLB advances as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, refer to Note 78 "Commitments and Contingencies."

As of September 30, ~~2018,~~2019, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):


	Trust
	Preferred						Fair Value
	Capital		Subordinated		FHLB		Premium		Total Long-term
	Notes		Debt		Advances		(Discount) ⁽¹⁾		Borrowings
For the remaining three months of 2019	$	—	$	—	$	60,000	$	(174)	$	59,826
2020		—		—		30,000		(834)		29,166
2021		—		—		—		(1,008)		(1,008)
2022		—		—		—		(1,030)		(1,030)
2023		—		—		—		(1,053)		(1,053)
Thereafter		155,159		158,500		750,000		(12,239)		1,051,420
Total long-term borrowings	$	155,159	$	158,500	$	840,000	$	(16,338)	$	1,137,321

Trust
Preferred
Capital
Notes

Subordinated
Debt

FHLB
Advances

Fair Value
Premium
(Discount) ⁽¹⁾

Prepayment
Penalty

Total Long-term
Borrowings
For the remaining three months of 2018 $ —
$ —
$ 30,000
$ (212 ) $ (501 ) $ 29,287
2019 —
—
25,000
(862 ) (2,018 ) 22,120
2020 —
—
20,000
(936 ) (2,074 ) 16,990
2021 —
—
—
(1,006 ) (2,119 ) (3,125 )
2022 —
—
140,000
(1,029 ) (1,707 ) 137,264
Thereafter 150,004
158,500
—
(13,272 ) —
295,232
Total long-term borrowings $ 150,004
$ 158,500
$ 215,000
$ (17,317 ) $ (8,419 ) $ 497,768

(1)	Includes discount on issued subordinated notes.

~~(1)~~ ~~Includes discount on issued subordinated notes.~~

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Table of Contents

8. COMMITMENTS AND CONTINGENCIES

Litigation Matters

In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business, 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 ~~Sheet.~~Sheets. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss rates, current economic conditions, risk ratings, and past due status among other factors in the consideration of whether credit losses are inherent in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the ~~Company's~~Company’s reserves for off-balance sheet credit risk and indemnification were ~~$1.5~~$2.8 million and ~~$795,000,~~$1.4 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, 2018 December 31, 2017
Commitments with off-balance sheet risk:

Commitments to extend credit ⁽¹⁾
$ 3,021,820
$ 2,192,812
Standby letters of credit 174,714
127,435
Total commitments with off-balance sheet risk $ 3,196,534
$ 2,320,247

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


	September 30, 2019		December 31, 2018
Commitments with off-balance sheet risk:
Commitments to extend credit ⁽¹⁾	$	4,143,637	$	3,167,085
Standby letters of credit		199,928		167,597
Total commitments with off-balance sheet risk	$	4,343,565	$	3,334,682

(1) Includes unfunded overdraft protection.

The Company must maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. For the final weekly reporting period in the period ended September 30, ~~2018,~~2019, the aggregate amount of daily average required reserves was approximately ~~$40.5~~$5.5 million and was satisfied by deposits maintained with the Federal Reserve Bank.

As of September 30, ~~2018,~~2019, the Company had approximately ~~$26.9~~$243.7 million in deposits in other financial institutions, of which ~~$13.4~~$133.7 million served as collateral for cash flow and loan swap derivatives. The Company had approximately ~~$11.7~~$107.5 million in deposits in other financial institutions that were uninsured at September 30, ~~2018.~~2019. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

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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. Refer to Note 89 “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 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):


	Pledged Assets as of September 30, 2019
			AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	474,155	$	291,865	$	—	$	766,020
Repurchase agreements		—		81,419		7,633		—		89,052
FHLB advances		—		65,329		—		3,828,487		3,893,816
Derivatives		133,679		1,433		—		—		135,112
Fed Funds		—		—		—		263,604		263,604
Other purposes		—		126,213		10,772		—		136,985
Total pledged assets	$	133,679	$	748,549	$	310,270	$	4,092,091	$	5,284,589

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


	Pledged Assets as of December 31, 2018
			AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	293,169	$	7,407	$	—	$	300,576
Repurchase agreements		—		55,269		—		—		55,269
FHLB advances		—		488		—		3,337,289		3,337,777
Derivatives		13,509		1,938		—		—		15,447
Other purposes		—		23,217		—		—		23,217
Total pledged assets	$	13,509	$	374,081	$	7,407	$	3,337,289	$	3,732,286

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

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Table of Contents

Pledged Assets as of September 30, 2018
Cash
AFS Securities ⁽¹⁾

HTM Securities ⁽¹⁾

Loans ⁽²⁾
Total
Public deposits $ —
$ 414,740
$ 7,367
$ —
$ 422,107
Repurchase agreements —
68,229
—
—
68,229
FHLB advances —
546
—
3,250,648
3,251,194
Derivatives 13,436
2,175
—
—
15,611
Other purposes —
24,197
—
—
24,197
Total pledged assets $ 13,436
$ 509,887
$ 7,367
$ 3,250,648
$ 3,781,338

~~(1)~~ ~~Balance represents market value.~~

~~(2)~~ ~~Balance represents book value.~~

Pledged Assets as of December 31, 2017
Cash
AFS Securities ⁽¹⁾

HTM Securities ⁽¹⁾

Loans ⁽²⁾
Total
Public deposits $ —
$ 242,472
$ 197,482
$ —
$ 439,954
Repurchase agreements —
77,942
—
—
77,942
FHLB advances —
878
—
2,390,509
2,391,387
Derivatives 23,870
3,656
—
—
27,526
Other purposes —
15,043
—
—
15,043
Total pledged assets $ 23,870
$ 339,991
$ 197,482
$ 2,390,509
$ 2,951,852

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

~~In connection with~~

Derivatives Counterparty Credit Risk

Derivative instruments contain an element of credit risk that arises from the ~~Shore Premier sale,~~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 ~~received 1,250,000 shares~~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 ~~purchasing company's common stock with a contractual amount~~regulatory requirement. The use of ~~$28.9 million,~~ the ~~fair value~~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 ~~which was $27.4 million at September 30, 2018.~~non-payment through the Company’s FCMs. The ~~purchasing company has agreed for a period of 30 days to pay additional cash consideration to~~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 ~~extent any sales of its common stock by~~Company’s agreements under certain circumstances. For CME and LCH-cleared OTC derivatives, the Company ~~following satisfaction~~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 ~~any required holding periods or~~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 requirements under the Securities Act, are at prices lower than the agreed upon value at the time of entry into the agreement. The fair value of the related derivative at September 30, 2018 was approximately $1.5 million. Refer to Note 1 “Accounting Policies” and Note 3 "Securities" for further discussion on the Shore Premier sale.

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. During the normal course of business, the~~financial instruments. The Company ~~enters into~~uses interest rate swap agreements ~~("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.~~January 2021. Amounts receivable or payable are recognized as accrued under the terms of the agreements.

All ~~swap agreements~~swaps were entered into with counterparties ~~as of September 30, 2018~~that met the Company’s credit standards, and ~~these~~the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in ~~these agreements~~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 on the Company's Consolidated Statements of Income.~~income. Based on the Company’s assessment, its cash flow hedges are highly ~~effective, but to~~effective.

During the ~~extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.~~

~~On June 13, 2016,~~quarter ended September 30, 2019, the Company terminated ~~three~~4 interest rate ~~swap agreements~~swaps designated as cash flow hedges prior to their respective maturity dates. The ~~unrealized gain~~net amount of ~~$1.3 million within accumulated other comprehensive income will be~~losses reclassified into earnings ~~over a three year period,~~totaled $9.0 million for the ~~term of the hedged item, using the effective interest method. The estimated net amount of gains expected to be reclassified~~quarter ended September 30, 2019. This loss is immediately recognized into earnings ~~by September 30, 2019 is $399,000.~~as the forecasted transaction will not occur.

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Table of Contents

Fair Value Hedge

~~The Company designates derivatives~~

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.

Loans:During the normal course of business, the Company enters into 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. AtFor the periods ended September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled ~~$88.7~~$84.1 million and ~~$81.0~~$87.6 million, respectively, and the fair value of the related hedged items was an unrealized loss of ~~$3.5~~$3.3 million and ~~$1.2~~$1.6 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. For the periods ended September 30, 2019 and December 31, 2018, the aggregate notional amount of the related hedged items of the available for sale securities totaled $50 million and the fair value of the related hedged items was an unrealized loss of $5.2 million and $1.4 million, respectively.

The Company applies hedge accounting in accordance with ~~authoritative guidance,~~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 ~~Company's~~ Consolidated Statements of Income, but if any ineffectiveness exists, ~~in the hedge relationships,~~ portions of the unrealized gains or losses would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.

Loan Swaps

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

~~Interest Rate Lock Commitments~~

Sheets.

Mortgage Banking Derivatives

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”). The Company commits to deliver the loan if settlement occurs ("best efforts") or commits to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of MBS. Rate lock commitments on mortgage loans that are intended to be sold in the secondary market and commitments to deliver loans to investors are considered to be derivatives. The ~~period~~Company uses these derivatives as part of ~~time between issuance of a loan commitment, closing, and sale of the loan generally ranges from 30~~an overall strategy to ~~120 days. The Company protects itself from changes~~manage market risk primarily due to fluctuations in interest rates, ~~through~~and to capture improved margins resulting from the ~~use~~mandatory delivery of ~~best efforts forward delivery commitments, whereby the Company commits to sell~~loans. Mortgage banking derivatives as of September 30, 2019 did not have a ~~loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk~~material impact on the ~~loan. The correlation between the rate lock commitments and the best efforts contracts is high due to their similarity.~~

Company’s Consolidated Financial Statements.

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, delivery contracts, and ~~best efforts~~forward sales contracts of MBS 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~~close or will be funded. Certain risks arise from the forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. Additional risks inherent in mandatory delivery programs include the risk that, if the Company does not close the loans subject to rate lock commitments, ~~is reported as a component~~it will still be obligated to deliver MBS to the counterparty under the forward sales agreement.

-41-

Table of “Other Assets” on the Company’s Consolidated Balance Sheet; 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 Sheet. 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.Contents

The following table summarizes key elements of the Company’s derivative instruments as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):

September 30, 2019

December 31, 2018

Derivative ⁽²⁾

Notional or

Contractual

Amount ⁽¹⁾

Assets

Liabilities

Amount ⁽¹⁾

Assets

Liabilities

Derivatives designated as accounting hedges:

Interest rate contracts:

Cash flow hedges

100,000

—

1,323

152,500

—

4,786

Fair value hedges

134,175

—

8,527

137,596

1,872

1,684

Derivatives not designated as accounting hedges:

Loan Swaps :

Pay fixed - receive floating interest rate swaps

1,392,662

105

74,317

878,446

10,120

9,306

Pay floating - receive fixed interest rate swaps

1,392,662

74,317

105

878,446

9,306

10,120

(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.

September 30, 2018 December 31, 2017

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
$ —
$ 2,526
$ 152,500
$ 49
$ 8,005

Fair value hedges 88,668
3,468
—
80,973
1,598
76

Derivatives not designated as accounting hedges:

Loan Swaps

Pay fixed - receive floating interest rate swaps 766,506
22,824
1,119
529,736
—
1,350

Pay floating - receive fixed interest rate swaps 766,506
1,119
22,824
529,736
1,350
—

Other contracts:

Interest rate lock commitments —
—
—
34,314
559
—

Best efforts forward delivery commitments —
—
—
73,777
12
—

~~(1)~~ ~~Notional amounts are not recorded on~~

The following table summarizes the ~~Company's Consolidated Balance Sheet and are generally used only as a basis on which interest and other payments are determined.~~

~~(2)~~ ~~Balancesrepresent~~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 ~~derivative financial instruments.~~September 30, 2019 and December 31, 2018 (dollars in thousands):

September 30, 2019

December 31, 2018

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)}

213,177

5,236

224,241

1,399

Loans

84,175

3,285

87,596

(1,572)

(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. For the periods ended September 30, 2019 and December 31, 2018, the amortized cost basis of this portfolio was $213 million and $224 million, respectively and the cumulative basis adjustment associated with this hedge was $5.2 million and $1.4 million, respectively. The amount of the designated hedged item was $50 million.

(2)	Carrying value represents amortized cost.

-42-

~~Refer to Note 7 "Commitments and Contingencies" for information regarding collateral pledged on derivative instruments.~~

Table of Contents

~~9. STOCKHOLDERS'~~

10. STOCKHOLDERS’ EQUITY

Serial Preferred Stock

The Company has the authority to issue up to 500,000 shares of serial preferred stock with a par value of $10.00 per share. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had no0 shares issued or outstanding.

Accumulated Other Comprehensive Income (Loss)

The change in ~~AOCI~~accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 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 - June 30, 2019	$	36,125	$	85	$	(7,155)	$	(988)	$	28,067
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		12,364		—		6,025		(647)		17,742
Amounts reclassified from AOCI into earnings		(5,612)		(5)		158		19		(5,440)
Net current period other comprehensive income (loss)		6,752		(5)		6,183		(628)		12,302
Balance - September 30, 2019	$	42,877	$	80	$	(972)	$	(1,616)	$	40,369


			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, 2018	$	(5,949)	$	95	$	(3,393)	$	(1,026)	$	(10,273)
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		54,598		—		1,970		(647)		55,921
Amounts reclassified from AOCI into earnings		(5,772)		(15)		451		57		(5,279)
Net current period other comprehensive income (loss)		48,826		(15)		2,421		(590)		50,642
Balance - September 30, 2019	$	42,877	$	80	$	(972)	$	(1,616)	$	40,369

-43-

Table of Contents

The change in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2018 is summarized as follows, net of tax (dollars in thousands):


			Unrealized Gain
			(Losses)
	Unrealized		for AFS				Unrealized
	Gains (Losses)		Securities		Change in Fair		Gains
	on AFS		Transferred to		Value of Cash		(Losses)
	Securities		HTM		Flow Hedge		on BOLI		Total
Balance - June 30, 2018	$	(10,813)	$	105	$	(2,273)	$	(1,064)	$	(14,045)
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		(11,310)		—		575		—		(10,735)
Amounts reclassified from AOCI into earnings		(77)		(5)		227		19		164
Net current period other comprehensive income (loss)		(11,387)		(5)		802		19		(10,571)
Balance - September 30, 2018	$	(22,200)	$	100	$	(1,471)	$	(1,045)	$	(24,616)


			Unrealized Gain
			(Losses)
	Unrealized		for AFS				Unrealized
	Gains (Losses)		Securities		Change in Fair		Gains
	on AFS		Transferred to		Value of Cash		(Losses)
	Securities		HTM		Flow Hedge		on BOLI		Total
Balance - December 31, 2017	$	1,874	$	2,705	$	(4,361)	$	(1,102)	$	(884)
Transfers of HTM securities to AFS securities ⁽¹⁾		2,785		(2,785)		—		—		—
Cumulative effects from adoption of new accounting standard ⁽²⁾		404		583		(1,094)		—		(107)
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification ⁽¹⁾		(27,087)		—		3,214		—		(23,873)
Amounts reclassified from AOCI into earnings		(176)		(403)		770		57		248
Net current period other comprehensive income (loss)		(27,263)		(403)		3,984		57		(23,625)
Balance - September 30, 2018	$	(22,200)	$	100	$	(1,471)	$	(1,045)	$	(24,616)

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, 2018 $ (10,813 ) $ 105
$ (2,273 ) $ (1,064 ) $ (14,045 )
Transfer of HTM securities to AFS securities —
—
—
—
—
Cumulative effects from adoption of new accounting standard —
—
—
—
—
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification (11,310 ) —
575
—
(10,735 )
Amounts reclassified from AOCI into earnings (77 ) (5 ) 227
19
164
Net current period other comprehensive income (loss) (11,387 ) (5 ) 802
19
(10,571 )
Balance - September 30, 2018 $ (22,200 ) $ 100
$ (1,471 ) $ (1,045 ) $ (24,616 )

Unrealized
Gains (Losses)
on AFS
Securities

Unrealized Gain
for AFS
Securities
Transferred to
HTM

Change in Fair
Value of Cash
Flow Hedge
Unrealized Gains (Losses) on BOLI Total
Balance - December 31, 2017 $ 1,874
$ 2,705
$ (4,361 ) $ (1,102 ) $ (884 )
Transfer of HTM securities to AFS securities ⁽¹⁾
2,785
(2,785 ) —
—
—
Cumulative effects from adoption of new accounting standard ⁽²⁾
404
583
(1,094 ) —
(107 )
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification ⁽¹⁾
(27,087 ) —
3,214
—
(23,873 )
Amounts reclassified from AOCI into earnings (176 ) (403 ) 770
57
248
Net current period other comprehensive income (loss) (27,263 ) (403 ) 3,984
57
(23,625 )
Balance - September 30, 2018 $ (22,200 ) $ 100
$ (1,471 ) $ (1,045 ) $ (24,616 )

(1) During the second quarter of 2018, the Company adopted ASU No. 2017-12, ~~"Derivatives~~"Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities". As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category. The transfer of these securities resulted in an increase of approximately ~~$400,000~~$400,000 to AOCI and is included as unrealized gains (losses) on AFS securities above.

(2) During the second quarter of 2018, the Company adopted ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." As part of this adoption, the Company reclassified approximately $107,000~~, which resulted in a reclassification of these amounts~~ from AOCI to retained earnings.

-44-

~~The change in AOCI for the three and nine months ended September 30, 2017 is summarized as follows, net of tax (dollars in thousands):~~

Table of Contents

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):
Other comprehensive income (loss) before reclassification (2,729 ) —
41
—
(2,688 )
Amounts reclassified from AOCI into earnings (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
Unrealized Gains (Losses) on BOLI Total
Balance - December 31, 2016 $ (542 ) $ 3,377
$ (5,179 ) $ (1,465 ) $ (3,809 )
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification 5,935
—
(766 ) —
5,169
Amounts reclassified from AOCI into earnings (508 ) (507 ) 688
278
(49 )
Net current period other comprehensive income (loss) 5,427
(507 ) (78 ) 278
5,120
Balance - September 30, 2017 $ 4,885
$ 2,870
$ (5,257 ) $ (1,187 ) $ 1,311

~~10.~~

11. FAIR VALUE MEASUREMENTS

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

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



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

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

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

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Derivative instruments

As discussed in Note 89 “Derivatives”, the Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third party valuations are validated by the Company using Bloomberg Valuation Service’s derivative pricing functions. No material differences were identified during the validation as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

~~In the second quarter~~ Mortgage banking derivatives as of ~~2018, the Bank announced that it had entered into an agreement with~~September 30, 2019 did not have a ~~third party mortgage company to allow TFSB to offer residential mortgages from certain Bank locations~~material impact on the ~~terms and conditions set forth in~~Company’s Consolidated Financial Statements.

During the agreement. Concurrently with this arrangement, the Bank began the process of winding down the operations of UMG, the Company's reportable mortgage segment. Prior to this announcement, during the normalordinary course of business, the Company ~~entered~~enters into interest rate lock commitments related to the origination of mortgage loans held for sale, as well as best ~~effort~~efforts or mandatory delivery programs and forward ~~delivery commitments~~sales contracts of MBS. These instruments are used to mitigate interest rate ~~risk;~~risk. The Company determines the fair value of these instruments ~~were recorded at estimated~~by measuring the fair ~~value based on the~~ value of the underlying ~~loan,~~asset, which in turn ~~was~~is based on quoted prices for similar loans in the secondary market. This value, however, ~~was~~is adjusted by a pull-through rate applied at the loan level, which ~~considered~~considers the likelihood that the loan in a lock position ~~would~~will ultimately close. The pull-through rate ~~was~~is derived from the Company’s internal data, as well as input from third party sources, and ~~was~~is adjusted using significant management judgment. ~~The pull-through rate was~~It is largely dependent on the loan processing stage that a loan ~~was~~is currently in and the change in prevailing interest rates from the time of the rate lock. As such, interest rate lock commitments are classified as Level 3. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative ~~resulted~~will result in positive fair value adjustments, while a decrease in the pull-through rate ~~resulted~~will result in a negative fair value adjustment. As of September 30, 2019, the weighted average pull-through rate was approximately 90%. As a result of the UMG ~~wind down,~~wind-down, at ~~September 30,~~December 31, 2018, the Company had no0 interest rate ~~locks with a weighted average pull-through rate, and a weighted average pull-through rate~~locks.

-45-

Table of ~~approximately 80% as of December 31, 2017. The interest rate lock commitments are recorded as a component of “Other Assets” on the Company’s Consolidated Balance Sheet.~~Contents

AFS Securities

AFS securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by

observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).

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

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

The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of September 30, ~~2018~~2019 and December 31, ~~2017.~~

2018.

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

~~Marketable Equity Securities~~

~~Marketable securities are carried at fair value. Fair value is based on the reported market price of the publicly traded stock (Level 1).~~

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). ~~At September 30, 2018, loans held for sale are included in "Assets of discontinued operations"~~Gains and losses on the ~~Company's~~sale of loans are recorded in current period earnings as a component of "Mortgage banking income, net" on the Company’s Consolidated ~~Balance Sheets. Refer to Note 13 "Segment Reporting & Discontinued Operations" for further discussion regarding discontinued operations.~~Statements of Income.

-46-

Table of Contents

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):

Fair Value Measurements at September 30, 2019 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

—

4,490

—

4,490

Obligations of states and political subdivisions

—

438,613

—

438,613

Corporate and other bonds

—

229,524

—

229,524

Mortgage-backed securities

—

1,243,165

—

1,243,165

Other securities

—

3,067

—

3,067

Loans held for sale

—

72,208

—

72,208

Derivatives:

Interest rate swap

—

74,422

—

74,422

LIABILITIES

Derivatives:

Interest rate swap

—

74,422

—

74,422

Cash flow hedges

—

1,323

—

1,323

Fair value hedges

—

8,527

—

8,527


	Fair Value Measurements at December 31, 2018 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:
Obligations of states and political subdivisions	$	—	$	468,491	$	—	$	468,491
Corporate and other bonds		—		167,696		—		167,696
Mortgage-backed securities		—		1,129,865		—		1,129,865
Other securities		—		8,769		—		8,769
Derivatives:
Interest rate swap		—		19,426		—		19,426
Fair value hedges		—		1,872		—		1,872

LIABILITIES
Derivatives:
Interest rate swap	$	—	$	19,426	$	—	$	19,426
Cash flow hedges		—		4,786		—		4,786
Fair value hedges		—		1,684		—		1,684

-47-

Table of Contents

Fair Value Measurements at September 30, 2018 using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Level 1 Level 2 Level 3 Balance
ASSETS

AFS securities:

Obligations of states and political subdivisions $ —
$ 563,473
$ —
$ 563,473
Corporate and other bonds —
161,492
—
161,492
Mortgage-backed securities —
1,146,913
—
1,146,913
Other securities —
11,263
—
11,263
Marketable equity securities 27,375
—
—
27,375
Loans held for sale —
360
—
360
Derivatives:

Interest rate swap —
23,943
—
23,943
Fair value hedges —
3,468
—
3,468

LIABILITIES

Derivatives:

Interest rate swap $ —
$ 23,943
$ —
$ 23,943
Cash flow hedges —
2,526
—
2,526

Fair Value Measurements at December 31, 2017 using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Level 1 Level 2 Level 3 Balance
ASSETS

AFS securities:

Obligations of states and political subdivisions $ —
$ 301,824
$ —
$ 301,824
Corporate and other bonds —
113,880
—
113,880
Mortgage-backed securities —
548,858
—
548,858
Other securities —
9,660
—
9,660
Loans held for sale —
40,662
—
40,662
Derivatives:

Interest rate swap —
1,350
—
1,350
Cash flow hedges —
49
—
49
Fair value hedges —
1,598
—
1,598
Interest rate lock commitments —
—
559
559
Best efforts forward delivery commitments —
—
12
12

LIABILITIES

Derivatives:

Interest rate swap $ —
$ 1,350
$ —
$ 1,350
Cash flow hedges —
8,005
—
8,005
Fair value hedges —
76
—
76

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.

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

Impaired loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is solely from the underlying value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. When evaluating the fair value, management may discount the appraisal further if, based on their understanding of the market conditions, it is determined the collateral is further impaired below the appraised value (Level 3). At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Level 3 weighted average adjustments related to impaired loans were ~~3.2%~~0.0% and ~~3.0%~~5.3%, respectively. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Collateral dependent impaired loans allocated to the ALL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Company’s Consolidated Statements of Income.

Foreclosed Properties & Former Bank Premises

Foreclosed properties and former bank premises are evaluated for impairment at least quarterly by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment and included as a component of noninterest expense. ~~Fair values of foreclosed~~Foreclosed properties and former bank premises are carried at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as Level 3 valuation. ~~At September 30, 2018 and December 31, 2017, the~~The Level 3 weighted average adjustments related to foreclosed property were approximately ~~3.6%~~3.7% for both September 30, 2019 and ~~22.5%, respectively.~~December 31, 2018. At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no0 Level 3 weighted average adjustments related to former bank premises.

Total valuation expenses related to foreclosed properties for the three ~~months ended September 30, 2018~~ and ~~2017 totaled $42,000 and $249,000, respectively. Total valuation expenses related to foreclosed properties for the~~ nine months ended September 30, 2019 and 2018 totaled $62,000, $546,000, $42,000 and ~~2017 totaled~~ $1.2 million, ~~and $506,000~~ respectively.

Total valuation expenses related to former bank premises for the three and nine months ended September 30, ~~2018 was $0~~2019 totaled $247,000 and $615,000. There were 0 valuation expenses related to former bank premises for the three and nine months ended September 30, ~~2017 was $339,000.~~

2018.

The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (dollars in thousands):

Fair Value Measurements at September 30, 2019 using

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Level 1

Level 2

Level 3

Balance

ASSETS

Impaired loans

—

1,837

Foreclosed properties

—

6,385

Former bank premises

—

5,533

-48-

Table of Contents

Fair Value Measurements at September 30, 2018 using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Level 1 Level 2 Level 3 Balance
ASSETS

Impaired loans $ —
$ —
$ 2,614
$ 2,614
Foreclosed properties —
—
6,800
6,800
Former bank premises —
—
4,615
4,615

Fair Value Measurements at December 31, 2017 using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Level 1 Level 2 Level 3 Balance
ASSETS

Impaired loans $ —
$ —
$ 3,229
$ 3,229
Foreclosed properties —
—
5,253
5,253
Former bank premises —
—
1,383
1,383


	Fair Value Measurements at December 31, 2018 using
			Significant
	Quoted Prices in		Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	—	$	—	$	3,734	$	3,734
Foreclosed properties		—		—		6,722		6,722
Former bank premises		—		—		2,090		2,090

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

2018. 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 September 30, 2019.

Loans

With the adoption of ASU No. 2016-01 ~~during the first quarter of~~in 2018, the fair value of loans at September 30, ~~2018~~2019 were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans. Beginning in the first quarter of 2019, the fair value of performing loans were estimated by utilizing two data sources for the selection of discount rates: either the recent origination rates from the Company over a 12-month period or an index to use recent originations from the market over a three-month period. At December 31, ~~2017,~~2018, the fair value of performing loans were estimated by discounting expected future cash flows using a yield curve that iswas constructed by adding a loan spread to a market yield curve. Loan spreads ~~are~~were based on spreads ~~currently~~ observed in the market for loans of similar type and structure.

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Fair value for impaired loans and their respective level within the fair value hierarchy are described in the previous disclosure related to fair value measurements of assets that are measured on a nonrecurring basis.

BOLI

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. ~~With the adoption of ASU No. 2016-01 during the first quarter of 2018, the~~The fair value of certificates of deposits ~~at September 30, 2018~~ were valued using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period. ~~At December 31, 2017, the fair value of certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.~~

~~Borrowings~~

The carrying value of the Company’s repurchase agreements is a reasonable estimate of fair value. With the adoption of ASU No. 2016-01 during the first quarter of 2018, subordinated debt and trust preferred cash flows at September 30, 2018 are forecasted at the stated coupon rate and discounted back to the measurement date using the prevailing market rate. The prevailing market rate is based on implied market yields for recently issued debt with similar durations by institutions of similar size. Other borrowings, including subordinated debt and trust preferred at December 31, 2017 are discounted using the current yield curve for the same type of borrowing. For borrowings with embedded optionality, a third party source is used to value the instrument.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

The carrying values and estimated fair values of the Company’s financial instruments at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows (dollars in thousands):

Fair Value Measurements at September 30, 2019 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

591,920

—

591,920

AFS securities

1,918,859

—

1,918,859

—

1,918,859

HTM securities

556,579

—

589,884

17,832

607,716

Restricted stock

132,310

—

132,310

—

132,310

Loans held for sale

72,208

—

72,208

—

72,208

Net loans

12,263,177

—

12,112,840

Derivatives:

Interest rate swap

74,422

—

74,422

—

74,422

Accrued interest receivable

51,606

—

51,606

—

51,606

BOLI

320,779

—

320,779

—

320,779

LIABILITIES

Deposits

13,044,712

—

13,083,351

—

13,083,351

Borrowings

1,549,181

—

1,520,708

—

1,520,708

Accrued interest payable

8,919

—

8,919

—

8,919

Derivatives:

Interest rate swap

74,422

—

74,422

—

74,422

Cash flow hedges

1,323

—

1,323

—

1,323

Fair value hedges

8,527

—

8,527

—

8,527

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Fair Value Measurements at September 30, 2018 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 $ 282,212
$ 282,212
$ —
$ —
$ 282,212
AFS securities 1,883,141
—
1,883,141
—
1,883,141
HTM securities 235,333
—
232,710
—
232,710
Marketable equity securities 27,375
27,375
—
—
27,375
Restricted stock 112,390
—
112,390
—
112,390
Loans held for sale 360
—
360
—
360
Net loans 9,370,304
—
—
9,258,960
9,258,960
Derivatives:

Interest rate swap 23,943
—
23,943
—
23,943
Fair value hedge 3,468
—
3,468
—
3,468
Interest rate lock commitments —
—
—
—
—
Accrued interest receivable 41,691
—
41,691
—
41,691
BOLI 261,874
—
261,874
—
261,874

LIABILITIES

Deposits $ 9,834,695
$ —
$ 9,851,948
$ —
$ 9,851,948
Borrowings 1,554,642
—
1,542,161
—
1,542,161
Accrued interest payable 6,017
—
6,017
—
6,017
Derivatives:

Interest rate swap 23,943
—
23,943
—
23,943
Cash flow hedges 2,526
—
2,526
—
2,526

Fair Value Measurements at December 31, 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 $ 199,373
$ 199,373
$ —
$ —
$ 199,373
AFS securities 974,222
—
974,222
—
974,222
HTM securities 199,639
—
203,483
—
203,483
Restricted stock 75,283
—
75,283
—
75,283
Loans held for sale 40,662
—
40,662
—
40,662
Net loans 7,103,344
—
—
7,117,593
7,117,593
Derivatives:

Interest rate swap 1,350
—
1,350
—
1,350
Cash flow hedges 49
—
49
—
49
Fair value hedges 1,598
—
1,598

—
1,598
Interest rate lock commitments 559
—
—
559
559
Best efforts forward delivery commitments 12
—
—
12
12
Accrued interest receivable 26,427
—
26,427
—
26,427
BOLI 182,854
—
182,854
—
182,854

LIABILITIES

Deposits $ 6,991,718
$ —
$ 6,977,845
$ —
$ 6,977,845
Borrowings 1,219,414
—
1,198,645
—
1,198,645
Accrued interest payable 2,538
—
2,538
—
2,538
Derivatives:

Interest rate swap 1,350
—
1,350
—
1,350
Cash flow hedges 8,005
—
8,005
—
8,005
Fair value hedges 76
—
76
—
76


	Fair Value Measurements at December 31, 2018 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	$	261,199	$	261,199	$	—	$	—	$	261,199
AFS securities		1,774,821		—		1,774,821		—		1,774,821
HTM securities		492,272		—		499,501		—		499,501
Restricted stock		124,602		—		124,602		—		124,602
Net loans		9,675,162		—		—		9,534,717		9,534,717
Derivatives:
Interest rate swap		19,426		—		19,426		—		19,426
Fair value hedges		1,872		—		1,872		—		1,872
Accrued interest receivable		46,062		—		46,062		—		46,062
BOLI		263,034		—		263,034		—		263,034

LIABILITIES
Deposits	$	9,970,960	$	—	$	9,989,788	$	—	$	9,989,788
Borrowings		1,756,278		—		1,742,038		—		1,742,038
Accrued interest payable		5,284		—		5,284		—		5,284
Derivatives:
Interest rate swap		19,426		—		19,426		—		19,426
Cash flow hedges		4,786		—		4,786		—		4,786
Fair value hedges		1,684		—		1,684		—		1,684

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

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~~11.~~

12. REVENUE

~~On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606~~”, and all subsequent amendments to the ASU No. 2014-09. Using Topic 606 guidelines and other authoritative guidance, the Company concluded that Topic 606 applies to noninterest income excluding out of scope revenue such as mortgage banking income, gains on securities transactions, and trading revenue (i.e., derivatives).

Public entities are required to disclose (1) revenue disaggregated into categories that show how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors; (2) contract balances; (3) a description of when performance obligations are satisfied; and (4) significant judgments made in evaluating when a customer obtains control of promised goods or services for performance obligations satisfied at a point in time.

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. Additionally, due to the short duration of most customer contracts the revenue from which constitutes noninterest income, the Company will not need to make many judgments that would affect the amount and timing of revenue.

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. However, for income related to most 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 nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, consisted of the following (dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2019		2018		2019		2018
Noninterest income:
Deposit Service Charges ⁽¹⁾:
Overdraft fees, net	$	6,021	$	5,345	$	17,847	$	15,338
Maintenance fees & other		1,654		1,138		4,484		3,228
Other service charges and fees ⁽¹⁾		1,513		1,625		4,879		4,137
Interchange fees, net ⁽¹⁾		2,108		4,882		12,765		14,163
Fiduciary and asset management fees ⁽¹⁾:
Trust asset management fees		2,661		1,321		5,977		4,102
Registered advisor management fees, net		2,219		2,110		7,919		4,435
Brokerage management fees, net		1,202		980		2,938		2,970
Mortgage banking income, net		3,374		—		7,614		—
Gains (losses) on securities transactions, net		7,104		97		7,306		222
Bank owned life insurance income		2,062		1,732		6,191		5,126
Loan-related interest rate swap fees, net		5,480		562		10,656		2,178
Gain on Shore Premier sale		—		(933)		—		19,966
Other operating income ⁽²⁾		12,708		1,028		15,045		4,887
Total noninterest income⁽³⁾	$	48,106	$	19,887	$	103,621	$	80,752

Three Months Ended Nine Months Ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017
Noninterest income:
Deposit Service Charges ⁽¹⁾:

   Overdraft fees, net $ 5,345
$ 4,067
$ 15,338
$ 11,643
   Maintenance fees & other 1,138
728
3,228
2,281
Other service charges and fees ⁽¹⁾
1,625
1,131
4,137
3,391
Interchange fees, net ⁽¹⁾
4,882
3,756
14,163
11,205
Fiduciary and asset management fees ⁽¹⁾:

   Trust asset management fees 1,321
1,290
4,102
3,815
   Registered advisor management fees, net 2,110
688
4,435
1,995
   Brokerage management fees, net 980
816
2,970
2,503
Gains (losses) on securities transactions, net 97
184
222
782
Bank owned life insurance income 1,732
1,377
5,126
4,837
Loan-related interest rate swap fees 562
416
2,178
2,627
Gain on Shore Premier sale ⁽³⁾
(933 ) —
19,966
—
Other operating income ⁽²⁾
1,028
777
4,887
2,226
Total noninterest income⁽⁴⁾
$ 19,887
$ 15,230
$ 80,752
$ 47,305

(1) Income within scope of Topic 606.

(2) Includes income within the scope of Topic 606 of ~~$946,000~~$343,000 and ~~$648,000~~$946,000 for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$2.5~~$2.2 million and ~~$1.7~~$2.5 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The remaining balance is outside the scope of Topic ~~606.~~

606 and includes $9.3 million from life insurance proceeds received during the three months ended September 30, 2019 related to a Xenith acquired loan that had been charged off prior to the Company’s acquisition of Xenith.

(3) The initial estimated pre-tax gain recorded in the second quarter of 2018 for the Shore Premier sale was subsequently adjusted down in the third quarter by $933,000 due to updated information and wind-down costs incurred.

~~(4)~~ Noninterest income for the discontinued mortgage segment is reported in Note ~~13,~~14 "Segment Reporting & Discontinued Operations."

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~~12.~~

13. EARNINGS PER SHARE

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

The following table presents EPS from continuing operations, discontinued operations and total net income available to common shareholders for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (dollars in thousands except per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net Income:
Income from continuing operations	$	53,196	$	38,762	$	137,820	$	105,136
Income (loss) from discontinued operations		42		(565)		(128)		(2,973)
Net income available to common shareholders	$	53,238	$	38,197	$	137,692	$	102,163


Weighted average shares outstanding, basic		81,769		65,975		80,121		65,818
Dilutive effect of stock awards and warrants		64		38		63		55
Weighted average shares outstanding, diluted		81,833		66,013		80,184		65,873


Basic EPS:
EPS from continuing operations	$	0.65	$	0.59	$	1.72	$	1.60
EPS from discontinued operations		—		(0.01)		—		(0.05)
EPS available to common shareholders	$	0.65	$	0.58	$	1.72	$	1.55

Diluted EPS:
EPS from continuing operations	$	0.65	$	0.59	$	1.72	$	1.60
EPS from discontinued operations		—		(0.01)		—		(0.05)
EPS available to common shareholders	$	0.65	$	0.58	$	1.72	$	1.55

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Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net Income:
  Income from continuing operations $ 38,762
$ 20,420
$ 105,136
$ 57,084
  Income (loss) from discontinued operations (565 ) 238
(2,973 ) 653
  Net income available to common shareholders $ 38,197
$ 20,658
$ 102,163
$ 57,737

Weighted average shares outstanding, basic $ 65,975
$ 43,707
$ 65,818
$ 43,685
  Dilutive effect of stock awards and warrants 38
85
55
83
Weighted average shares outstanding, diluted $ 66,013
$ 43,792
$ 65,873
43,768

Basic EPS:
  EPS from continuing operations $ 0.59
$ 0.46
$ 1.60
$ 1.31
  EPS from discontinued operations (0.01 ) 0.01
(0.05 ) 0.01
  EPS available to common shareholders $ 0.58
$ 0.47
$ 1.55
$ 1.32

Diluted EPS:
  EPS from continuing operations $ 0.59
$ 0.46
$ 1.60
$ 1.31
  EPS from discontinued operations (0.01 ) 0.01
(0.05 ) 0.01
  EPS available to common shareholders $ 0.58
$ 0.47
$ 1.55
$ 1.32

~~13.~~

14. SEGMENT REPORTING & DISCONTINUED OPERATIONS

On May 23, 2018, the Bank announced that it had entered into an agreement with a third party mortgage company TFSB to allow TFSB to offer residential mortgages from certain Bank locations on the terms and conditions set forth in the agreement. Concurrently with this arrangement, the Bank began the process of winding down the operations of UMG, the ~~Company's~~Company’s reportable mortgage segment. Effective at the close of business June 1, 2018, UMG was no longer originating mortgages in its name. The decision to ~~exit~~wind down the ~~mortgage business~~operations of UMG was based on a number of strategic priorities and other factors, including the additional investment in the business required to achieve the necessary scale to be competitive. As a result of this decision, the community bank segment is the only remaining reportable segment and does not require separate reporting disclosures.

On May 30, 2019, the Bank notified TFSB that the Bank was terminating its primary agreement with TFSB and would no longer allow TFSB to offer residential mortgages from Bank locations. UMG operations remain discontinued, although the Company continues to offer residential mortgages through a division of the Bank.

As of September 30, ~~2018,~~2019, the Company’s Consolidated Balance Sheets included assets and liabilities from discontinued operations ~~totaled $2.1 million, which~~of $863,000 and $763,000, respectively. As of December 31, 2018, the Company’s Consolidated Balance Sheets included ~~$360,000 of loans held for sale,~~assets and ~~were reported in assets~~liabilities from discontinued operations ~~on the Company's Consolidated Balance Sheet. The Company also reported $2.6~~of $1.5 million ~~as liabilities of discontinued operations on the Company's Consolidated Balance Sheet.~~and $1.7 million, respectively. Management believes there are no material on-going obligations with respect to ~~the mortgage banking~~UMG’s business that have not been recorded in the ~~Company's~~Company’s consolidated financial statements.

The following table presents summarized operating results of the discontinued mortgage segment for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively (dollars in thousands):


		Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net interest income	$	—	$	207	$	—	$	850
Provision for credit losses		—		83		—		(181)
Net interest income after provision for credit losses		—		124		—		1,031
Noninterest income		—		181		1		3,891
Noninterest expenses		(56)		1,066		174		8,690
Income before income taxes		56		(761)		(173)		(3,768)
Income tax expense (benefit)		14		(196)		(45)		(795)
Net income (loss) on discontinued operations	$	42	$	(565)	$	(128)	$	(2,973)

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Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net interest income $ 207
$ 351
$ 850
$ 847
Provision for credit losses 83
(6 ) (181 ) 1
Net interest income after provision for credit losses 124
357
1,031
846
Noninterest income 181
2,306
3,891
7,125
Noninterest expenses 1,066
2,292
8,690
6,950
Income before income taxes (761 ) 371
(3,768 ) 1,021
Income tax expense (benefit) (196 ) 133
(795 ) 368
Net income (loss) on discontinued operations $ (565 ) $ 238
$ (2,973 ) $ 653

~~14. SUBSEQUENT EVENTS~~

On October 5, 2018, the Company announced it has entered into a definitive merger agreement to acquire Access in an all-stock transaction. Subject to the terms and conditions stated in the merger agreement, upon the consummation of the merger each share of Access common stock will be converted into the right to receive 0.75 shares of the Company’s common stock. The transaction is expected to close in the first quarter of 2019.

Report of Independent Registered Public Accounting Firm

~~The~~

To the Stockholders and the Board of Directors ~~and Stockholders~~ 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 30, ~~2018,~~2019, the related consolidated statements of income and comprehensive income for the three and nine-month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, the consolidated statements of changes in stockholders’ equity and cash flows for the nine-month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, 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 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)(PCAOB), the consolidated balance sheet of the Company as of December 31, ~~2017,~~2018, 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 27, ~~2018,~~2019, 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, ~~2017,~~2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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 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 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.

/s/ Ernst & Young LLP

Richmond, Virginia

November 5, 2019

~~November 6, 2018~~

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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 the Company. This discussion and analysis should be read with the ~~Company's~~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 ~~2017~~2018 Form 10-K, including management’s discussion and analysis. Highlighted in the discussion are material changes from prior reporting periods and any identifiable trends affecting the Company. Results of operations for the interim periods are not necessarily indicative of results that may be 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 include, without limitation, projections, predictions, expectations, or beliefs about future events or results that are not statements of historical fact. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties, and other factors 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 accompanied by words 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, performance, achievements or ~~achievements~~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;

●

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

●

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

●

the possibility that any of the anticipated benefits of the acquisition of Access will not be realized or will not be realized within the expected time period, the expected revenue synergies and cost savings from the acquisition may not be fully realized or realized within the expected time frame, revenues following the acquisition may be lower than expected, or customer and employee relationships and business operations may be disrupted by the acquisition;

●

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 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 threats, attacks, or events;

●

performance by the Company’s counterparties or vendors;

●

deposit flows;

-56-

~~the possibility that any~~

Table of the anticipated benefits of the acquisition of Xenith will not be realized or will not be realized within the expected time period, the expected revenue synergies and cost savings from the acquisition may not be fully realized or realized within the expected time frame, revenues following the acquisition may be lower than expected, or customer and employee relationships and business operations may be disrupted by the acquisition,Contents

~~changes in interest rates;~~

●

the availability of financing and the terms thereof;

●

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

●

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.

~~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;~~

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

the ability to obtain regulatory, shareholder or other approvals or other conditions to closing the pending merger with Access on a timely basis or at all, the ability to close the pending merger with Access on the expected timeframe, or at all, that closing may be more difficult, time-consuming or costly than expected, and that if the pending merger with Access is consummated, the businesses of the Company and Access may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected;

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

~~an insufficient allowance for loan losses;~~

~~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 threats, 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;~~

~~the impact of the Tax Act, including, but not limited to, the effect of the lower corporate tax rate, including on the valuation of the Company's tax assets and liabilities;~~

~~any future refinements to the Company's preliminary analysis of the impact of the Tax Act on the Company;~~

~~changes in the effect of the Tax Act due to issuance of interpretive regulatory guidance or enactment of corrective or supplement legislation;~~

~~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;~~

~~changes to applicable accounting principles and guidelines; and~~

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

Please refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operation”~~Operations” sections of the~~Company's~~ Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and comparable ~~"Risk Factors" section~~sections of this Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2018~~2019 and related disclosures in other filings, which have been filed with the SEC and are and are available on the SEC’s website at www.sec.gov. ~~The~~All of the forward-looking statements made in this Quarterly Report are expressly qualified by the cautionary statements contained or referred to herein.The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to 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 date they are made and the Company does not undertake any obligation to update, revise, or clarify these forward-looking statements whether as a result of new information, future events or 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 of the Company.

The critical accounting and reporting policies include the Company’s accounting for the ALL, 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 ~~2017~~2018 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 ~~2017~~2018 Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS (ISSUED BUT NOT ADOPTED)

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU contains significant differences from existing GAAP and is effective for the Company on January 1, 2020. 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. 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 reasonable and supportable information to inform credit loss estimates. The CECL model will replace the Company’s current accounting for PCI and impaired loans. This ASU also amends the AFS debt securities OTTI model. The lifetime expected credit losses will be determined using macroeconomic forecast

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Table of Contents

assumptions and management judgements applicable to and through the expected lives of the portfolios. While the implementation of the standard changes the measurement of the allowance for credit losses, it does not change the credit risk of the Company’s lending portfolios or the losses of these portfolios.

The Company has established a cross-functional governance structure for the implementation of CECL. Upon adoption of the standard, assuming the economic outlook and portfolio characteristic are consistent with recent periods, the Company estimates that the allowance for credit losses will increase to approximately $90 million to $100 million. A majority of the estimated increase is driven by the acquired loan portfolio and the consumer loan portfolio. The ultimate impact on the Company’s allowance for credit losses will depend on the characteristics of the Company’s portfolios as well as the macroeconomic conditions and forecasts upon adoption, the ultimate validation of the models and methodologies, and other management judgments.

ABOUT ATLANTIC UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: ~~UBSH)~~AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank ~~& Trust, which~~ has ~~140~~149 branches ~~seven of which are operated as Xenith Bank, a division of Union Bank & Trust of Richmond, Virginia,~~ and ~~approximately190~~approximately 170 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. ~~Non-bank~~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 Company~~Atlantic Union Bank include: ~~ODCM, DHFB,~~Old Dominion Capital Management, Inc., and ~~OAL,~~its subsidiary, Outfitter Advisors, Ltd., Dixon, Hubard, Feinour, & Brown, Inc., and Middleburg Investment Services, LLC, which ~~both~~ provide investment advisory ~~services,~~and/or brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

Shares of the Company’s common stock are traded on the 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.

RESULTS OF OPERATIONS

Executive Overview

On ~~January~~February 1, ~~2018,~~2019, the Company completed the acquisition of ~~Xenith,~~Access, a bank holding company based in ~~Richmond,~~Reston, Virginia. ~~The Company's three and nine month results for 2018 include the financial results of Xenith.~~

On April 1, 2018 the Bank completed its acquisition of DHFB, a Roanoke, Virginia based investment advisory firm. The financial results of DHFB are included in the Company's results starting in the second quarter of 2018.

On May 23, 2018, the Bank announced that it had entered into an agreement with a third party mortgage company TFSB, to allow TFSB to offer residential mortgages from certain Bank locations on the terms and conditions set forth in the agreement. Concurrently with this arrangement, the Bank began the process of winding down the operations of UMG, the Company's reportable mortgage segment. Effective at the close of business June 1, 2018, UMG was no longer originating mortgages in its name. In connection with this transaction,20, 2019, the Company ~~recorded exit~~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 ~~totaling approximately $3.4~~amounted to $1.1 million in the second quarter of 2018 and $199,000 in the third quarter of 2018, which includes goodwill impairment of approximately $864,000. These costs and the Company's mortgage segment results are reported as discontinued operations.

On June 29, 2018, the Bank entered into an agreement to sell substantially all of the assets and certain specific liabilities of Shore Premier, consisting primarily of marine loans totaling $383.9 million, for approximately $375.0 million in cash and 1,250,000 shares of the purchasing company's common stock. The initial estimated after-tax gain recorded in the second quarter of 2018 was $16.5 million, net of transaction and other related costs, which was subsequently reduced by $737,000 in the third quarter based on updated information obtained and wind-down costs incurred.

~~On June 29, 2018, the Bank sold approximately $206.3 million in consumer home improvement loans that had been originated through a third-party lending program. These loans were sold at par.~~

On July 1, 2018, ODCM, a subsidiary of the Bank, completed its acquisition of OAL, a McLean, Virginia based investment advisory firm. The Company's three and nine months ended September 30, 2018 financial results include the financial results of OAL.

The Company closed three branches during the second quarter of 2018 as part of the conversion activities related to its acquisition of Xenith. After further analyzing its branch footprint, the Company decided to consolidate an additional seven branches, approximately 5% of the Company's branch network, during the third quarter of ~~2018. This resulted in after-tax branch closure costs of approximately $474,000 recorded in the second quarter of 2018~~2019 and ~~an additional $375,000 that were recorded in the third quarter of 2018.~~

~~The Company incurred approximately $565,000 in after-tax costs related to executive management changes during the third quarter of 2018.~~

~~On October 5, 2018, the Company announced it entered into a definitive merger agreement to acquire Access in an~~

~~all-stock transaction. Subject to the terms and conditions stated in the merger agreement, upon the consummation of~~

~~the merger each share of Access common stock will be converted into the right to receive 0.75 shares of the Company’s~~

common stock. The transaction is expected to close in the first quarter of 2019. The Company's three and nine months ended September 30, 2018 financial results did not include the financial results of Access.

~~Third Quarter Net Income and Performance Metrics~~

~~Net income was $38.2~~$5.6 million ~~and EPS was $0.58 for the third quarter of 2018 compared to net income of $20.7 million and EPS of $0.47 for the third quarter of 2017.~~


•	~~Net operating earnings~~⁽¹⁾~~, which excluded after-tax merger-related costs of $1.1 million, were $39.3 million and operating EPS~~⁽¹⁾ ~~was $0.60 for the third quarter of 2018 compared to $21.3 million, or $0.49, for the third quarter of 2017.~~


•	~~ROA was 1.17% for the third quarter of 2018 compared to 0.91% for the third quarter of 2017; operating ROA~~⁽¹⁾ ~~was 1.21% for the third quarter of 2018 compared to 0.94% for the third quarter of 2017.~~


•	~~ROE was 8.06% for the third quarter of 2018 compared to 7.90% for the third quarter of 2017; operating ROE~~⁽¹⁾ ~~was 8.30% for the third quarter of 2018 compared to 8.15% for the third quarter of 2017.~~


•	~~ROTCE~~⁽¹⁾ ~~was 13.73% for the third quarter of 2018 compared to 11.34% for the third quarter of 2017; operating ROTCE~~⁽¹⁾ ~~was 14.14% for the third quarter of 2018 compared to 11.70% for the third quarter of 2017.~~

~~Nine Months Net Income and Performance Metrics~~

~~Net income was $102.2 million and EPS was $1.55~~ for the nine months ended September 30, ~~2018 compared to net income of $57.7 million~~2019.

Third Quarter Net Income and ~~EPS of $1.32 for the nine months ended September 30, 2017.~~

Performance Metrics

●

Net income was $53.2 million and EPS was $0.65 for the third quarter of 2019 compared to net income of $38.2 million and EPS of $0.58 for the third quarter of 2018.

•

●

Net operating earnings⁽¹⁾, which excluded $1.9 million in after-tax ~~merger-related~~merger and $895,000 in after-tax rebranding-related costs, ~~of $29.9 million,~~ were ~~$132.1~~$56.1 million and operating EPS⁽¹⁾was $0.69 for the third quarter of 2019 compared to $39.3 million, or $0.60, for the third quarter of 2018.

●

ROA was 1.23% for the third quarter of 2019 compared to 1.17% for the third quarter of 2018; operating ROA⁽¹⁾was 1.29% for the third quarter of 2019 compared to 1.21% for the third quarter of 2018.

●

ROE was 8.35% for the third quarter of 2019 compared to 8.06% for the third quarter of 2018; operating ROE⁽¹⁾was 8.80% for the third quarter of 2019 compared to 8.30% for the third quarter of 2018.

●

Operating ROTCE⁽¹⁾was 15.64% for the third quarter of 2019 compared to 15.13% for the third quarter of 2018.

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Table of Contents

Nine Month Net Income and Performance Metrics

●

Net income was $137.7 million and EPS was $1.72 for the nine months ended September 30, 2019 compared to net income of $102.2 million and EPS of $1.55 for the nine months ended September 30, 2018.

●

Net operating earnings⁽¹⁾, which excluded $21.6 million in after-tax merger and $4.4 million in after-tax rebranding-related costs, were $163.7 million and operating EPS⁽¹⁾was $2.04 for the nine months ended September 30, 2019 compared to $132.1 million, or $2.01, for the nine months ended September 30, ~~2018 compared to $60.8 million, or $1.39,~~2018.

●

ROA was 1.11% for the nine months ended September 30, ~~2017.~~


•	~~ROA was~~2019 compared to 1.05% for the nine months ended September 30, ~~2018 compared to 0.88%~~2018; operating ROA⁽¹⁾was 1.32% for the nine months ended September 30, ~~2017; operating ROA~~⁽¹⁾ ~~was~~2019 compared to 1.35% for the nine months ended September 30, ~~2018 compared to 0.93%~~2018.

●

ROE was 7.58% for the nine months ended September 30, ~~2017.~~


•	~~ROE was~~2019 compared to 7.38% for the nine months ended September 30, ~~2018 compared to 7.53%~~2018; operating ROE⁽¹⁾was 9.01% for the nine months ended September 30, ~~2017; operating ROE~~⁽¹⁾ ~~was~~2019 compared to 9.54% for the nine months ended September 30, ~~2018 compared to 7.93%~~2018.

●

Operating ROTCE⁽¹⁾was 16.18% for the nine months ended September 30, ~~2017.~~


•	~~ROTCE~~⁽¹⁾ ~~was 12.71%~~2019 compared to 17.41% for the nine months ended September 30, ~~2018 compared to 10.90%~~2018.

Balance Sheet

●

Loans held for ~~the nine months ended~~investment (net of deferred fees and costs) were $12.3 billion at September 30, ~~2017; operating ROTCE~~⁽¹⁾ ~~was 16.44% for the nine months ended~~2019, an increase of $2.6 billion, or 26.7%, from December 31, 2018.

●

Total deposits were $13.0 billion at September 30, ~~2018 compared to 11.47% for the nine months ended September 30, 2017.~~2019, an increase of $3.1 billion, or 30.8%, from December 31, 2018.

~~Balance Sheet~~

Loans held for investment, net of deferred fees and costs, were $9.4 billion at September 30, 2018, an increase of $2.3 billion, or 31.8%, from December 31, 2017. On a pro forma basis, including Xenith loans and adjusted for the sale of loans in the second quarter of 2018, loans held for investment grew $379.0 million, or 5.6% (annualized), from January 1, 2018.

Total deposits were $9.8 billion at September 30, 2018, an increase of $2.8 billion, or 40.7%, from December 31, 2017. On a pro forma basis, including Xenith deposits, deposits grew $293.3 million, or 4.1% (annualized) from January 1, 2018.

(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.

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Table of Contents

Net Interest Income


	For the Three Months Ended
	September 30,
	2019			2018			Change
	(Dollars in thousands)
Average interest-earning assets	$	15,191,792		$	11,383,320		$	3,808,472
Interest and dividend income	$	178,345		$	131,363		$	46,982
Interest and dividend income (FTE) ⁽¹⁾	$	181,149		$	133,377		$	47,772
Yield on interest-earning assets		4.66	%		4.58	%		8	bps
Yield on interest-earning assets (FTE) ⁽¹⁾		4.73	%		4.65	%		8	bps
Average interest-bearing liabilities	$	11,427,305		$	8,790,803		$	2,636,502
Interest expense	$	41,744		$	25,400		$	16,344
Cost of interest-bearing liabilities		1.45	%		1.15	%		30	bps
Cost of funds		1.09	%		0.89	%		20	bps
Net interest income	$	136,601		$	105,963		$	30,638
Net interest income (FTE) ⁽¹⁾	$	139,405		$	107,977		$	31,428
Net interest margin		3.57	%		3.69	%		(12)	bps
Net interest margin (FTE) ⁽¹⁾		3.64	%		3.76	%		(12)	bps

For the Three Months Ended
September 30,

2018 2017 Change
(Dollars in thousands)
Average interest-earning assets $ 11,383,320
$ 8,167,919
$ 3,215,401

Interest and dividend income $ 131,363
$ 84,499
$ 46,864

Interest and dividend income (FTE) ⁽¹⁾
$ 133,377
$ 87,498
$ 45,879

Yield on interest-earning assets 4.58 % 4.10 % 48
bps
Yield on interest-earning assets (FTE) ⁽¹⁾
4.65 % 4.25 % 40
bps
Average interest-bearing liabilities $ 8,790,803
$ 6,382,452
$ 2,408,351

Interest expense $ 25,400
$ 13,652
$ 11,748

Cost of interest-bearing liabilities 1.15 % 0.85 % 30
bps
Cost of funds 0.89 % 0.66 % 23
bps
Net interest income $ 105,963
$ 70,847
$ 35,116

Net interest income (FTE) ⁽¹⁾
$ 107,977
$ 73,846
$ 34,131

Net interest margin 3.69 % 3.44 % 25
bps
Net interest margin (FTE) ⁽¹⁾
3.76 % 3.59 % 17
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 third quarter of ~~2018,~~2019, net interest income was ~~$106.0~~$136.6 million, an increase of ~~$35.1~~$30.6 million from the third quarter of ~~2017.~~2018. For the third quarter of ~~2018,~~2019, net interest income (FTE) was ~~$108.0~~$139.4 million, an increase of ~~$34.1~~$31.4 million from the third quarter of ~~2017.~~2018. The increases in both net interest income and net interest income (FTE) were primarily the result of a ~~$3.2~~$3.8 billion increase in average interest-earning assets and a ~~$2.4~~$2.6 billion increase in average interest-bearing liabilities from the impact of the Access acquisition ~~of Xenith~~ during the ~~three months ended September 30, 2018 compared to the three months ended September 30, 2017.~~ first quarter of 2019. Net accretion related to acquisition accounting increased ~~$2.2~~$1.2 million from the third quarter of ~~2017~~2018 to ~~$3.9~~$5.1 million in the third quarter of ~~2018.~~2019. In the third quarter of ~~2018,~~2019, net interest margin ~~increased 25~~decreased 12 basis points to

~~3.69%~~ 3.57% from ~~3.44%~~3.69% in the third quarter of ~~2017,~~2018, and net interest margin (FTE) ~~increased 17~~decreased 12 basis points compared to the third quarter of ~~2017.~~2018. The net ~~increases~~decline in net interest margin and net interest margin (FTE) measures were primarily driven by an increase in the ~~yield on earnings assets,~~cost of funds, partially offset by a smaller increase in ~~cost~~interest-earning asset yields.

-60-

Table of ~~funds during the three months ended September 30, 2018 compared to the three months ended September 30, 2017.~~Contents


	For the Nine Months Ended
	September 30,
	2019			2018			Change
	(Dollars in thousands)
Average interest-earning assets	$	14,700,019		$	11,506,200		$	3,193,819
Interest and dividend income	$	525,122		$	388,151		$	136,971
Interest and dividend income (FTE) ⁽¹⁾	$	533,590		$	394,011		$	139,579
Yield on interest-earning assets		4.78	%		4.51	%		27	bps
Yield on interest-earning assets (FTE) ⁽¹⁾		4.85	%		4.58	%		27	bps
Average interest-bearing liabilities	$	11,161,458		$	9,019,738		$	2,141,720
Interest expense	$	122,379		$	70,549		$	51,830
Cost of interest-bearing liabilities		1.47	%		1.05	%		42	bps
Cost of funds		1.11	%		0.82	%		29	bps
Net interest income	$	402,743		$	317,602		$	85,141
Net interest income (FTE) ⁽¹⁾	$	411,211		$	323,462		$	87,749
Net interest margin		3.66	%		3.69	%		(3)	bps
Net interest margin (FTE) ⁽¹⁾		3.74	%		3.76	%		(2)	bps

For the Nine Months Ended
September 30,

2018 2017 Change
(Dollars in thousands)
Average interest-earning assets $ 11,506,200
$ 7,922,944
$ 3,583,256

Interest and dividend income $ 388,151
$ 241,865
$ 146,286

Interest and dividend income (FTE) ⁽¹⁾
$ 394,011
$ 250,548
$ 143,463

Yield on interest-earning assets 4.51 % 4.08 % 43
bps
Yield on interest-earning assets (FTE) ⁽¹⁾
4.58 % 4.23 % 35
bps
Average interest-bearing liabilities $ 9,019,738
$ 6,196,663
$ 2,823,075

Interest expense $ 70,549
$ 35,947
$ 34,602

Cost of interest-bearing liabilities 1.05 % 0.78 % 27
bps
Cost of funds 0.82 % 0.61 % 21
bps
Net interest income $ 317,602
$ 205,918
$ 111,684

Net interest income (FTE) ⁽¹⁾
$ 323,462
$ 214,601
$ 108,861

Net interest margin 3.69 % 3.47 % 22
bps
Net interest margin (FTE) ⁽¹⁾
3.76 % 3.62 % 14
bps

(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 calculated in accordance with GAAP.

For the first nine months of ~~2018,~~2019, net interest income was ~~$317.6~~$402.7 million, an increase of ~~$111.7~~$85.1 million from the same period of ~~2017.~~2018. For the first nine months of ~~2018,~~2019, net interest income (FTE) was ~~$323.5~~$411.2 million, an increase of ~~$108.9~~$87.7 million from the same period of ~~2017.~~2018. The increases in both net interest income and net interest income (FTE) were primarily the result of a ~~$3.6~~$3.2 billion increase in average interest-earning assets and a ~~$2.8~~$2.1 billion increase in average interest-bearing liabilities from the impact of the acquisition of Xenith during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Net interest margin (FTE) includes the impact of acquisition accounting fair value adjustments.Access acquisition. Net accretion related to acquisition accounting increased ~~$10.6~~$3.3 million from the first nine months of ~~2017~~2018 to ~~$15.4~~$18.7 million for the first nine months of ~~2018.~~2019. In the first nine months of ~~2018,~~2019, net interest margin ~~increased 22~~decreased 3 basis points to ~~3.69%~~3.66% from ~~3.47%~~3.69% in the first nine months of ~~2017,~~2018, and net interest margin (FTE) ~~increased 14~~decreased 2 basis points compared to the first nine months of ~~2017.~~2018. The net ~~increases~~decreases in net interest margin and net interest margin (FTE) measures were primarily driven by an increase in the ~~yield on earnings assets,~~cost of funds, partially offset by a smaller increase in ~~cost~~interest-earning asset yields.

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Table of ~~funds during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.~~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 September 30,
	2019						2018
			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	$	1,670,270	$	12,625	3.00	%	$	1,333,960	$	10,145	3.02	%
Tax-exempt		990,000		10,181	4.08	%		632,050		6,214	3.90	%
Total securities		2,660,270		22,806	3.40	%		1,966,010		16,359	3.30	%
Loans, net ^{(3) (4)}		12,240,254		156,471	5.07	%		9,297,213		116,266	4.96	%
Other earning assets		291,268		1,872	2.55	%		120,097		752	2.49	%
Total earning assets		15,191,792	$	181,149	4.73	%		11,383,320	$	133,377	4.65	%
Allowance for loan losses		(46,229)						(41,799)
Total non-earning assets		2,057,765						1,605,831
Total assets	$	17,203,328					$	12,947,352
Liabilities and Stockholders' Equity:						��
Interest-bearing deposits:
Transaction and money market accounts	$	6,290,112	$	16,389	1.03	%	$	4,915,070	$	8,789	0.71	%
Regular savings		743,938		266	0.14	%		640,954		209	0.13	%
Time deposits ⁽⁵⁾		2,769,574		14,194	2.03	%		2,079,686		6,930	1.32	%
Total interest-bearing deposits		9,803,624		30,849	1.25	%		7,635,710		15,928	0.83	%
Other borrowings ⁽⁶⁾		1,623,681		10,895	2.66	%		1,155,093		9,472	3.25	%
Total interest-bearing liabilities		11,427,305	$	41,744	1.45	%		8,790,803	$	25,400	1.15	%
Noninterest-bearing liabilities:
Demand deposits		3,008,587						2,167,765
Other liabilities		239,001						108,202
Total liabilities		14,674,893						11,066,770
Stockholders' equity		2,528,435						1,880,582
Total liabilities and stockholders' equity	$	17,203,328					$	12,947,352
Net interest income			$	139,405					$	107,977
Interest rate spread					3.28	%					3.50	%
Cost of funds					1.09	%					0.89	%
Net interest margin					3.64	%					3.76	%

For the Three Months Ended September 30,
2018 2017
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 $ 1,333,960
$ 10,145
3.02 % $ 774,513
$ 5,175
2.65 %
Tax-exempt 632,050
6,214
3.90 % 469,391
5,455
4.61 %
Total securities 1,966,010
16,359
3.30 % 1,243,904
10,630
3.39 %
Loans, net ^{(3) (4)}
9,297,213
116,266
4.96 % 6,822,498
76,333
4.44 %
Other earning assets 120,097
752
2.49 % 101,517
535
2.09 %
Total earning assets 11,383,320
$ 133,377
4.65 % 8,167,919
$ 87,498
4.25 %
Allowance for loan losses (41,799 )

(38,138 )

Total non-earning assets 1,605,831

844,183

Total assets $ 12,947,352

$ 8,973,964

Liabilities and Stockholders' Equity:

Interest-bearing deposits:

Transaction and money market accounts $ 4,915,070
$ 8,789
0.71 % $ 3,457,279
$ 3,491
0.40 %
Regular savings 640,954
209
0.13 % 555,153
151
0.11 %
Time deposits ⁽⁵⁾
2,079,686
6,930
1.32 % 1,289,794
3,592
1.10 %
Total interest-bearing deposits 7,635,710
15,928
0.83 % 5,302,226
7,234
0.54 %
Other borrowings ⁽⁶⁾
1,155,093
9,472
3.25 % 1,080,226
6,418
2.36 %
Total interest-bearing liabilities 8,790,803
$ 25,400
1.15 % 6,382,452
$ 13,652
0.85 %
Noninterest-bearing liabilities:

Demand deposits 2,167,765

1,495,614

Other liabilities 108,202

58,106

Total liabilities 11,066,770

7,936,172

Stockholders' equity 1,880,582

1,037,792

Total liabilities and stockholders' equity $ 12,947,352

$ 8,973,964

Net interest income
$ 107,977

$ 73,846

Interest rate spread

3.50 %

3.40 %
Cost of funds

0.89 %

0.66 %
Net interest margin

3.76 %

3.59 %

(1)Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21% ~~for the three months ended September 30, 2018 and 35% for the three months ended September 30, 2017.~~

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

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

(4)Interest income on loans includes ~~$3.5~~$5.0 million and ~~$1.7~~$3.5 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5)Interest expense on time deposits includes ~~$592,000~~$179,000 and $0$592,000 for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, in accretion of the fair market value adjustments related to acquisitions.

(6) Interest expense on borrowings includes ~~$143,000~~$97,000 and ~~($47,000)~~$143,000 for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, in amortization ~~(accretion)~~ of the fair market value adjustments related to acquisitions.

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Table of Contents

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


	For the Nine Months Ended September 30,
	2019						2018
			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	$	1,680,570	$	39,059	3.11	%	$	1,145,250	$	25,229	2.95	%
Tax-exempt		1,000,893		30,916	4.13	%		575,728		16,580	3.85	%
Total securities		2,681,463		69,975	3.49	%		1,720,978		41,809	3.25	%
Loans, net ^{(3) (4)}		11,821,612		459,905	5.20	%		9,594,094		349,439	4.87	%
Other earning assets		196,944		3,710	2.52	%		191,128		2,763	1.93	%
Total earning assets		14,700,019	$	533,590	4.85	%		11,506,200	$	394,011	4.58	%
Allowance for loan losses		(43,480)						(41,104)
Total non-earning assets		1,982,502						1,596,357
Total assets	$	16,639,041					$	13,061,453
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	6,102,783	$	46,895	1.03	%	$	4,837,648	$	21,135	0.58	%
Regular savings		751,341		1,083	0.19	%		645,084		636	0.13	%
Time deposits ⁽⁵⁾		2,554,058		36,110	1.89	%		2,076,321		18,416	1.19	%
Total interest-bearing deposits		9,408,182		84,088	1.19	%		7,559,053		40,187	0.71	%
Other borrowings ⁽⁶⁾		1,753,276		38,291	2.92	%		1,460,685		30,362	2.78	%
Total interest-bearing liabilities		11,161,458	$	122,379	1.47	%		9,019,738	$	70,549	1.05	%
Noninterest-bearing liabilities:
Demand deposits		2,842,017						2,079,645
Other liabilities		205,654						110,998
Total liabilities		14,209,129						11,210,381
Stockholders' equity		2,429,912						1,851,072
Total liabilities and stockholders' equity	$	16,639,041					$	13,061,453
Net interest income			$	411,211					$	323,462
Interest rate spread					3.38	%					3.53	%
Cost of funds					1.11	%					0.82	%
Net interest margin					3.74	%					3.76	%

For the Nine Months Ended September 30,
2018 2017
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 $ 1,145,250
$ 25,229
2.95 % $ 763,276
$ 15,081
2.64 %
Tax-exempt 575,728
16,580
3.85 % 463,944
16,338
4.71 %
Total securities 1,720,978
41,809
3.25 % 1,227,220
31,419
3.42 %
Loans, net ^{(3) (4)}
9,594,094
349,439
4.87 % 6,613,078
217,910
4.41 %
Other earning assets 191,128
2,763
1.93 % 82,646
1,219
1.97 %
Total earning assets 11,506,200
$ 394,011
4.58 % 7,922,944
$ 250,548
4.23 %
Allowance for loan losses (41,104 )

(38,205 )

Total non-earning assets 1,596,357

846,076

Total assets $ 13,061,453

$ 8,730,815

Liabilities and Stockholders' Equity:

Interest-bearing deposits:

Transaction and money market accounts $ 4,837,648
$ 21,135
0.58 % $ 3,344,248
$ 8,189
0.33 %
Regular savings 645,084
636
0.13 % 571,735
493
0.12 %
Time deposits ⁽⁵⁾
2,076,321
18,416
1.19 % 1,250,180
9,728
1.04 %
Total interest-bearing deposits 7,559,053
40,187
0.71 % 5,166,163
18,410
0.48 %
Other borrowings ⁽⁶⁾
1,460,685
30,362
2.78 % 1,030,500
17,537
2.28 %
Total interest-bearing liabilities 9,019,738
$ 70,549
1.05 % 6,196,663
$ 35,947
0.78 %
Noninterest-bearing liabilities:

Demand deposits 2,079,645

1,449,555

Other liabilities 110,998

59,744

Total liabilities 11,210,381

7,705,962

Stockholders' equity 1,851,072

1,024,853

Total liabilities and stockholders' equity $ 13,061,453

$ 8,730,815

Net interest income
$ 323,462

$ 214,601

Interest rate spread

3.53 %

3.45 %
Cost of funds

0.82 %

0.61 %
Net interest margin

3.76 %

3.62 %

(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21% ~~for the nine months ended September 30, 2018 and 35% for the nine months ended September 30, 2017.~~

(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 ~~$13.7~~$18.2 million and ~~$4.7~~$13.7 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5) Interest expense on time deposits includes $684,000 and $2.1 million ~~and $0~~ for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, in accretion of the fair market value adjustments related to acquisitions.

(6) Interest expense on borrowings includes ~~$345,000~~$237,000 and ~~($142,000)~~$345,000 for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, in amortization ~~(accretion)~~ of the fair market value adjustments related to acquisitions.

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Table of Contents

The 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						Nine Months Ended
	September 30, 2019 vs. September 30, 2018						September 30, 2019 vs. September 30, 2018
	Increase (Decrease) Due to Change in:						Increase (Decrease) Due to Change in:
	Volume		Rate		Total		Volume		Rate		Total
Earning Assets:
Securities:
Taxable	$	2,542	$	(62)	$	2,480	$	12,373	$	1,457	$	13,830
Tax-exempt		3,669		298		3,967		13,053		1,283		14,336
Total securities		6,211		236		6,447		25,426		2,740		28,166
Loans, net ⁽¹⁾		37,568		2,637		40,205		85,405		25,061		110,466
Other earning assets		1,100		20		1,120		87		860		947
Total earning assets	$	44,879	$	2,893	$	47,772	$	110,918	$	28,661	$	139,579
Interest-Bearing Liabilities:
Interest-bearing deposits:
Transaction and money market accounts	$	2,886	$	4,714	$	7,600	$	6,602	$	19,158	$	25,760
Regular savings		35		22		57		118		329		447
Time Deposits ⁽²⁾		2,771		4,493		7,264		4,940		12,754		17,694
Total interest-bearing deposits		5,692		9,229		14,921		11,660		32,241		43,901
Other borrowings ⁽³⁾		3,361		(1,938)		1,423		6,328		1,601		7,929
Total interest-bearing liabilities		9,053		7,291		16,344		17,988		33,842		51,830
Change in net interest income	$	35,826	$	(4,398)	$	31,428	$	92,930	$	(5,181)	$	87,749

Three Months Ended
September 30, 2018 vs. September 30, 2017
Increase (Decrease) Due to Change in: Nine Months Ended
September 30, 2018 vs. September 30, 2017
Increase (Decrease) Due to Change in:
Volume Rate Total Volume Rate Total
Earning Assets:

Securities:

Taxable $ 4,172
$ 798
$ 4,970
$ 8,252
$ 1,896
$ 10,148
Tax-exempt 1,689
(930 ) 759
3,528
(3,286 ) 242
Total securities 5,861
(132 ) 5,729
11,780
(1,390 ) 10,390
Loans, net ⁽¹⁾
30,149
9,784
39,933
106,615
24,914
131,529
Other earning assets 106
111
217
1,569
(25 ) 1,544
Total earning assets $ 36,116
$ 9,763
$ 45,879
$ 119,964
$ 23,499
$ 143,463
Interest-Bearing Liabilities:
Interest-bearing deposits:

Transaction and money market accounts $ 1,873
$ 3,425
$ 5,298
$ 4,697
$ 8,249
$ 12,946
Regular savings 25
33
58
67
76
143
Time Deposits ⁽²⁾
2,527
811
3,338
7,170
1,518
8,688
Total interest-bearing deposits 4,425
4,269
8,694
11,934
9,843
21,777
Other borrowings ⁽³⁾
471
2,583
3,054
8,380
4,445
12,825
Total interest-bearing liabilities 4,896
6,852
11,748
20,314
14,288
34,602
Change in net interest income $ 31,220
$ 2,911
$ 34,131
$ 99,650
$ 9,211
$ 108,861

(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 ~~$1.8~~$1.5 million and ~~$9.0~~$4.6 million for the three- and nine-month change, respectively.

(2) The rate-related change in interest expense on deposits includes the impact of ~~higher~~lower accretion of the acquisition-related fair market value adjustments of ~~$592,000~~$413,000 and ~~$2.1~~$1.4 million for the three- and nine-month change, respectively.

(3) The rate-related change in interest expense on other borrowings includes the impact of ~~higher~~lower amortization of the acquisition-related fair market value adjustments of ~~$190,000~~$46,000 and ~~$487,000~~$108,000 for the three- and nine-month change, respectively.

The Company’s net interest margin (FTE) includes the impact of acquisition accounting fair value adjustments. The net accretion ~~impact~~ for the first three quarters of ~~2018~~2019, as well as the remaining estimated net accretion impact 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 September 30, 2019		5,018		179		(97)		5,100
For the remaining three months of 2019 (estimated)		4,596		149		(123)		4,622
For the years ending (estimated):
2020		16,737		132		(633)		16,236
2021		11,914		14		(807)		11,121
2022		9,560		(43)		(829)		8,688
2023		6,777		(32)		(852)		5,893
2024		4,973		(4)		(877)		4,092
Thereafter		18,176		(1)		(10,773)		7,402

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Table of Contents

Loan Accretion Deposit Accretion Borrowings Accretion (Amortization) Total
For the quarter ended March 31, 2018 $ 4,846
$ 832
$ (98 ) $ 5,580
For the quarter ended June 30, 2018 5,324
685
(104 ) 5,905
For the quarter ended September 30, 2018 3,496
592
(143 ) 3,945
For the remaining three months of 2018 (estimated) 2,401
445
(161 ) 2,685
For the years ending (estimated):
2019 8,481
1,170
(660 ) 8,991
2020 6,880
284
(734 ) 6,430
2021 5,520
108
(805 ) 4,823
2022 4,157
21
(827 ) 3,351
2023 2,710
—
(850 ) 1,860
Thereafter 9,751
—
(11,633 ) (1,882 )

The following table excludes 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


	For the Three Months Ended
	September 30,				Change
	2019		2018		$		%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	7,675	$	6,483	$	1,192	18.4	%
Other service charges and fees		1,513		1,625		(112)	(6.9)	%
Interchange fees, net		2,108		4,882		(2,774)	(56.8)	%
Fiduciary and asset management fees		6,082		4,411		1,671	37.9	%
Mortgage banking income, net		3,374		—		3,374	NM
Gains (losses) on securities transactions, net		7,104		97		7,007	7,223.7	%
Bank owned life insurance income		2,062		1,732		330	19.1	%
Loan-related interest rate swap fees, net		5,480		562		4,918	875.1	%
Gain on Shore Premier sale		—		(933)		933	(100.0)	%
Other operating income		12,708		1,028		11,680	1,136.2	%
Total noninterest income	$	48,106	$	19,887	$	28,219	141.9	%

For the Three Months Ended
September 30, Change
2018 2017 $ %
(Dollars in thousands)
Noninterest income:

Service charges on deposit accounts $ 6,483
$ 4,795
$ 1,688
35.2 %
Other service charges and fees 1,625
1,131
494
43.7 %
Interchange fees, net 4,882
3,756
1,126
30.0 %
Fiduciary and asset management fees 4,411
2,794
1,617
57.9 %
Gains on securities transactions, net 97
184
(87 ) (47.3 )%
Bank owned life insurance income 1,732
1,377
355
25.8 %
Loan-related interest rate swap fees 562
416
146
35.1 %
Gain on Shore Premier sale (933 ) —
(933 ) (100.0 )%
Other operating income 1,028
777
251
32.3 %
Total noninterest income $ 19,887
$ 15,230
$ 4,657
30.6 %

NM - Not meaningful

Noninterest income increased ~~$4.7~~$28.2 million, or ~~30.6%~~141.9%, to ~~$19.9~~$48.1 million for the quarter ended September 30, ~~2018~~2019 compared to the quarter ended September 30, ~~2017. Customer-related fee~~2018. The increase in noninterest income was primarily driven by approximately $9.3 million in life insurance proceeds received during the quarter related to a Xenith-acquired loan that had been charged off prior to the Company’s acquisition of Xenith and a gain on sale of investment securities of approximately $7.1 million recorded during the quarter. Fiduciary and asset management fees increased $1.7 million and mortgage banking income increased ~~by $3.3~~$3.4 million primarily ~~due to increases in overdraft and debit card interchange fees~~ related to the acquisition of ~~Xenith. Fiduciary and asset management fees were $1.6~~Access. In addition, loan related interest rate swap income increased $4.9 million ~~higher~~from the quarter ended September 30, 2018. Partially offsetting these increases was a decline of $2.8 million in net interchange income primarily due to reduced debit card interchange transaction fees as a result of the acquisitions of DHFB and OAL in the second and third quarters of 2018, respectively. These increases were partially offset by a reduction of $933,000 in the initial estimated pre-tax gain recorded in the second quarter of 2018Durbin Amendment which was effective for the ~~Shore Premier sale due to updated information and wind-down costs incurred.~~Company on July 1, 2019.


	For the Nine Months Ended
	September 30,				Change
	2019		2018		$		%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	22,331	$	18,566	$	3,765	20.3	%
Other service charges and fees		4,879		4,137		742	17.9	%
Interchange fees, net		12,765		14,163		(1,398)	(9.9)	%
Fiduciary and asset management fees		16,834		11,507		5,327	46.3	%
Mortgage banking income, net		7,614		—		7,614	NM
Gains (losses) on securities transactions, net		7,306		222		7,084	3,191.0	%
Bank owned life insurance income		6,191		5,126		1,065	20.8	%
Loan-related interest rate swap fees, net		10,656		2,178		8,478	389.3	%
Gain on Shore Premier sale		—		19,966		(19,966)	(100.0)	%
Other operating income		15,045		4,887		10,158	207.9	%
Total noninterest income	$	103,621	$	80,752	$	22,869	28.3	%

NM - Not meaningful

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Table of Contents

For the Nine Months Ended
September 30, Change
2018 2017 $ %
(Dollars in thousands)
Noninterest income:

Service charges on deposit accounts $ 18,566
$ 13,924
$ 4,642
33.3 %
Other service charges and fees 4,137
3,391
746
22.0 %
Interchange fees, net 14,163
11,205
2,958
26.4 %
Fiduciary and asset management fees 11,507
8,313
3,194
38.4 %
Gains on securities transactions, net 222
782
(560 ) (71.6 )%
Bank owned life insurance income 5,126
4,837
289
6.0 %
Loan-related interest rate swap fees 2,178
2,627
(449 ) (17.1 )%
Gain on Shore Premier sale 19,966
—
19,966
100.0 %
Other operating income 4,887
2,226
2,661
119.5 %
Total noninterest income $ 80,752
$ 47,305
$ 33,447
70.7 %

Noninterest income increased ~~$33.4~~$22.9 million, or ~~70.7%~~28.3%, to ~~$80.8~~$103.6 million for the nine months ended September 30, 2019 from $80.7 million for the nine months ended September 30, 2018, ~~from $47.3~~primarily driven by approximately $9.3 million ~~for~~in life insurance proceeds received during the ~~nine months ended September 30, 2017,~~third quarter of 2019 related to a Xenith-acquired loan that had been charged off prior to the Company’s acquisition of Xenith and a gain on sale of investment securities of approximately $7.1 million recorded during the third quarter of 2019. Fiduciary and asset management fees increased $5.3 million and mortgage banking income increased $7.6 million primarily ~~driven~~related to the acquisition of Access. In addition, loan related interest rate swap income increased $8.5 million. These increases were partially offset by the net gain on the Shore Premier sale of $20.0 ~~million. Excluding this gain, noninterest income increased $13.5~~ million ~~or 28.5%, for~~recognized during the first nine months of 2018 ~~compared to the same period~~and a decline of $1.4 million in ~~2017. Customer-related fee~~net interchange income ~~increased by $8.3 million~~ primarily due to ~~increases in overdraft and~~reduced debit card interchange transaction fees related to the acquisition of Xenith; fiduciary and asset management fees were $3.2 million higher primarily due to the acquisitions of DHFB and OAL in the second and third quarter of 2018, respectively; and an increase of $2.7 million in other operating income includedas a ~~gain of $1.4 million related to the sale~~result of the ~~Company's ownership interest~~Durbin Amendment which was effective for the Company on July 1, 2019.

The following table excludes discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in ~~a payments-related company. These increases were partially offset by lower loan-related interest rate swap fees and lower gains on the sale~~Item 1 "Financial Statements", of ~~securities in the first nine months of 2018 compared to the first nine months of 2017.~~

this Form 10-Q for further discussion regarding discontinued operations.

Noninterest Expense


	For the Three Months Ended
	September 30,				Change
	2019		2018		$		%
	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	49,718	$	39,279	$	10,439	26.6	%
Occupancy expenses		7,493		6,551		942	14.4	%
Furniture and equipment expenses		3,719		2,983		736	24.7	%
Printing, postage, and supplies		1,268		1,183		85	7.2	%
Communications expense		1,037		872		165	18.9	%
Technology and data processing		5,787		4,841		946	19.5	%
Professional services		2,681		2,875		(194)	(6.7)	%
Marketing and advertising expense		2,600		3,109		(509)	(16.4)	%
FDIC assessment premiums and other insurance		381		1,363		(982)	(72.0)	%
Other taxes		3,971		2,878		1,093	38.0	%
Loan-related expenses		2,566		1,939		627	32.3	%
OREO and credit-related expenses		1,005		452		553	122.3	%
Amortization of intangible assets		4,764		3,490		1,274	36.5	%
Training and other personnel costs		1,618		1,024		594	58.0	%
Merger-related costs		2,435		1,429		1,006	70.4	%
Rebranding expense		1,133		—		1,133	NM
Loss on debt extinguishment		16,397		—		16,397	NM
Other expenses		3,114		2,081		1,033	49.6	%
Total noninterest expense	$	111,687	$	76,349	$	35,338	46.3	%

For the Three Months Ended
September 30, Change
2018 2017 $ %
(Dollars in thousands)
Noninterest expense:

Salaries and benefits $ 39,279
$ 28,187
$ 11,092
39.4 %
Occupancy expenses 6,551
4,678
1,873
40.0 %
Furniture and equipment expenses 2,983
2,454
529
21.6 %
Printing, postage, and supplies 1,183
1,139
44
3.9 %
Communications expense 872
796
76
9.5 %
Technology and data processing 4,841
4,148
693
16.7 %
Professional services 2,875
1,948
927
47.6 %
Marketing and advertising expense 3,109
1,931
1,178
61.0 %
FDIC assessment premiums and other insurance 1,363
1,141
222
19.5 %
Other taxes 2,878
2,022
856
42.3 %
Loan-related expenses 1,939
1,193
746
62.5 %
OREO and credit-related expenses 452
1,139
(687 ) (60.3 )%
Amortization of intangible assets 3,490
1,480
2,010
135.8 %
Training and other personnel costs 1,024
861
163
18.9 %
Merger-related costs 1,429
732
697
95.2 %
Other expenses 2,081
1,355
726
53.6 %
Total noninterest expense $ 76,349
$ 55,204
$ 21,145
38.3 %

NM - Not meaningful

Noninterest expense increased ~~$21.1~~$35.3 million, or ~~38.3%~~46.3%, to $111.7 million for the quarter ended September 30, 2019 compared to $76.3 million for the quarter ended September 30, ~~2018 compared to $55.2 million for the third quarter of 2017.~~2018. Excluding merger-related costs, amortization of ~~$1.4 million~~intangible assets, and ~~$732,000 in the third quarters of 2018 and 2017, respectively,~~rebranding-related costs, operating noninterest expense ⁽¹⁾for the quarter ended September 30, ~~2018~~2019 increased ~~$20.4~~$31.9 million, or ~~37.5%~~44.7%, compared to the third quarter of ~~2017.~~2018. The increase in operating noninterest expense was primarily related to the acquisition of Access, the recognition of approximately $16.4 million loss on debt extinguishment resulting from the repayment of approximately $140.0 million in FHLB advances and the termination of the related cash flow hedges. In addition, operating noninterest expense included approximately $309,000 in OREO valuation adjustments driven by ~~the acquisitions of Xenith, DHFB, and OAL, branch closure costs of approximately $475,000, and $714,000 related to executive management changes recorded in~~updated appraisals received during the third quarter of ~~2018.~~2019, $275,000 in recruiting costs related to the new equipment finance division, $1.0 million in support of a community development initiative as well as an FDIC small bank assessment expense credit of approximately $2.4 million as the deposit insurance fund reserve ratio exceeded 1.38% in the second quarter of 2019.

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Table of Contents

(1) 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.


	For the Nine Months Ended
	September 30,				Change
	2019		2018		$		%
	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	148,116	$	120,797	$	27,319	22.6	%
Occupancy expenses		22,427		18,778		3,649	19.4	%
Furniture and equipment expenses		10,656		9,024		1,632	18.1	%
Printing, postage, and supplies		3,763		3,525		238	6.8	%
Communications expense		3,199		2,976		223	7.5	%
Technology and data processing		17,203		13,722		3,481	25.4	%
Professional services		8,269		8,101		168	2.1	%
Marketing and advertising expense		7,891		7,834		57	0.7	%
FDIC assessment premiums and other insurance		5,620		5,430		190	3.5	%
Other taxes		11,779		8,660		3,119	36.0	%
Loan-related expenses		7,250		5,097		2,153	42.2	%
OREO and credit-related expenses		3,162		3,106		56	1.8	%
Amortization of intangible assets		13,919		9,885		4,034	40.8	%
Training and other personnel costs		4,240		3,155		1,085	34.4	%
Merger-related costs		26,928		37,414		(10,486)	(28.0)	%
Rebranding expense		5,553		—		5,553	NM
Loss on debt extinguishment		16,397		—		16,397	NM
Other expenses		7,650		5,730		1,920	33.5	%
Total noninterest expense	$	324,022	$	263,234	$	60,788	23.1	%

For the Nine Months Ended
September 30, Change
2018 2017 $ %
(Dollars in thousands)
Noninterest expense:

Salaries and benefits $ 120,797
$ 87,740
$ 33,057
37.7 %
Occupancy expenses 18,778
13,783
4,995
36.2 %
Furniture and equipment expenses 9,024
7,518
1,506
20.0 %
Printing, postage, and supplies 3,525
3,664
(139 ) (3.8 )%
Communications expense 2,976
2,567
409
15.9 %
Technology and data processing 13,722
11,793
1,929
16.4 %
Professional services 8,101
5,611
2,490
44.4 %
Marketing and advertising expense 7,834
5,933
1,901
32.0 %
FDIC assessment premiums and other insurance 5,430
2,793
2,637
94.4 %
Other taxes 8,660
6,065
2,595
42.8 %
Loan-related expenses 5,097
3,484
1,613
46.3 %
OREO and credit-related expenses 3,106
2,023
1,083
53.5 %
Amortization of intangible assets 9,885
4,661
5,224
112.1 %
Training and other personnel costs 3,155
2,829
326
11.5 %
Merger-related costs 37,414
3,476
33,938
NM
Other expenses 5,730
3,931
1,799
45.8 %
Total noninterest expense $ 263,234
$ 167,871
$ 95,363
56.8 %

NM - Not meaningful

Noninterest expense increased ~~$95.4~~$60.8 million, or ~~56.8%~~23.1%, to $324.0 million for the nine months ended September 30, 2019 compared to $263.2 million for the nine months ended September 30, ~~2018 compared to $167.9 million for the nine months ended 2017.~~2018. Excluding merger-related costs, amortization of ~~$37.4 million~~intangible assets, and ~~$3.5 million in 2018 and 2017, respectively,~~rebranding-related costs, operating noninterest expense ⁽¹⁾for the nine months ended September 30, ~~2018~~2019 increased ~~$61.4~~$61.7 million, or ~~37.4%~~28.6%, compared to the same period in ~~2017,~~2018. The increase in operating noninterest expense was primarily ~~driven by~~related to the ~~acquisitions~~acquisition of ~~Xenith, DHFB, and OAL, branch closure costs~~Access, the recognition of approximately ~~$1.1million recorded~~$16.4 million loss on debt extinguishment resulting from the repayment of approximately $140.0 million in FHLB advances, and the termination of the related cash flow hedges. In addition, operating noninterest expense included $275,000 in recruiting costs related to the new equipment finance division, $1.0 million in support of a community development initiative as well as an FDIC small bank assessment expense credit of approximately $2.4 million as the deposit insurance fund reserve ratio exceeded 1.38% in the second ~~and third quarters~~quarter of ~~2018, and $714,000~~2019.

(1) 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 ~~costs related to executive management changes during the quarter.~~

accordance with GAAP.

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Table of Contents

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.

The Tax Act was signed into law in December 2017. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. The actual results may differ from the current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company has made on a preliminary basis. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment per the guidance under ASC 740, ~~Accounting for Uncertainty in Income Taxes, and Staff Accounting Bulletin No.118. No additional adjustments related to the Tax Act were recorded in the third quarter of 2018.~~

The 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 for state income tax purposes. State net operating loss carryovers will begin to expire after 2026.

The effective tax rate for the three months ended September 30, 2019 and 2018 was 16.8% and ~~2017 was~~ 15.9% ~~and 26.7%~~, respectively; the effective tax rate for the nine months ended September 30, 2019 and 2018 was 16.0% and ~~2017 was~~ 16.6% ~~and 26.9%~~, respectively. The ~~decrease~~change in the effective tax ~~rate compared to the third quarter of 2017~~rates is primarily due to the ~~reduction in the federal tax rate under the Tax Act.~~

proportion of tax-exempt income to pre-tax income.

BALANCE SHEET

Assets

At September 30, ~~2018,~~2019, total assets were ~~$13.4~~$17.4 billion, an increase of ~~$4.1~~$3.6 billion from ~~$9.3~~$13.8 billion at December 31, ~~2017,~~2018, reflecting the impact of the ~~acquisition of Xenith.~~

Access acquisition.

On ~~January~~February 1, ~~2018,~~2019, the Company completed its acquisition of ~~Xenith.~~Access. Below is a summary of the transaction and related impact on the ~~Company's~~Company’s balance sheet.

●

The fair value of assets acquired equaled $2.856 billion, and the fair value of the liabilities assumed equaled $2.559 billion

●

Total loans acquired totaled $2.217 billion with a fair value of $2.173 billion

●

Total deposits assumed totaled $2.228 billion with a fair value of $2.227 billion

●

Total goodwill arising from the transaction equaled $202.6 million

●

Core deposit intangibles acquired totaled $40.9 million

~~• The fair value of assets acquired equaled $3.243 billion, and the fair value of liabilities assumed equaled $2.867 billion.~~

~~• Loans held for investment acquired totaled $2.507 billion with a fair value of $2.454 billion.~~

~~• Total deposits assumed totaled $2.546 billion with a fair value of $2.550 billion.~~

~~• Total goodwill arising from the transaction equaled $424.6 million.~~

~~• Core deposit intangibles acquired totaled $38.5 million.~~

Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 805, Business Combinations.

Loans held for investment, net of deferred fees and costs, were ~~$9.4~~$12.3 billion at September 30, ~~2018,~~2019, an increase of ~~$2.3~~$2.6 billion, or ~~31.8%~~26.7%, from December 31, 2017. On a pro forma basis, including Xenith loans, loans held for investment decreased $184.1 million from January 1, 2018, primarily due to the Shore Premier sale and the sale of consumer home improvement loans that had been originated through a third-party lending program. Further adjusted for the sale of these loans, on a pro forma basis, loans held for investment grew $379.0 million, or 5.6% (annualized), from January 1, 2018. Quarterly average loans increased ~~$2.5~~$2.9 billion, or ~~36.3%~~31.7%, for the quarter ended September 30, ~~2018~~2019 compared to the quarter ended September 30, ~~2017~~2018 primarily due to the ~~Xenith~~Access acquisition. Refer to "Loan Portfolio" within Item 2 and Note 4 "Loans and Allowance for Loan Losses" in Part I of Item I for additional information on the Company’s loan activity.

Liabilities and Stockholders’ Equity

At September 30, ~~2018,~~2019, total liabilities were ~~$11.5~~$14.9 billion, an increase of ~~$3.2~~$3.1 billion from December 31, ~~2017.~~

2018.

Total deposits were ~~$9.8~~$13.0 billion at September 30, ~~2018,~~2019, an increase of ~~$2.8~~$3.1 billion, or ~~40.7%~~30.8%, from December 31, ~~2017. On a pro forma basis, including Xenith deposits, deposits grew $293.3 million, or 4.1% (annualized) from January 1,~~ 2018. Quarterly average deposits increased $3.0 billion, or ~~44.2%~~30.7%, for the quarter ended September 30, ~~2018~~2019 compared to the quarter ended September 30, ~~2017~~2018 primarily due to the ~~Xenith~~Access acquisition. Refer to “Deposits” within this Item 2 for further discussion on this topic.

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Table of Contents

At September 30, ~~2018,~~2019, stockholders’ equity was ~~$1.9~~$2.5 billion, an increase of ~~$833.7~~$600.5 million from December 31, ~~2017.~~2018. The Company’s capital ratios continue to exceed the minimum capital requirements for regulatory purposes. Refer to “Capital Resources” within this Item 2 for additional information on the Company’s capital ratios.

The Company declared and paid a cash dividend of ~~$0.23~~$0.25 per share during the third quarter of ~~2018,~~2019, an increase of ~~$0.03~~$0.02 per share, or ~~15.0%~~8.7%, compared to the dividend paid during the third quarter of ~~2017.~~2018. Dividends for the nine months ended September 30, ~~2018~~2019 were ~~$0.65 per share,~~$0.71, an increase of ~~$0.05~~$0.06 per share, or ~~8.3%,~~9.2% compared to the nine months ended September 30, ~~2017.~~

2018.

Securities

At September 30, ~~2018,~~2019, the Company had total investments in the amount of ~~$2.3~~$2.6 billion, or ~~16.9 %~~15.0% of total assets, as compared to ~~$1.2~~$2.4 billion, or ~~13.4%~~17.4% of total assets, at December 31, ~~2017.~~2018. 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 securities; therefore, the Company earns a higher taxable equivalent yield on its portfolio as compared to many of its peers. ~~The~~During the fourth quarter of 2018, the Company ~~does not engage~~entered into a swap agreement to hedge the interest rate on a portion of its fixed rate available for sale securities. 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, HTM securities ~~marketable equity securities,~~ and restricted stock as of the dates indicated (dollars in thousands):


	September 30,		December 31,
	2019		2018
Available for Sale:
U.S. government and agency securities	$	4,490	$	—
Obligations of states and political subdivisions		438,613		468,491
Corporate and other bonds		229,524		167,696
Mortgage-backed securities		1,243,165		1,129,865
Other securities		3,067		8,769
Total AFS securities, at fair value		1,918,859		1,774,821
Held to Maturity:
Obligations of states and political subdivisions, at carrying value		546,515		492,272
Mortgage-backed securities		10,064		—
Total held to maturity securities		556,579		492,272
Restricted Stock:
Federal Reserve Bank stock		66,964		52,576
FHLB stock		65,346		72,026
Total restricted stock, at cost		132,310		124,602
Total investments	$	2,607,748	$	2,391,695

-69-

September 30,
2018

December 31,
2017
Available for Sale:

Obligations of states and political subdivisions $ 563,473
$ 301,824
Corporate and other bonds 161,492
113,880
Mortgage-backed securities 1,146,913
548,858
Other securities 11,263
9,660
Total AFS securities, at fair value 1,883,141
974,222
Held to Maturity:

Obligations of states and political subdivisions, at carrying value 235,333
199,639
Marketable equity securities, at fair value 27,375
—
Restricted Stock:
Federal Reserve Bank stock 52,577
27,558
FHLB stock 59,813
47,725
Total restricted stock, at cost 112,390
75,283
Total investments $ 2,258,239
$ 1,249,144

Table of Contents

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, ~~2018.~~2019. 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 at fair value and their weighted average yields as of September 30, ~~2018~~2019 (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	$	4,475		$	—		$	—		$	—		$	4,475
Fair value		4,490			—			—			—			4,490
Weighted average yield ⁽¹⁾		2.53	%		—	%		—	%		—	%		2.53	%
Mortgage backed securities:
Amortized cost	$	9,053		$	141,213		$	134,856		$	930,141		$	1,215,263
Fair value		9,092			143,356			138,276			952,441			1,243,165
Weighted average yield ⁽¹⁾		3.19	%		2.53	%		2.67	%		3.04	%		2.94	%

Obligations of states and political subdivisions:
Amortized cost	$	6,087		$	10,154		$	34,277		$	361,172		$	411,690
Fair value		6,156			10,362			35,421			386,674			438,613
Weighted average yield ⁽¹⁾		5.35	%		4.47	%		3.90	%		3.68	%		3.74	%

Corporate bonds and other securities:
Amortized cost	$	3,067		$	9,922		$	94,355		$	120,577		$	227,921
Fair value		3,067			10,190			96,060			123,274			232,591
Weighted average yield ⁽¹⁾		2.23	%		4.56	%		4.48	%		3.33	%		3.85	%

Total AFS securities:
Amortized cost	$	22,682		$	161,289		$	263,488		$	1,411,890		$	1,859,349
Fair value		22,805			163,908			269,757			1,462,389			1,918,859
Weighted average yield ⁽¹⁾		3.51	%		2.78	%		3.48	%		3.23	%		3.23	%

(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 $ 10,435
$ 174,042
$ 96,844
$ 889,089
$ 1,170,410
Fair value 10,390
169,467
93,853
873,203
1,146,913
Weighted average yield ⁽¹⁾
2.00 % 2.25 % 2.35 % 3.07 % 2.88 %

Obligations of states and political subdivisions:

Amortized cost 20,984
34,459
94,717
416,108
566,268
Fair value 21,189
34,916
96,252
411,116
563,473
Weighted average yield ⁽¹⁾
4.87 % 4.10 % 3.89 % 3.60 % 3.73 %

Corporate bonds and other securities:

Amortized cost 8,948
5,161
81,646
78,809
174,564
Fair value 8,763
5,169
81,255
77,568
172,755
Weighted average yield ⁽¹⁾
1.14 % 3.25 % 4.44 % 3.26 % 3.71 %

Total AFS securities:

Amortized cost 40,367
213,662
273,207
1,384,006
1,911,242
Fair value 40,342
209,552
271,360
1,361,887
1,883,141
Weighted average yield ⁽¹⁾
3.30 % 2.58 % 3.51 % 3.24 % 3.21 %

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

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Table of Contents

The following table summarizes the contractual maturity of HTM securities at carrying value and their weighted average yields as of September 30, ~~2018~~2019 (dollars in thousands):


	1 Year or						5 – 10			Over 10
	Less			1 - 5 Years			Years			Years			Total
Obligations of states and political subdivisions:
Carrying value	$	504		$	7,309		$	1,954		$	536,748		$	546,515
Fair value		507			7,515			2,026			587,469			597,517
Weighted average yield ⁽¹⁾		3.27	%		2.45	%		3.24	%		4.09	%		4.07	%
Mortgage backed securities:
Carrying value	$	—		$	1,625		$	1,206		$	7,233		$	10,064
Fair value		—			1,650			1,221			7,328			10,199
Weighted average yield⁽¹⁾		—			4.97	%		4.12	%		5.76	%		5.43	%
Total HTM securities:
Carrying value	$	504		$	8,934		$	3,160			543,981			556,579
Fair value		507			9,165			3,247			594,797			607,716
Weighted average yield ⁽¹⁾		3.27	%		2.91	%		3.58	%		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 $ —
$ 3,917
$ 3,500
$ 227,916
$ 235,333
Fair value —
3,889
3,479
225,342
232,710
Weighted average yield ⁽¹⁾
— % 2.31 % 2.64 % 3.87 % 3.83 %

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

As of September 30, ~~2018,~~2019, the Company maintained a diversified municipal bond portfolio with approximately 63% of its holdings in general obligation issues and the majority of the remainder backed by revenue bonds. Issuances within the ~~States~~State of Texas ~~and Virginia~~ represented ~~16% and 11%, respectively, and the State of Washington represented 10%~~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.

Liquidity

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

As of September 30, ~~2018,~~2019, liquid assets totaled ~~$3.8~~$5.5 billion, or ~~28.7%~~31.7%, of total assets, and liquid earning assets totaled ~~$3.7~~$5.3 billion, or ~~31.3%~~34.6% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of September 30, ~~2018,~~2019, approximately ~~$3.3~~$4.5 billion, or ~~34.9%~~36.7% of total loans, are scheduled to mature within one year based on contractual maturity, adjusted for expected prepayments, and approximately ~~$279.5~~$342.3 million, or ~~12.4%~~13.1% 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. Refer to Note 67 “Borrowings” in Part I of Item 1 for additional information and the available balances on various lines of 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. Refer to “Deposits” within this Item 2 for additional information and outstanding balances on purchased certificates of deposits.

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Loan Portfolio

Loans held for investment, net of deferred fees and costs, were $12.3 billion at September 30, 2019, $9.7 billion at December 31, 2018, and $9.4 billion at September 30, ~~2018, $7.1 billion at December 31, 2017, and $6.9 billion at September 30, 2017, respectively.~~2018. Commercial real estate - non-owner occupied loans continue to represent the Company’s largest category, comprising ~~25.8%~~26.0% of the total loan portfolio at September 30, ~~2018.~~

2019.

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, 2019				June 30, 2019				March 31, 2019				December 31, 2018				September 30, 2018
Construction and Land Development	$	1,201,149	9.8	%	$	1,267,712	10.4	%	$	1,326,679	11.1	%	$	1,194,821	12.3	%	$	1,178,054	12.5	%
Commercial Real Estate - Owner Occupied		1,979,052	16.1	%		1,966,776	16.1	%		1,921,464	16.1	%		1,337,345	13.8	%		1,283,125	13.6	%
Commercial Real Estate - Non-Owner Occupied		3,198,580	26.0	%		3,104,823	25.4	%		2,970,453	24.9	%		2,467,410	25.4	%		2,427,251	25.8	%
Multifamily Real Estate		659,946	5.4	%		602,115	4.9	%		591,431	5.0	%		548,231	5.6	%		542,662	5.8	%
Commercial & Industrial		2,058,133	16.7	%		2,032,799	16.6	%		1,866,625	15.6	%		1,317,135	13.6	%		1,154,583	12.3	%
Residential 1-4 Family - Commercial		721,185	5.9	%		723,636	6.0	%		743,101	6.2	%		640,419	6.6	%		646,581	6.9	%
Residential 1-4 Family - Consumer		913,245	7.4	%		928,130	7.6	%		937,710	7.8	%		673,909	6.9	%		684,945	7.2	%
Auto		328,456	2.7	%		311,858	2.6	%		300,631	2.5	%		301,943	3.1	%		306,196	3.3	%
HELOC		660,963	5.4	%		660,621	5.4	%		672,087	5.6	%		613,383	6.3	%		612,116	6.5	%
Consumer		386,848	3.1	%		383,653	3.1	%		397,491	3.3	%		379,694	3.9	%		345,320	3.7	%
Other Commercial		199,440	1.5	%		238,391	1.9	%		224,638	1.9	%		241,917	2.5	%		230,765	2.4	%
Total loans held for investment	$	12,306,997	100.0	%	$	12,220,514	100.0	%	$	11,952,310	100.0	%	$	9,716,207	100.0	%	$	9,411,598	100.0	%

September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017
Construction and Land Development $ 1,178,054
12.5 % $ 1,250,448
13.5 % $ 1,249,196
12.7 % $ 948,791
13.3 % $ 841,738
12.2 %
Commercial Real Estate - Owner Occupied 1,283,125
13.6 % 1,293,791
13.9 % 1,279,155
13.0 % 943,933
13.2 % 903,523
13.1 %
Commercial Real Estate - Non-Owner Occupied 2,427,251
25.8 % 2,318,589
25.0 % 2,230,463
22.7 % 1,713,659
24.0 % 1,748,039
25.3 %
Multifamily Real Estate 542,662
5.8 % 541,730
5.8 % 547,520
5.6 % 357,079
5.0 % 368,686
5.4 %
Commercial & Industrial 1,154,583
12.3 % 1,093,771
11.8 % 1,125,733
11.5 % 612,023
8.6 % 554,522
8.0 %
Residential 1-4 Family - Commercial 719,798
7.6 % 723,945
7.8 % 714,660
7.3 % 612,395
8.6 % 602,937
8.7 %
Residential 1-4 Family - Mortgage 611,728
6.5 % 607,155
6.5 % 604,354
6.2 % 485,690
6.8 % 480,175
7.0 %
Auto 306,196
3.3 % 296,706
3.2 % 288,089
3.0 % 282,474
4.0 % 276,572
4.0 %
HELOC 612,116
6.5 % 626,916
6.7 % 642,084
6.5 % 537,521
7.5 % 535,446
7.8 %
Consumer 345,320
3.7 % 298,021
3.2 % 839,699
8.6 % 408,667
5.7 % 396,971
5.8 %
Other Commercial 230,765
2.4 % 239,187
2.6 % 284,770
2.9 % 239,320
3.3 % 190,120
2.7 %
Total loans held for investment $ 9,411,598
100.0 % $ 9,290,259
100.0 % $ 9,805,723
100.0 % $ 7,141,552
100.0 % $ 6,898,729
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 30, ~~2018~~2019 (dollars in thousands):


��					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	$	1,201,149	$	549,680	$	375,467	$	279,204	$	96,263	$	276,002	$	217,705	$	58,297
Commercial Real Estate - Owner Occupied		1,979,052		196,254		480,038		102,389		377,649		1,302,760		705,158		597,602
Commercial Real Estate - Non-Owner Occupied		3,198,580		373,332		1,225,208		370,102		855,106		1,600,040		1,165,446		434,594
Multifamily Real Estate		659,946		103,292		290,449		80,082		210,367		266,205		216,181		50,024
Commercial & Industrial		2,058,133		613,940		874,111		695,546		178,565		570,082		358,597		211,485
Residential 1-4 Family - Commercial		721,185		141,766		125,502		14,712		110,790		453,917		395,703		58,214
Residential 1-4 Family - Consumer		913,245		22,319		407,008		6,210		400,798		483,918		23,052		460,866
Auto		328,456		2,401		2		2		—		326,053		160,241		165,812
HELOC		660,963		63,675		588,946		83,545		505,401		8,342		778		7,564
Consumer		386,848		12,097		17,612		15,655		1,957		357,139		213,975		143,164
Other Commercial		199,440		33,803		38,251		5,866		32,385		127,386		62,504		64,882
Total loans held for investment	$	12,306,997	$	2,112,559	$	4,422,594	$	1,653,313	$	2,769,281	$	5,771,844	$	3,519,340	$	2,252,504

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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 $ 1,178,054
$ 528,460
$ 349,016
$ 280,532
$ 68,484
$ 300,578
$ 235,339
$ 65,239
Commercial Real Estate - Owner Occupied 1,283,125
129,505
297,129
51,896
245,233
856,491
614,443
242,048
Commercial Real Estate - Non-Owner Occupied 2,427,251
248,755
875,035
377,427
497,608
1,303,461
970,054
333,407
Multifamily Real Estate 542,662
49,231
216,267
96,348
119,919
277,164
246,959
30,205
Commercial & Industrial 1,154,583
357,296
436,064
382,976
53,088
361,223
255,553
105,670
Residential 1-4 Family - Commercial 719,798
92,852
101,557
15,787
85,770
525,389
422,361
103,028
Residential 1-4 Family - Mortgage 611,728
12,305
311,613
6,320
305,293
287,810
23,480
264,330
Auto 306,196
2,393
4
4
—
303,799
150,481
153,318
HELOC 612,116
49,347
559,349
97,682
461,667
3,420
370
3,050
Consumer 345,320
7,027
15,723
13,417
2,306
322,570
210,419
112,151
Other Commercial 230,765
35,227
87,918
10,466
77,452
107,620
39,807
67,813
Total loans held for investment $ 9,411,598
$ 1,512,398
$ 3,249,675
$ 1,332,855
$ 1,916,820
$ 4,649,525
$ 3,169,266
$ 1,480,259

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 30, ~~2018,~~2019, the largest components of the Company’s loan portfolio consisted of commercial real estate, commercial & industrial, and construction and land development ~~and commercial & industrial~~ 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.

Asset Quality

Overview

At September 30, ~~2018,~~2019, the Company had higher levels of NPAs compared to December 31, ~~2017,~~2018, primarily ~~related~~due to nonaccrual additions of commercial real estate – owner occupied, residential 1-4 family - consumer, and construction ~~mortgage,~~ and ~~commercial & industrial loans and acquired OREO.~~land development which were attributable to several smaller credit relationships. NPAs as a percentage of total outstanding loans held for investment ~~remained consistent with~~decreased from December 31, ~~2017.~~2018. Past due loan levels as a percentage of total loans held for investment at September 30, 2019 were lower than past due loan levels at December 31, 2018. As the ~~Company's~~Company’s NPAs and past due loan levels have been at or near 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~~Company’s overall asset quality position.

Net charge-offs ~~decreased~~increased for ~~the~~ nine months ended September 30, ~~2018~~2019 compared to ~~the~~ nine months ended September 30, ~~2017.~~2018. Total net charge-offs as a percentage of total average loans on an annualized basis also ~~decreased~~increased for ~~the~~ nine months ended September 30, ~~2018~~2019 compared to the nine months ended September 30, ~~2017.~~2018. The increase in net charge-offs is primarily from the Company’s consumer lending portfolio and a construction and land development loan. At September 30, 2019, the allowance and the provision for loan losses ~~increased~~ for the nine months ended September 30, ~~2018 compared to~~2019 increased from the nine months ended September 30, ~~2017, as a result of~~2018 due to an increase in net charge-offs and loan growth during ~~2018. The ALL at September 30, 2018 increased from December 31, 2017 primarily due to organic loan growth during the first nine months of 2018.~~

2019.

All nonaccrual and past due loan metrics discussed below exclude PCI loans totaling ~~$94.7~~$89.7 million (net of fair value mark of ~~$24.3~~$24.0 million) at September 30, ~~2018.~~

The accompanying unaudited consolidated financial statements, notes, and MD&A reflect reclassification of certain prior period amounts to conform to the current period presentation. The Company historically presented former bank premises and foreclosed properties as OREO; however, during the current quarter the Company segregated former bank premises and foreclosed properties due to the distinct differences underlying these assets. Foreclosed properties and former bank premises have been reclassified to "Other Assets" within the Company's Consolidated Balance Sheet for all periods presented. In addition, the Company no longer includes former bank premises when discussing non-performing assets when discussing asset quality. This reclassification was not material to the unaudited consolidated financial statements or the MD&A.

2019.

Troubled Debt Restructurings

The total recorded investment in TDRs as of September 30, ~~2018~~2019 was ~~$28.3~~$18.7 million, ~~an increase~~a decrease of ~~$10.9~~$7.9 million or ~~62.5%,~~29.7% from ~~$17.4~~$26.6 million at December 31, ~~2017~~2018 and ~~an increase~~a decrease of ~~$9.0~~$9.6 million , or ~~46.9%,~~33.9% from ~~$19.4~~$28.3 million at September 30, ~~2017.~~2018. Of the ~~$28.3~~$18.7 million of TDRs at September 30, ~~2018, $19.9~~2019, $15.1 million or ~~70.2%,~~80.7% were considered performing while the remaining ~~$8.4~~$3.6 million were considered nonperforming.

Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring. These loans have performed in accordance with their modified terms for 12 consecutive months and were no longer considered impaired. Loans removed from TDR status are collectively evaluated for impairment; due to the significant improvement in the expected future cash flows, these loans are grouped based on their primary risk characteristics, which is included in the Company's general reserve. Impairment is measured based on historical loss experience taking into consideration environmental factors. The significant majority of these loans have been subject to new credit decisions due to the improvement in the expected future cash flows, the financial condition of the borrower, and other factors considered during re-underwriting. The TDR activity during the quarter did not have a material impact on the Company’s ALL, financial condition, or results of operations.

Nonperforming Assets

At September 30, ~~2018,~~2019, NPAs totaled ~~$34.9~~$36.4 million, an increase of ~~$7.9~~$2.7 million or ~~29.3%,~~8.1% from December 31, ~~2017~~2018 and an increase of ~~$8.3~~$1.5 million or ~~31.4%,~~4.3% from September 30, ~~2017. In addition,~~2018. NPAs as a percentage of total outstanding loans ~~declined 1~~at September 30, 2019 were 0.30%, a decline of 5 basis ~~point~~points from ~~0.38%~~0.35% at December 31, ~~2017~~2018 and 2a decline of 7 basis points from ~~0.39% at September 30, 2017 to~~ 0.37% at September 30, 2018.

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


	September 30,			June 30,			March 31,			December 31,			September 30,
	2019			2019			2019			2018			2018
Nonaccrual loans, excluding PCI loans	$	30,032		$	27,462		$	24,841		$	26,953		$	28,110
Foreclosed properties		6,385			6,506			7,353			6,722			6,800
Total NPAs		36,417			33,968			32,194			33,675			34,910
Loans past due 90 days and accruing interest		12,036			8,828			10,953			8,856			9,532
Total NPAs and loans past due 90 days and accruing interest	$	48,453		$	42,796		$	43,147		$	42,531		$	44,442

Performing TDRs	$	15,156		$	19,144		$	20,808		$	19,201		$	19,854
PCI loans		89,735			101,301			99,932			90,221			94,746

Balances
Allowance for loan losses	$	43,820		$	42,463		$	40,827		$	41,045		$	41,294
Average loans, net of deferred fees and costs		12,240,254			12,084,961			11,127,390			9,584,785			9,297,213
Loans, net of deferred fees and costs		12,306,997			12,220,514			11,952,310			9,716,207			9,411,598

Ratios
NPAs to total loans		0.30	%		0.28	%		0.27	%		0.35	%		0.37	%
NPAs & loans 90 days past due to total loans		0.39	%		0.35	%		0.36	%		0.44	%		0.47	%
NPAs to total loans & foreclosed property		0.30	%		0.28	%		0.27	%		0.35	%		0.37	%
NPAs & loans 90 days past due to total loans & foreclosed property		0.39	%		0.35	%		0.36	%		0.44	%		0.47	%
ALL to nonaccrual loans		145.91	%		154.62	%		164.35	%		152.28	%		146.90	%
ALL to nonaccrual loans & loans 90 days past due		104.16	%		117.01	%		114.06	%		114.62	%		109.70	%

September 30, 2018 June 30, 2018
March 31,
2018

December 31,
2017

September 30,
2017
Nonaccrual loans, excluding PCI loans $ 28,110
$ 25,662
$ 25,138
$ 21,743
$ 20,122
Foreclosed properties 6,800
7,241
8,079
5,253
6,449
Total NPAs 34,910
32,903
33,217
26,996
26,571
Loans past due 90 days and accruing interest 9,532
6,921
2,630
3,532
4,532
Total NPAs and loans past due 90 days and accruing interest $ 44,442
$ 39,824
$ 35,847
$ 30,528
$ 31,103

Performing TDRs $ 19,854
$ 15,696
$ 13,292
$ 14,553
$ 16,519
PCI loans 94,746
101,524
102,861
39,021
51,041

Balances
Allowance for loan losses $ 41,294
$ 41,270
$ 40,629
$ 38,208
$ 37,162
Average loans, net of deferred fees and costs 9,297,213
9,809,083
9,680,195
6,701,101
6,822,498
Loans, net of deferred fees and costs 9,411,598
9,290,259
9,805,723
7,141,552
6,898,729

Ratios
NPAs to total loans 0.37 % 0.35 % 0.34 % 0.38 % 0.39 %
NPAs & loans 90 days past due to total loans 0.47 % 0.43 % 0.37 % 0.43 % 0.45 %
NPAs to total loans & foreclosed property 0.37 % 0.35 % 0.34 % 0.38 % 0.38 %
NPAs & loans 90 days past due to total loans & foreclosed property 0.47 %
0.43 % 0.37 % 0.43 % 0.45 %
ALL to nonaccrual loans 146.90 % 160.82 % 161.62 % 175.73 % 184.68 %
ALL to nonaccrual loans & loans 90 days past due 109.70 % 126.66 % 146.32 % 151.17 % 150.73 %

NPAs at September 30, ~~2018~~2019 included ~~$28.1~~$30.0 million in nonaccrual loans, a net increase of ~~$6.4~~$3.1 million or ~~29.3%,~~11.4% from December 31, ~~2017~~2018 and a net increase of ~~$8.0~~$1.9 million or ~~39.7%,~~6.8% from September 30, ~~2017.~~2018. The following table shows the activity in nonaccrual loans for the quarters ended (dollars in thousands):


	September 30,		June 30,		March 31,		December 31,		September 30,
	2019		2019		2019		2018		2018
Beginning Balance	$	27,462	$	24,841	$	26,953	$	28,110	$	25,662
Net customer payments		(3,612)		(3,108)		(2,314)		(3,077)		(2,459)
Additions		8,327		6,321		3,297		4,659		6,268
Charge-offs		(884)		(592)		(1,626)		(2,069)		(1,137)
Loans returning to accruing status		(1,103)		—		(952)		(420)		(70)
Transfers to foreclosed property		(158)		—		(517)		(250)		(154)
Ending Balance	$	30,032	$	27,462	$	24,841	$	26,953	$	28,110

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September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017
Beginning Balance $ 25,662
$ 25,138
$ 21,743
$ 20,122
$ 24,574
Net customer payments (2,459 ) (2,651 ) (1,455 ) (768 ) (4,642 )
Additions 6,268
5,063
5,451
4,335
4,114
Charge-offs (1,137 ) (539 ) (403 ) (1,305 ) (3,376 )
Loans returning to accruing status (70 ) (1,349 ) (182 ) (448 ) —
Transfers to foreclosed property (154 ) —
(16 ) (193 ) (548 )
Ending Balance $ 28,110
$ 25,662
$ 25,138
$ 21,743
$ 20,122

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


	September 30,		June 30,		March 31,		December 31,		September 30,
	2019		2019		2019		2018		2018
Construction and Land Development	$	7,785	$	5,619	$	5,513	$	8,018	$	9,221
Commercial Real Estate - Owner Occupied		5,684		4,062		3,307		3,636		3,202
Commercial Real Estate - Non-owner Occupied		381		1,685		1,787		1,789		1,812
Commercial & Industrial		1,585		1,183		721		1,524		1,404
Residential 1-4 Family - Commercial		3,879		4,135		4,244		2,481		1,956
Residential 1-4 Family - Consumer		8,292		8,677		7,119		7,276		8,535
Auto		604		449		523		576		525
HELOC		1,641		1,432		1,395		1,518		1,273
Consumer and all other		181		220		232		135		182
Total	$	30,032	$	27,462	$	24,841	$	26,953	$	28,110

September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017
Construction and Land Development $ 9,221
$ 6,485
$ 6,391
$ 5,610
$ 5,671
Commercial Real Estate - Owner Occupied 3,202
2,845
2,539
2,708
2,205
Commercial Real Estate - Non-owner Occupied 1,812
3,068
2,089
2,992
2,701
Commercial & Industrial 1,404
1,387
1,969
316
1,252
Residential 1-4 Family ⁽¹⁾
10,491
9,550
9,441
7,354
6,163
Auto 525
463
394
413
174
HELOC 1,273
1,669
2,072
2,075
1,791
Consumer and all other 182
195
243
275
165
Total $ 28,110
$ 25,662
$ 25,138
$ 21,743
$ 20,122

~~(1) Includes Residential 1-4 Family Commercial and Mortgage.~~

NPAs at September 30, ~~2018~~2019 also included ~~$6.8~~$6.4 million in foreclosed property, ~~an increase~~a decrease of ~~$1.5 million,~~$337,000 or ~~29.4%~~5.0%, from December 31, ~~2017~~2018 and ~~an increase~~a decrease of ~~$351,000,~~$415,000 or ~~5.4%~~6.1%, from September 30, ~~2017.~~2018. The following table shows the activity in foreclosed property for the quarters ended (dollars in thousands):


	September 30,		June 30,		March 31,		December 31,		September 30,
	2019		2019		2019		2018		2018
Beginning Balance	$	6,506	$	7,353	$	6,722	$	6,800	$	7,241
Additions of foreclosed property		645		271		900		432		165
Valuation adjustments		(62)		(433)		(51)		(140)		(42)
Proceeds from sales		(737)		(638)		(171)		(286)		(889)
Gains (losses) from sales		33		(47)		(47)		(84)		325
Ending Balance	$	6,385	$	6,506	$	7,353	$	6,722	$	6,800

September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017
Beginning Balance $ 7,241
$ 8,079
$ 5,253
$ 6,449
$ 6,828
Additions of foreclosed property 165
283
44
325
621
Acquisitions of foreclosed property⁽¹⁾
—
(162 ) 4,204
—
—
Valuation adjustments (42 ) (383 ) (759 ) (1,046 ) (249 )
Proceeds from sales (889 ) (580 ) (684 ) (479 ) (648 )
Gains (losses) from sales 325
4
21
4
(103 )
Ending Balance $ 6,800
$ 7,241
$ 8,079
$ 5,253
$ 6,449

~~(1)~~ ~~Includes subsequent measurement period adjustments.~~

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


	September 30,		June 30,		March 31,		December 31,		September 30,
	2019		2019		2019		2018		2018
Land	$	1,842	$	1,842	$	2,216	$	2,306	$	2,377
Land Development		2,788		2,809		2,809		2,809		2,904
Residential Real Estate		1,214		1,304		1,925		1,204		1,116
Commercial Real Estate		541		551		403		403		403
Total	$	6,385	$	6,506	$	7,353	$	6,722	$	6,800

September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017
Land $ 2,377
$ 2,377
$ 2,649
$ 2,755
$ 2,755
Land Development 2,904
3,464
3,624
1,045
1,993
Residential Real Estate 1,116
984
1,171
1,314
1,562
Commercial Real Estate 403
416
635
139
139
Total $ 6,800
$ 7,241
$ 8,079
$ 5,253
$ 6,449

Past Due Loans

At September 30, ~~2018,~~2019, total accruing past due loans were $55.1 million or 0.45% of total loans held for investment, compared to $61.9 million or 0.64% of total loans held for investment at December 31, 2018 and $46.6 million or 0.49% of total loans ~~compared to $27.8 million, or 0.39% of total loans, at December 31, 2017 and $34.4 million, or 0.50% of total loans,~~held for investment at September 30, ~~2017.~~2018. Of the total past due loans still accruing interest at September 30, ~~2018, $9.5~~2019, $12.0 million or 0.10% of total loans held for investment were past due 90 days or more, compared to ~~$3.5~~$8.9 million or ~~0.05%~~0.09% of total loans held for investment at December 31, ~~2017~~2018 and ~~$4.5~~$9.5 million or ~~0.07%~~0.10% of total loans held for investment at September 30, ~~2017.~~

2018.

Net Charge-offs

For the quarter ended September 30, ~~2018,~~2019, net charge-offs were ~~$3.2~~$7.7 million or ~~0.13%~~0.25% of average loans on an annualized basis, compared to ~~$4.1~~$3.2 million or ~~0.24%,~~0.13% for the same quarter last year. ~~The majority of net charge-offs in the third quarter of 2018 were related to consumer loans.~~ For the nine months ended September 30, ~~2018,~~2019, net charge-offs were ~~$6.0~~$16.2 million or ~~0.08%~~0.18% of total average loans on annualized basis, compared to ~~$7.4~~$6.0 million or ~~0.15%,~~

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0.08% for the same period in ~~2017.~~

2018. The majority of net charge-offs in 2019 have been related to consumer loans and a construction and land development loan.

Provision for Loan Losses

The provision for loan losses for the quarter ended September 30, ~~2018~~2019 was ~~$3.1~~$9.1 million, an increase of ~~$44,000~~$6.0 million compared with the same quarter ~~ended September 30, 2017.~~last year. The provision for loan losses for the nine months ended September 30, ~~2018~~2019 was ~~$9.3~~$19.0 million compared to ~~$7.4~~$9.3 million for the nine months ended September 30, ~~2017.~~2018. The increase in the provision for loan losses compared to the ~~first~~third quarter of 2018 and the nine months ~~of 2017~~ended September 30, 2018 was primarily driven by an increase in net charge-offs and loan ~~growth during the first nine months of 2018.~~

growth.

Allowance for Loan Losses

The ALL of ~~$41.3~~$43.8 million at September 30, ~~2018,~~2019 is an increase of ~~$3.1~~$2.8 million compared to the ALL at December 31, ~~2017~~2018 primarily due to ~~organic~~ loan ~~growth during the period.~~growth. The current level of the ALL 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 ALL. The ALL as a percentage of the total loans held for investment was 0.36% at September 30, 2019, 0.42% at December 31, 2018, and 0.44% at September 30, ~~2018 and 0.54% at both December 31, 2017 and September 30, 2017.~~2018. The decline in the allowance ratio was primarily attributable to the acquisition of ~~Xenith~~Access in the first quarter of ~~2018.~~2019. In acquisition accounting, there is no carryover of previously established ALL.

The following table summarizes activity in the ALL during the quarters ended (dollars in thousands):


	September 30,			June 30,			March 31,			December 31,			September 30,
	2019			2019			2019			2018			2018
Balance, beginning of period	$	42,463		$	40,827		$	41,045		$	41,294		$	41,270
Loans charged-off:
Commercial		304			878			980			141			233
Real estate		3,998			765			1,093			2,806			1,435
Consumer		5,015			4,291			3,866			3,184			2,892
Total loans charged-off		9,317			5,934			5,939			6,131			4,560
Recoveries:
Commercial		255			321			360			121			153
Real estate		548			553			555			391			622
Consumer		771			796			781			574			626
Total recoveries		1,574			1,670			1,696			1,086			1,401
Net charge-offs		7,743			4,264			4,243			5,045			3,159
Provision for loan losses - continuing operations		9,100			5,900			4,025			4,800			3,100
Provision for loan losses - discontinued operations		—			—			—			(4)			83
Balance, end of period	$	43,820		$	42,463		$	40,827		$	41,045		$	41,294

ALL to loans		0.36	%		0.35	%		0.34	%		0.42	%		0.44	%
Net charge-offs to average loans		0.25	%		0.14	%		0.15	%		0.21	%		0.13	%
Provision to average loans		0.29	%		0.20	%		0.15	%		0.20	%		0.13	%

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September 30, 2018 June 30, 2018 March 31, 2018 December 31, 2017 September 30, 2017
Balance, beginning of period $ 41,270
$ 40,629
$ 38,208
$ 37,162
$ 38,214
Loans charged-off:
Commercial 233
253
206
1,036
684
Real estate 1,435
382
419
468
3,049
Consumer 2,892
2,345
1,934
1,857
1,256
Total loans charged-off 4,560
2,980
2,559
3,361
4,989
Recoveries:
Commercial 153
74
186
32
189
Real estate 622
623
825
279
272
Consumer 626
504
469
385
426
Total recoveries 1,401
1,201
1,480
696
887
Net charge-offs 3,159
1,779
1,079
2,665
4,102
Provision for loan losses - continuing operations 3,100
2,660
3,524
3,758
3,056
Provision for loan losses - discontinued operations $ 83
$ (240 ) $ (24 ) $ (47 ) $ (6 )
Balance, end of period $ 41,294
$ 41,270
$ 40,629
$ 38,208
$ 37,162

ALL to loans 0.44 % 0.44 % 0.41 % 0.54 % 0.54 %
Net charge-offs to average loans 0.13 % 0.07 % 0.05 % 0.15 % 0.24 %
Provision to average loans 0.13 % 0.11 % 0.15 % 0.21 % 0.18 %

The following table shows both an allocation of the ALL 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):


	September 30,				June 30,				March 31,				December 31,				September 30,
	2019				2019				2019				2018				2018
	$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾
Commercial	$	9,149	16.7	%	$	7,696	16.6	%	$	7,411	15.6	%	$	7,636	13.6	%	$	6,702	12.3	%
Real estate		24,916	76.0	%		25,120	75.8	%		24,848	76.7	%		24,821	76.9	%		26,432	78.3	%
Consumer		9,755	7.3	%		9,647	7.6	%		8,568	7.7	%		8,588	9.5	%		8,160	9.4	%
Total	$	43,820	100.0	%	$	42,463	100.0	%	$	40,827	100.0	%	$	41,045	100.0	%	$	41,294	100.0	%

September 30,
2018 June 30,
2018
March 31,
2018

December 31,
2017

September 30,
2017
$
% ⁽¹⁾
$
% ⁽¹⁾
$
% ⁽¹⁾
$
% ⁽¹⁾
$
% ⁽¹⁾
Commercial $ 6,702
12.3 % $ 6,382
11.8 % $ 5,694
11.5 % $ 4,552
8.6 % $ 5,363
8.0 %
Real estate 26,432
78.3 % 28,474
79.2 % 29,054
74.1 % 28,597
78.4 % 27,518
79.5 %
Consumer 8,160
9.4 % 6,414
9.0 % 5,881
14.4 % 5,059
13.0 % 4,281
12.5 %
Total $ 41,294
100.0 % $ 41,270
100.0 % $ 40,629
100.0 % $ 38,208
100.0 % $ 37,162
100.0 %

~~(1)~~ ~~Represents the loan balance divided by total loans held for investment.~~

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

Deposits

As of September 30, ~~2018,~~2019, total deposits were ~~$9.8~~$13.0 billion, an increase of ~~$2.8~~$3.1 billion, or ~~40.7%~~30.8%, from December 31, ~~2017.~~2018. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of ~~$2.1~~$2.9 billion accounted for ~~27.5%~~29.3% of total interest-bearing deposits at September 30, ~~2018.~~

2019.

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


	September 30, 2019				December 31, 2018
			% of total				% of total
Deposits:	Amount		deposits		Amount		deposits
Non-interest bearing	$	3,155,174	24.2	%	$	2,094,607	21.0	%
NOW accounts		2,515,777	19.3	%		2,288,523	23.0	%
Money market accounts		3,737,426	28.6	%		2,875,301	28.8	%
Savings accounts		739,505	5.7	%		622,823	6.2	%
Time deposits of $100,000 and over⁽¹⁾		1,770,707	13.6	%		1,067,181	10.7	%
Other time deposits		1,126,123	8.6	%		1,022,525	10.3	%
Total Deposits	$	13,044,712	100.0	%	$	9,970,960	100.0	%

(1)	Includes time deposits of $250,000 and over of $717,090 and $292,224 as of September 30, 2019 and December 31, 2018, respectively.

September 30, 2018 December 31, 2017
Deposits: Amount
% of total
deposits
Amount
% of total
deposits
Noninterest bearing $ 2,189,887
22.3 % $ 1,502,208
21.5 %
NOW accounts 2,205,262
22.4 % 1,929,416
27.6 %
Money market accounts 2,704,480
27.5 % 1,685,174
24.1 %
Savings accounts 635,788
6.4 % 546,274
7.8 %
Time deposits of $100,000 and over 1,078,448
11.0 % 624,112
8.9 %
Other time deposits 1,020,830
10.4 % 704,534
10.1 %
Total Deposits $ 9,834,695
100.0 % $ 6,991,718
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 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were ~~$176.6~~$194.2 million and ~~$11.0~~$188.5 million, respectively, purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance ~~Sheet.~~

Sheets.

Maturities of time deposits as of September 30, ~~2018~~2019 were as follows (dollars in thousands):

Amount
Within 3 Months $ 390,259
3 - 12 Months 851,682
Over 12 Months 857,337
Total $ 2,099,278


	Amount
Within 3 Months	$	527,931
3 - 12 Months		1,114,970
Over 12 Months		1,253,929
Total	$	2,896,830

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Capital Resources

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

In July 2013, the Federal Reserve issued final rules to include technical changes to its market risk capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Company and the Bank to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). These capital requirements will be phased in over a four-year period. ~~When~~The rules were fully phased in on January 1, 2019, ~~the rules will~~and now 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~~increased by the same amount each year ~~until~~and was fully implemented at 2.5% on January 1, 2019. ~~As of September 30, 2018, the capital conservation buffer was 1.875% of risk-weighted assets.~~ The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

~~The Company's~~

On February 1, 2019, the Company completed its acquisition of Access. As a result, as of September 30, 2019, the Company’s assets exceeded $15.0 billion and the trust preferred capital notes ~~currently~~ qualify for Tier 12 capital for regulatory purposes.

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 for regulatory purposes. The trust preferred capital notes will phase-out for Tier~~Company’s common stock through June 30, 2021 in open market transactions or privately negotiated transactions. Authority remained to repurchase approximately $92.0 million and $115 million of the Company’s common stock as of November 1, ~~capital when an acquisition occurs~~2019 and ~~total assets exceed $15.0 billion .~~September 30, 2019, respectively.

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


	September 30, 2019	December 31, 2018	September 30, 2018
Common equity Tier 1 capital	$ 1,441,259	$ 1,106,871	$ 1,069,539
Tier 1 capital	1,441,259	1,236,709	1,199,189
Tier 2 capital	337,436	199,002	199,301
Total risk-based capital	1,778,695	1,435,711	1,398,491
Risk-weighted assets	13,752,804	11,146,898	10,780,051
Capital ratios:
Common equity Tier 1 capital ratio	10.48%	9.93%	9.92%
Tier 1 capital ratio	10.48%	11.09%	11.12%
Total capital ratio	12.93%	12.88%	12.97%
Leverage ratio (Tier 1 capital to average assets)	8.94%	9.71%	9.89%
Capital conservation buffer ratio ⁽¹⁾	4.48%	4.88%	4.97%
Common equity to total assets	14.48%	13.98%	14.06%
Tangible common equity to tangible assets ⁽²⁾	9.23%	8.84%	8.74%

(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 September 30, 2019are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

September 30,
2018

December 31,
2017

September 30,
2017
Common equity Tier 1 capital $ 1,069,539
$ 737,204
$ 734,892
Tier 1 capital 1,199,189
826,979
825,392
Tier 2 capital 199,301
186,809
186,012
Total risk-based capital 1,398,491
1,013,788
1,011,404
Risk-weighted assets 10,780,051
8,157,174
7,817,079

Capital ratios:

Common equity Tier 1 capital ratio 9.92 % 9.04 % 9.40 %
Tier 1 capital ratio 11.12 % 10.14 % 10.56 %
Total capital ratio 12.97 % 12.43 % 12.94 %
Leverage ratio (Tier 1 capital to average assets) 9.89 % 9.42 % 9.52 %
Capital conservation buffer ratio ⁽¹⁾
4.97 % 4.14 % 4.56 %
Common equity to total assets 14.06 % 11.23 % 11.53 %
Tangible common equity to tangible assets ⁽²⁾
8.74 % 8.14 % 8.34 %

~~(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~~

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Table of ~~the three measures represents the Company's capital conservation buffer ratio.~~Contents

~~(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~~ ~~September 30, 2018~~ ~~are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.~~

NON-GAAP FINANCIAL MEASURES

In reporting the results of the three and nine months ended September 30, ~~2018,~~2019, the Company has provided supplemental performance measures on a tax-equivalent, tangible, and/or operating basis. These non-GAAP financial measures are a supplement to GAAP, which is 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 financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the ~~Company's~~Company’s performance.

Net interest income (FTE), which is used in computing net interest margin (FTE) and efficiency ratio (FTE), provides 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 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. 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.

Operating measures exclude ~~merger-related~~merger and rebranding-related costs unrelated to the Company’s normal operations. 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~~organization’s operations.

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 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.

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The following table reconciles these 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						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Interest Income (FTE)
Interest and dividend income (GAAP)	$	178,345		$	131,363		$	525,122		$	388,151
FTE adjustment		2,804			2,014			8,468			5,860
Interest and dividend income FTE (non-GAAP)	$	181,149		$	133,377		$	533,590		$	394,011
Average earning assets	$	15,191,792		$	11,383,320		$	14,700,019		$	11,506,200
Yield on interest-earning assets (GAAP)		4.66	%		4.58	%		4.78	%		4.51	%
Yield on interest-earning assets (FTE) (non-GAAP)		4.73	%		4.65	%		4.85	%		4.58	%
Net Interest Income (FTE)
Net Interest Income (GAAP)	$	136,601		$	105,963		$	402,743		$	317,602
FTE adjustment		2,804			2,014			8,468			5,860
Net Interest Income FTE (non-GAAP)		139,405			107,977			411,211			323,462
Average earning assets	$	15,191,792		$	11,383,320		$	14,700,019		$	11,506,200
Net interest margin (GAAP)		3.57	%		3.69	%		3.66	%		3.69	%
Net interest margin (FTE) (non-GAAP)		3.64	%		3.76	%		3.74	%		3.76	%
Tangible Assets
Ending Assets (GAAP)	$	17,441,035		$	13,371,742		$	17,441,035		$	13,371,742
Less: Ending goodwill		929,815			727,699			929,815			727,699
Less: Ending amortizable intangibles		78,241			51,563			78,241			51,563
Ending tangible assets (non-GAAP)	$	16,432,979		$	12,592,480		$	16,432,979		$	12,592,480
Tangible Common Equity
Ending Equity (GAAP)	$	2,525,031		$	1,880,029		$	2,525,031		$	1,880,029
Less: Ending goodwill		929,815			727,699			929,815			727,699
Less: Ending amortizable intangibles		78,241			51,563			78,241			51,563
Ending tangible common equity (non-GAAP)	$	1,516,975		$	1,100,767		$	1,516,975		$	1,100,767
Average equity (GAAP)	$	2,528,435		$	1,880,582		$	2,429,912		$	1,851,072
Less: Average goodwill		930,525			723,785			906,476			724,940
Less: Average amortizable intangibles		80,510			53,267			80,605			51,829
Average tangible common equity (non-GAAP)	$	1,517,400		$	1,103,530		$	1,442,831		$	1,074,303
ROE (GAAP)		8.35	%		8.06	%		7.58	%		7.38	%
Common equity to assets (GAAP)		14.48	%		14.06	%		14.48	%		14.06	%
Tangible common equity to tangible assets (non-GAAP)		9.23	%		8.74	%		9.23	%		8.74	%
Book value per share (GAAP)	$	31.29		$	28.68		$	31.29		$	28.68
Tangible book value per share (non-GAAP)	$	18.80		$	16.79		$	18.80		$	16.79
Operating Measures
Net income (GAAP)	$	53,238		$	38,197		$	137,692		$	102,163
Merger-related costs, net of tax		2,819			1,129			25,973			29,902
Net operating earnings (non-GAAP)	$	56,057		$	39,326		$	163,665		$	132,065

Weighted average common shares outstanding, diluted		81,832,868			66,013,152			80,183,113			65,873,202
Earnings per common share, diluted (GAAP)	$	0.65		$	0.58		$	1.72		$	1.55
Operating earnings per share, diluted (non-GAAP)	$	0.69		$	0.60		$	2.04		$	2.01

Average assets (GAAP)	$	17,203,328		$	12,947,352		$	16,639,041		$	13,061,453
ROA (GAAP)		1.23	%		1.17	%		1.11	%		1.05	%
Operating ROA (non-GAAP)		1.29	%		1.21	%		1.32	%		1.35	%

Average common equity (GAAP)	$	2,528,435		$	1,880,582		$	2,429,912		$	1,851,072
ROE (GAAP)		8.35	%		8.06	%		7.58	%		7.38	%
Operating ROE (non-GAAP)		8.80	%		8.30	%		9.01	%		9.54	%

Noninterest expense (GAAP)	$	111,687		$	76,349		$	324,022		$	263,234
Less: Merger-related costs		2,435			1,429			26,928			37,414
Less: Rebranding-related costs		1,133			—			5,553			—
Less: Amortization of intangible assets		4,764			3,490			13,919			9,885
Operating noninterest expense (non-GAAP)	$	103,355		$	71,430		$	277,622		$	215,935

Net interest income (GAAP)	$	136,601		$	105,963		$	402,743		$	317,602
Net interest income (FTE) (non-GAAP)	$	139,405		$	107,977		$	411,211		$	323,462
Noninterest income (GAAP)	$	48,106		$	19,887		$	103,621		$	80,752

Efficiency ratio (GAAP)		60.47	%		60.67	%		63.99	%		66.08	%
Operating efficiency ratio (FTE) (non-GAAP)		55.12	%		58.59	%		53.92	%		55.87	%
Operating ROTCE
Operating Net Income (non-GAAP)	$	56,057		$	39,326		$	163,665		$	132,065
Plus: Amortization of intangibles, tax effected		3,764			2,757			10,996			7,809
Net Income before amortization of intangibles (non-GAAP)	$	59,821		$	42,083		$	174,661		$	139,874

Average tangible common equity (non-GAAP)	$	1,517,400		$	1,103,530		$	1,442,831		$	1,074,303
Operating return on average tangible common equity (non-GAAP)		15.64	%		15.13	%		16.18	%		17.41	%

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Three Months Ended
September 30,
Nine Months Ended
September 30,
2018 2017 2018 2017
Interest Income (FTE)
Interest and dividend income (GAAP) $ 131,363
$ 84,499
$ 388,151
$ 241,865
FTE adjustment 2,014
2,999
5,860
8,683
Interest and dividend income FTE (non-GAAP) $ 133,377
$ 87,498
$ 394,011
$ 250,548
Average earning assets $ 11,383,320
$ 8,167,919
$ 11,506,200
$ 7,922,944
Yield on interest-earning assets (GAAP) 4.58 % 4.10 % 4.51 % 4.08 %
Yield on interest-earning assets (FTE) (non-GAAP) 4.65 % 4.25 % 4.58 % 4.23 %
Net Interest Income (FTE)
Net Interest Income (GAAP) $ 105,963
$ 70,847
$ 317,602
$ 205,918
FTE adjustment 2,014
2,999
5,860
8,683
Net Interest Income FTE (non-GAAP) 107,977
73,846
323,462
214,601
Average earning assets $ 11,383,320
$ 8,167,919
$ 11,506,200
$ 7,922,944
Net interest margin (GAAP) 3.69 % 3.44 % 3.69 % 3.47 %
Net interest margin (FTE) (non-GAAP) 3.76 % 3.59 % 3.76 % 3.62 %
Tangible Assets
Ending Assets (GAAP) $ 13,371,742
$ 9,029,436
$ 13,371,742
$ 9,029,436
Less: Ending goodwill 727,699
298,191
727,699
298,191
Less: Ending amortizable intangibles 51,563
16,017
51,563
16,017
Ending tangible assets (non-GAAP) $ 12,592,480
$ 8,715,228
$ 12,592,480
$ 8,715,228
Tangible Common Equity

Ending Equity (GAAP) $ 1,880,029
$ 1,041,371
$ 1,880,029
$ 1,041,371
Less: Ending goodwill 727,699
298,191
727,699
298,191
Less: Ending amortizable intangibles 51,563
16,017
51,563
16,017
Ending tangible common equity (non-GAAP) $ 1,100,767
$ 727,163
$ 1,100,767
$ 727,163
Average equity (GAAP) $ 1,880,582
$ 1,037,792
$ 1,851,072
$ 1,024,853
Less: Average goodwill 723,785
298,191
724,940
298,191
Less: Average amortizable intangibles 53,267
16,681
51,829
18,184
Average tangible common equity (non-GAAP) $ 1,103,530
$ 722,920
$ 1,074,303
$ 708,478
ROE (GAAP) 8.06 % 7.90 % 7.38 % 7.53 %
ROTCE (non-GAAP) 13.73 % 11.34 % 12.71 % 10.90 %
Common equity to assets (GAAP) 14.06 % 11.53 % 14.06 % 11.53 %
Tangible common equity to tangible assets (non-GAAP) 8.74 % 8.34 % 8.74 % 8.34 %
Book value per share (GAAP) $ 28.68
$ 24.00
$ 28.68
$ 24.00
Tangible book value per share (non-GAAP) $ 16.79
$ 16.76
$ 16.79
$ 16.76

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Operating Measures
Net income (GAAP) $ 38,197
$ 20,658
$ 102,163
$ 57,737
Merger-related costs, net of tax 1,129
661
29,902
3,020
Net operating earnings (non-GAAP) $ 39,326
$ 21,319
$ 132,065
$ 60,757

Weighted average common shares outstanding, diluted 66,013,152
43,792,058
65,873,202
43,767,502
Earnings per common share, diluted (GAAP) $ 0.58
$ 0.47
$ 1.55
$ 1.32
Operating earnings per share, diluted (non-GAAP) $ 0.60
$ 0.49
$ 2.01
$ 1.39

Average assets (GAAP) $ 12,947,352
$ 8,973,964
$ 13,061,453
$ 8,730,815
ROA (GAAP) 1.17 % 0.91 % 1.05 % 0.88 %
Operating ROA (non-GAAP) 1.21 % 0.94 % 1.35 % 0.93 %

Average common equity (GAAP) $ 1,880,582
$ 1,037,792
$ 1,851,072
$ 1,024,853
ROE (GAAP) 8.06 % 7.90 % 7.38 % 7.53 %
Operating ROE (non-GAAP) 8.30 % 8.15 % 9.54 % 7.93 %

Average tangible common equity (non-GAAP) $ 1,103,530
$ 722,920
$ 1,074,303
$ 708,478
ROTCE (non-GAAP) 13.73 % 11.34 % 12.71 % 10.90 %
Operating ROTCE (non-GAAP) 14.14 % 11.70 % 16.44 % 11.47 %

Noninterest expense (GAAP) $ 76,349
$ 55,204
$ 263,234
$ 167,871
Less: Merger-related costs 1,429
732
37,414
3,476
Operating noninterest expense (non-GAAP) $ 74,920
$ 54,472
$ 225,820
$ 164,395

Net interest income (GAAP) $ 105,963
$ 70,847
$ 317,602
$ 205,918
Net interest income (FTE) (non-GAAP) $ 107,977
$ 73,846
$ 323,462
$ 214,601
Noninterest income (GAAP) $ 19,887
$ 15,230
$ 80,752
$ 47,305

Efficiency ratio (GAAP) 60.67 % 64.13 % 66.08 % 66.29 %
Efficiency ratio (FTE) (non-GAAP) 59.71 % 61.97 % 65.12 % 64.10 %
Operating efficiency ratio (FTE) (non-GAAP) 58.59 % 61.15 % 55.87 % 62.77 %

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk. The ALCO of the Company is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

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

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

Earnings Simulation Analysis

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

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

The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates 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 model, under all scenarios, does not drop the index below zero.

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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 30, ~~2018~~2019 and ~~2017~~2018 (dollars in thousands):


	Change In Net Interest Income
	September 30,
	2019		2018
	%	$	%	$
Change in Yield Curve:
+300 basis points	13.16	73,140	7.34	32,889
+200 basis points	8.71	48,405	5.41	24,219
+100 basis points	4.48	24,893	2.76	12,369
Most likely rate scenario	—	—	—	—
-100 basis points	(5.39)	(29,980)	(3.40)	(15,236)
-200 basis points	(8.71)	(48,423)	(7.52)	(33,701)

Change In Net Interest Income
September 30,
2018 2017
% $ % $
Change in Yield Curve:

+300 basis points 7.34
32,889
7.65
23,401
+200 basis points 5.41
24,219
5.24
16,034
+100 basis points 2.76
12,369
2.82
8,634
Most likely rate scenario —
—
—
—
-100 basis points (3.40 ) (15,236 ) (3.21 ) (9,828 )
-200 basis points (7.52 ) (33,701 ) (6.69 ) (20,459 )

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, 2018, the Company's interest rate sensitivity was relatively the same as September 30, 2017 from~~

From a net interest income ~~perspective.~~perspective, the Company was more asset sensitive as of September 30, 2019, compared to its position as of September 30, 2018. This shift is in part due to the changing market characteristics of certain deposit products and in part due to 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 near their floors.

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 30, ~~2018~~2019 and ~~2017~~2018 (dollars in thousands):


	Change In Economic Value of Equity
	September 30,
	2019		2018
	%	$	%	$
Change in Yield Curve:
+300 basis points	(4.13)	(132,210)	(4.48)	(117,972)
+200 basis points	(2.44)	(78,042)	(2.64)	(69,687)
+100 basis points	(0.97)	(31,031)	(1.03)	(27,234)
Most likely rate scenario	—	—	—	—
-100 basis points	(3.43)	(109,752)	(0.96)	(25,237)
-200 basis points	(9.63)	(307,914)	(3.59)	(94,539)

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Change In Economic Value of Equity
September 30,
2018 2017
% $ % $
Change in Yield Curve:

+300 basis points (4.48 ) (117,972 ) (1.11 ) (16,200 )
+200 basis points (2.64 ) (69,687 ) (0.05 ) (800 )
+100 basis points (1.03 ) (27,234 ) 0.41
5,960
Most likely rate scenario —
—
—
—
-100 basis points (0.96 ) (25,237 ) (2.72 ) (39,795 )
-200 basis points (3.59 ) (94,539 ) (8.27 ) (120,822 )

As of September 30, ~~2018,~~2019, the ~~Company was generally more~~Company’s economic value of equity is less sensitive ~~to market~~in a rising interest rate ~~fluctuations when~~environment compared to September 30, ~~2017~~2018 primarily due to ~~a higher concentrations~~the composition of ~~longer duration assets~~the Consolidated Balance Sheets and ~~shorter duration liabilities.~~

due in part to the market characteristics of certain deposits.

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 September 30, ~~2018.~~2019. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures that are designed to 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~~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 September 30, ~~2018,~~2019, the ~~Company's~~Company’s disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating the ~~Company's~~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.

Changes in Internal Control Over Financial Reporting

There was no change in the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

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PART II –- OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such 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 have been no material changes with respect to the risk factors disclosed in the Company’s ~~2017~~2018 Form 10-K.

In addition to the risks factors disclosed in the Company’s 2017 Form 10-K, the Company identified the following additional risks as a result of the pending acquisition of Access. Refer to Note 14 “Subsequent Events” in Part I, Item 1 and “Forward-Looking Statements” in Part I, Item 2 for additional information.

Failure of the Access Mergers to be completed, the termination of the Access Merger Agreement or a significant delay in the consummation of the Access Mergers could negatively impact the Company and Access.

On October 4, 2018, the Company signed a merger agreement (the “Access Merger Agreement”), which under the terms and subject to the conditions thereof (i) Access will merge with and into the Company, with the Company continuing as the continuing corporation (the “Access Merger”), and (ii) following the Access Merger, Access National Bank will merge with and into the Bank, with the Bank continuing as the continuing bank (the “Bank Merger,” and, together with the Access Merger, the “Access Mergers”). The Access Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the Access Mergers. These conditions to the consummation of the Access Mergers may not be fulfilled and, accordingly, the Access Mergers may not be completed. In addition, if the Access Merger is not completed by October 4, 2019, either the Company or Access may choose to terminate the Access Merger Agreement at any time after that date if the failure of the Access Merger to be completed on or before that date is not caused by any breach of the Access Merger Agreement by the party electing to terminate the Access Merger Agreement, before or after shareholder approval.

If the Access Mergers are not consummated, the ongoing business, financial condition and results of operations of each party may be materially adversely affected and the market price of each party’s common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Access Mergers will be consummated. If the consummation of the Access Mergers are delayed, including by the receipt of a competing acquisition proposal, the business, financial condition and results of operations of each company may be materially adversely affected.

In addition, each party has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Access Merger Agreement. If the Access Mergers are not completed, the parties would have to recognize these expenses without realizing the expected benefits of the Access Mergers. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Access Mergers, including the diversion of management attention from pursuing other opportunities and the constraints in the Access Merger Agreement on the ability to make significant changes to each party’s ongoing business during the pendency of the Access Merger, could have a material adverse effect on each party’s business, financial condition and results of operations.

Additionally, the Company’s or Access’s business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Access Mergers, without realizing any of the anticipated benefits of completing the Access Mergers, and the market price of the Company’s common stock or Access’s common stock might decline to the extent that the current market price reflects a market assumption that the Access Mergers will be completed. If the Access Merger Agreement is terminated and a party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the Access Mergers.

~~Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.~~

Before the transactions contemplated by the Access Merger Agreement, including the Access Mergers, may be completed, various approvals must be obtained from bank regulatory authorities. In determining whether to grant these

approvals, the applicable regulatory authorities consider a variety of factors, including the competitive impact of the proposal in the relevant geographic markets; financial, managerial and other supervisory considerations of each party; convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries under the Community Reinvestment Act of 1977 and the regulations promulgated thereunder; effectiveness of the parties in combating money laundering activities; and the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system. These regulatory authorities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the Access Mergers or of imposing additional costs or limitations on the combined company following the Access Mergers. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the completion of the Access Mergers that are not anticipated or cannot be met or result in a Burdensome Condition (as such term is defined in the Access Merger Agreement). Furthermore, such conditions or changes may constitute a burdensome condition that may allow the Company to terminate the Access Merger Agreement and the Company may exercise its right to terminate the Access Merger Agreement. If the consummation of the Access Mergers is delayed, including by a delay in receipt of necessary regulatory approvals, the business, financial condition and results of operations of each company may also be materially and adversely affected.

~~The Company and Access will be subject to business uncertainties and contractual restrictions while the Access Mergers are pending.~~

Uncertainty about the effect of the Access Mergers on employees, customers (including depositors and borrowers), suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of Access and the Company. These uncertainties may impair the Company’s or Access’s ability to attract, retain and motivate key personnel and customers (including depositors and borrowers) pending the consummation of the Access Mergers, as such personnel and customers may experience uncertainty about their future roles and relationships following the consummation of the Access Mergers. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with Access and/or the Company to seek to change existing business relationships with Access and/or the Company or fail to extend an existing relationship with Access and/or the Company. In addition, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the Access Mergers.

The pursuit of the Access Mergers and the preparation for the integration may place a burden on each company’s management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on each company’s business, financial condition and results of operations.

In addition, the Access Merger Agreement restricts each party from taking certain actions without the other party’s consent while the Access Merger is pending. These restrictions could have a material adverse effect on each party’s business, financial condition and results of operations.

Combining the businesses of the Company and Access may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the Access Mergers may not be realized.

The success of the Access Mergers will depend on, among other things, the combined company’s ability to combine the businesses of the Company and Access. If the combined company is not able to successfully achieve this objective, the anticipated benefits of the Access Mergers may not be realized fully, may take longer to realize than expected, or may not be realized at all.

The Company and Access have operated and, until the completion of the Access Mergers, will continue to operate, independently. The success of the Access Mergers, including anticipated benefits and cost savings, will depend, in part, on the successful combination of the businesses of the Company and Access. To realize these anticipated benefits and cost savings, after the completion of the Access Mergers, the Company expects to integrate Access’s business into its own. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Access Mergers. The loss of key employees could have an adverse effect on the companies’ financial results and the value of its common stock. As with any merger of financial institutions, there also may be business disruptions that cause Access or the Company to lose current customers or cause current customers to remove their accounts and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Access and the Company during this transition period and for an undetermined period after consummation of the Access Mergers.

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

The following information describes the Company’s common stock repurchases for the three months ended September 30, 2019:


Period	Total number of shares purchased⁽¹⁾	Average price paid per share ($)	Total number of shares purchased as part of publicly announced plans or programs	Approximate value of shares remaining that may be purchased under the plan ($)
July 1 - July 31, 2019	2,308	35.49	-	150,000,000
August 1 - August 31, 2019	556,745	35.90	556,365	130,027,000
September 1 - September 30, 2019	413,762	37.01	412,900	114,746,000
Total	972,815	36.37	969,265

(1) Effective July 8, 2019, the Company’s Board of Directors authorized a share repurchase program to purchase up to $150.0 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 is authorized through June 30, 2021. During the three months ended September 30, 2019, 3,550 shares were withheld upon the vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations.

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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		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).

2.02		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 ~~Exhibit 2.1~~Annex A to ~~Current Report~~Form S-4/A Registration Statement filed on ~~Form 8-K filed October 5, 2018)~~December 10, 2018; SEC file no. 333-228455).

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

3.02		~~Bylaws~~Amendment to Articles of Incorporation of Atlantic Union Bankshares Corporation, ~~as amended January 21, 2017~~effective May 17, 2019 (incorporated by reference to Exhibit ~~3.02 to Annual Report on Form 10-K filed on February 28, 2017).~~

~~10.01~~		Form of Affiliate Agreement, dated October 4, 2018, by and between Union Bankshares Corporation, Access National Corporation and certain shareholders of Access National Corporation (incorporated by reference to Exhibit 10.13.1 to Current Report on Form 8-K filed ~~October 5, 2018.~~on May 3, 2019).

~~10.02~~ 3.03		~~Form~~Amended and Restated Bylaws of ~~Affiliate Agreement, dated October 4, 2018, by and between~~Atlantic Union Bankshares Corporation, ~~Access National Corporation and certain shareholders of Union Bankshares Corporation~~effective May 17, 2019 (incorporated by reference to Exhibit ~~10.2~~3.2 to Current Report on Form 8-K filed ~~October 5, 2018)~~on May 3, 2019).

15.01		Letter regarding unaudited interim financial information.

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

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

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

101.00		Interactive data files formatted in Inline eXtensible Business Reporting Language for the quarter ended September 30, ~~2018~~2019 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 Consolidated Financial Statements (unaudited).

104.00		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).

-86-

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 ~~6, 2018~~5, 2019	By:	/s/ John C. Asbury
		John C. Asbury,
		President and Chief Executive Officer
		(principal executive officer)

Date: November ~~6, 2018~~5, 2019	By:	/s/ Robert M. Gorman
		Robert M. Gorman,
		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

-87-

~~-83-~~



¨ For the Quarterly Period Ended September 30, 2019

OR

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


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



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



Large accelerated filer	x ☒	Accelerated filer	¨ ☐
Non-accelerated filer	¨ ☐
		Smaller reporting company	¨ ☐
		Emerging growth company	¨ ☐


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

	PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements

		Consolidated Balance Sheets ~~(unaudited)~~ as of September 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018 (audited)		2

		Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		3

		Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		5 4

		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		6 5

		Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018		7

		Notes to Consolidated Financial Statements (unaudited)		9

		Review Report of Independent Registered Public Accounting Firm		51 55

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		52 56

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		76 82

Item 4.		Controls and Procedures		78 84

		PART II - OTHER INFORMATION

Item 1.		Legal Proceedings		79 85

Item 1A.		Risk Factors		79 85

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		81 85

Item 6.	~~Exhibits~~	Exhibits	82	86

	~~Signatures~~	Signatures	83	87



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



~~2017~~ 2018 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018
Access	–	Access National Corporation and its subsidiaries
AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALL	–	Allowance for loan losses
AOCI	–	Accumulated other comprehensive income (loss)
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Atlantic Union Bank (formerly, Union Bank & ~~Trust~~Trust)
BOLI	–	Bank-owned life insurance
bps	–	Basis points
~~CECL~~ 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
DHFB	–	Dixon, Hubard, Feinour, & Brown, Inc.
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
FTE	–	Fully taxable equivalent
~~U.S.~~ GAAP or U.S. GAAP	–	Accounting principles generally accepted in the United States
HELOC	–	Home equity line of credit
HTM	–	Held to maturity
IDC	–	Interactive Data Corporation
~~LIBOR~~ LCH	–	London Clearing House
LIBOR	–	London Interbank Offered Rate
MBS	–	Mortgage Backed Securities
MD&A	–	~~Management's~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations
NOW	–	Negotiable order of withdrawal
NPA	–	Nonperforming assets
OAL	–	Outfitter Advisors, Ltd.
OCI	–	Other comprehensive income
~~ODCM~~ OREO	–	~~Old Dominion Capital Management, Inc.~~
~~OREO~~	–	Other real estate owned
OTTI	–	Other than temporary impairment
PCI	–	Purchased credit impaired
ROA	–	Return on average assets
ROE	–	Return on average common equity
ROTCE	–	Return on average tangible common equity

ROU Asset	–	Right of Use Asset
SEC	–	Securities and Exchange Commission
~~Securities Act~~	–	~~Securities Act of 1933, as amended~~
Shore Premier	–	Shore Premier Finance, a division of the Bank
Shore Premier sale	–	The sale of substantially all of the assets and certain specific liabilities of Shore Premier
~~Tax Act~~ TDR	–	~~Tax Cuts and Jobs Act of 2017~~
~~TDR~~	–	Troubled debt restructuring
~~TFSB~~ Topic 606	–	ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”
TFSB	–	The Federal Savings Bank
UMG	–	Union Mortgage Group, Inc.
Xenith	–	Xenith Bankshares, Inc.



	September 30, 2018			December 31, 2017
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	143,693		$	117,586
Interest-bearing deposits in other banks	130,098			81,291
Federal funds sold	8,421			496
Total cash and cash equivalents	282,212			199,373
Securities available for sale, at fair value	1,883,141			974,222
Securities held to maturity, at carrying value	235,333			199,639
Marketable equity securities, at fair value	27,375			—
Restricted stock, at cost	112,390			75,283
Net loans held for investment	9,411,598			7,141,552
Less allowance for loan losses	41,294			38,208
Total loans held for investment, net of deferred fees	9,370,304			7,103,344
Premises and equipment, net	155,001			119,604
Goodwill	727,699			298,528
Amortizable intangibles, net	51,563			14,803
Bank owned life insurance	261,874			182,854
Other assets	262,716			102,871
Assets of discontinued operations	2,134			44,658
Total assets	$	13,371,742		$	9,315,179
LIABILITIES
Noninterest-bearing demand deposits	$	2,189,887		$	1,502,208
Interest-bearing deposits	7,644,808			5,489,510
Total deposits	9,834,695			6,991,718
Securities sold under agreements to repurchase	40,624			49,152
Other short-term borrowings	1,016,250			745,000
Long-term borrowings	497,768			425,262
Other liabilities	99,757			54,008
Liabilities of discontinued operations	2,619			3,710
Total liabilities	11,491,713			8,268,850
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding shares at September 30, 2018 and December 31, 2017, 65,982,669 and 43,743,318, respectively.	87,192			57,744
Additional paid-in capital	1,378,940			610,001
Retained earnings	438,513			379,468
Accumulated other comprehensive income (loss)	(24,616		)	(884		)
Total stockholders' equity	1,880,029			1,046,329
Total liabilities and stockholders' equity	$	13,371,742		$	9,315,179



	Three Months Ended					Nine Months Ended
	September 30, 2018			September 30, 2017		September 30, 2018		September 30, 2017
Interest and dividend income:
Interest and fees on loans	$	115,817		$	75,597	$	348,009	$	215,797
Interest on deposits in other banks	492			181		1,815		367
Interest and dividends on securities:
Taxable	10,145			5,175		25,229		15,081
Nontaxable	4,909			3,546		13,098		10,620
Total interest and dividend income	131,363			84,499		388,151		241,865
Interest expense:
Interest on deposits	15,928			7,234		40,187		18,410
Interest on short-term borrowings	3,379			1,871		12,794		4,221
Interest on long-term borrowings	6,093			4,547		17,568		13,316
Total interest expense	25,400			13,652		70,549		35,947
Net interest income	105,963			70,847		317,602		205,918
Provision for credit losses	3,340			3,056		9,011		7,344
Net interest income after provision for credit losses	102,623			67,791		308,591		198,574
Noninterest income:
Service charges on deposit accounts	6,483			4,795		18,566		13,924
Other service charges and fees	1,625			1,131		4,137		3,391
Interchange fees, net	4,882			3,756		14,163		11,205
Fiduciary and asset management fees	4,411			2,794		11,507		8,313
Gains (losses) on securities transactions, net	97			184		222		782
Bank owned life insurance income	1,732			1,377		5,126		4,837
Loan-related interest rate swap fees	562			416		2,178		2,627
Gain on Shore Premier sale	(933		)	—		19,966		—
Other operating income	1,028			777		4,887		2,226
Total noninterest income	19,887			15,230		80,752		47,305
Noninterest expenses:
Salaries and benefits	39,279			28,187		120,797		87,740
Occupancy expenses	6,551			4,678		18,778		13,783
Furniture and equipment expenses	2,983			2,454		9,024		7,518
Printing, postage, and supplies	1,183			1,139		3,525		3,664
Communications expense	872			796		2,976		2,567
Technology and data processing	4,841			4,148		13,722		11,793
Professional services	2,875			1,948		8,101		5,611
Marketing and advertising expense	3,109			1,931		7,834		5,933
FDIC assessment premiums and other insurance	1,363			1,141		5,430		2,793
Other taxes	2,878			2,022		8,660		6,065
Loan-related expenses	1,939			1,193		5,097		3,484
OREO and credit-related expenses	452			1,139		3,106		2,023
Amortization of intangible assets	3,490			1,480		9,885		4,661
Training and other personnel costs	1,024			861		3,155		2,829
Merger-related costs	1,429			732		37,414		3,476
Other expenses	2,081			1,355		5,730		3,931
Total noninterest expenses	76,349			55,204		263,234		167,871
Income from continuing operations before income taxes	46,161			27,817		126,109		78,008
Income tax expense	7,399			7,397		20,973		20,924
Income from continuing operations	38,762			20,420		105,136		57,084



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Net income	$	38,197		$	20,658		$	102,163		$	57,737
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges	575			41			3,214			(766		)
Reclassification adjustment for losses included in net income (net of tax, $60 and $102 for the three months and $205 and $370 for the nine months ended September 30, 2018 and 2017, respectively) ⁽¹⁾	227			189			770			688
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $3,007 and $1,470 for the three months and $7,200 and $3,195 for the nine months ended September 30, 2018 and 2017, respectively)	(11,310		)	(2,729		)	(27,087		)	5,935
Reclassification adjustment for losses (gains) included in net income (net of tax, $20 and $64 for the three months and $46 and $274 for the nine months ended September 30, 2018 and 2017, respectively) ⁽²⁾	(77		)	(119		)	(176		)	(508		)
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $88 for the three months and $107 and $273 for the nine months ended September 30, 2018 and 2017, respectively) ⁽³⁾	(5		)	(163		)	(403		)	(507		)
Bank owned life insurance:
Reclassification adjustment for losses included in net income ⁽⁴⁾	19			84			57			278
Other comprehensive income (loss)	(10,571		)	(2,697		)	(23,625		)	5,120
Comprehensive income	$	27,626		$	17,961		$	78,538		$	62,857



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

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

Balance - December 31, 2017	$	57,744	$	610,001		$	379,468		$	(884	)	$	1,046,329
Net income - 2018						102,163						102,163
Other comprehensive income (net of taxes of $7,148)									(23,625		)	(23,625		)
Issuance of common stock in regard to acquisitions (21,922,077 shares)⁽¹⁾	29,156		765,653									794,809
Dividends on common stock ($0.65 per share)						(42,825		)				(42,825		)
Issuance of common stock under Equity Compensation Plans (120,030 shares)	160		2,170									2,330
Issuance of common stock for services rendered (17,421 shares)	23		674									697
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (81,832 shares)	109		(2,610		)							(2,501		)
Cancellation of warrants			(1,530		)							(1,530		)
Impact of adoption of new guidance						(293		)	(107		)	(400		)
Stock-based compensation expense			4,582									4,582
Balance - September 30, 2018	$	87,192	$	1,378,940		$	438,513		$	(24,616	)	$	1,880,029



	2018			2017
Operating activities ⁽¹⁾:
Net income	$	102,163		$	57,737
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Depreciation of premises and equipment	10,411			8,307
Writedown of foreclosed properties and former bank premises	1,184			845
Amortization, net	9,333			10,500
Amortization (accretion) related to acquisitions, net	(6,014		)	(158		)
Provision for credit losses	8,830			7,345
Gains on securities transactions, net	(222		)	(782		)
BOLI income	(5,126		)	(3,999		)
Decrease (increase) in loans held for sale, net	40,302			5,591
Losses (gains) on sales of foreclosed properties and former bank premises, net	(413		)	83
Gain on Shore Premier sale	(19,966		)	—
Goodwill impairment losses	864			—
Stock-based compensation expenses	4,582			3,472
Issuance of common stock for services	697			561
Net decrease (increase) in other assets	(16,270		)	4,952
Net increase in other liabilities	16,283			909
Net cash and cash equivalents provided by (used in) operating activities	146,638			95,363
Investing activities:
Purchases of AFS securities and restricted stock	(926,764		)	(205,965		)
Purchases of HTM securities	(228,104		)	(7,836		)
Proceeds from sales of AFS securities and restricted stock	337,109			91,911
Proceeds from maturities, calls and paydowns of AFS securities	117,813			88,675
Proceeds from maturities, calls and paydowns of HTM securities	—			818
Proceeds from sale of loans held for investment	581,324			—
Net increase in loans held for investment	(397,725		)	(594,967		)
Net increase in premises and equipment	(4,334		)	(7,139		)
Proceeds from BOLI settlements	—			2,497
Proceeds from sales of foreclosed properties and former bank premises	3,617			1,028
Cash paid in acquisitions	(14,284		)	—
Cash acquired in acquisitions	174,515			—
Net cash and cash equivalents provided by (used in) investing activities	(356,833		)	(630,978		)
Financing activities:
Net increase in noninterest-bearing deposits	176,308			141,524
Net increase in interest-bearing deposits	119,095			360,813
Net increase (decrease) in short-term borrowings	27,722			40,556
Cash paid for contingent consideration	(565		)	(3,003		)
Proceeds from issuance of long-term debt	25,000			20,000
Repayments of long-term debt	(10,000		)	—
Cash dividends paid - common stock	(42,825		)	(26,207		)
Cancellation of warrants	(1,530		)	—
Issuance of common stock	2,330			969
Vesting of restricted stock, net of shares held for taxes	(2,501		)	(1,313		)
Net cash and cash equivalents provided by (used in) financing activities	293,034			533,339
Increase (decrease) in cash and cash equivalents	82,839			(2,276		)
Cash and cash equivalents at beginning of the period	199,373			179,237
Cash and cash equivalents at end of the period	$	282,212		$	176,961


	2019		2018
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	118,067	$	67,214
Income taxes		20,416		10,830

Supplemental schedule of noncash investing and financing activities
Transfers from loans (foreclosed properties) to foreclosed properties (loans)		1,816		106
Stock received as consideration for sale of loans held for investment		—		28,193
Securities transferred from HTM to AFS		—		187,425
Issuance of common stock in exchange for net assets in acquisitions		499,974		794,809

Transactions related to acquisitions
Assets acquired		2,855,993		3,252,377
Liabilities assumed ⁽²⁾		2,558,638		2,873,318



	2018		2017
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	67,214	$	33,947
Income taxes	10,830		19,600

Supplemental schedule of noncash investing and financing activities
Transfers from loans (foreclosed properties) to foreclosed properties (loans)	106		585
Stock received as consideration for sale of loans held for investment	28,913		—
Securities transferred from HTM to AFS	187,425		—
Issuance of common stock in exchange for net assets in acquisitions	794,809		—

Transactions related to acquisitions
Assets acquired	3,252,377		—
Liabilities assumed ⁽²⁾	2,873,318		—



	Yes ¨☐ No x ☒



Purchase Price:
Fair value of shares of the Company's common stock issued & warrants converted			$	794,809
Cash paid for Xenith stock options			6,170
Total purchase price			$	800,979

Fair value of assets acquired:
Cash and cash equivalents	$	174,218
AFS securities	295,782
Restricted stock, at cost	27,569
Net loans	2,454,151
Premises and equipment	44,912
OREO	5,250
Core deposit intangibles	38,470
Other assets	202,871
Total assets	$	3,243,223

Fair value of liabilities assumed:
Deposits	$	2,549,683
Other short-term borrowings	235,000
Borrowings	55,542
Other liabilities	26,664
Total liabilities	$	2,866,889

Net assets acquired			$	376,334
Preliminary goodwill			$	424,645



Contractually required principal and interest payments	$	114,270
Nonaccretable difference	(19,800		)
Cash flows expected to be collected	94,470
Accretable difference	(15,206		)
Fair value of loans acquired with a deterioration of credit quality	$	79,264



	Pro forma for the three months ended				Pro forma for the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Total revenues ⁽¹⁾	$	125,850	$	118,039	$	398,354	$	350,465
Net income	$	39,326	$	28,997	$	132,065	$	83,675
EPS	$	0.60	$	0.44	$	2.01	$	1.27



	Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value
September 30, 2018
Obligations of states and political subdivisions	$	566,268	$	3,380	$	(6,175	)	$	563,473
Corporate and other bonds ⁽¹⁾	163,117		382		(2,007		)	161,492
Mortgage-backed securities	1,170,410		798		(24,295		)	1,146,913
Other securities	11,447		—		(184		)	11,263
Total AFS securities	$	1,911,242	$	4,560	$	(32,661	)	$	1,883,141

December 31, 2017
Obligations of states and political subdivisions	$	295,546	$	6,842	$	(564	)	$	301,824
Corporate and other bonds	113,625		1,131		(876		)	113,880
Mortgage-backed securities	552,431		2,596		(6,169		)	548,858
Other securities	9,737		—		(77		)	9,660
Total AFS securities	$	971,339	$	10,569	$	(7,686	)	$	974,222



	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2018
Obligations of states and political subdivisions	$	377,882	$	(5,814	)	$	7,674	$	(361	)	$	385,556	$	(6,175	)
Mortgage-backed securities	794,067		(14,057		)	245,879		(10,237		)	1,039,946		(24,294		)
Corporate bonds and other securities	89,225		(1,003		)	38,557		(1,189		)	127,782		(2,192		)
Total AFS securities	$	1,261,174	$	(20,874	)	$	292,110	$	(11,787	)	$	1,553,284	$	(32,661	)

December 31, 2017
Obligations of states and political subdivisions	$	25,790	$	(132	)	$	16,934	$	(432	)	$	42,724	$	(564	)
Mortgage-backed securities	298,439		(3,267		)	136,298		(2,902		)	434,737		(6,169		)
Corporate bonds and other securities	10,976		(99		)	44,408		(854		)	55,384		(953		)
Total AFS securities	$	335,205	$	(3,498	)	$	197,640	$	(4,188	)	$	532,845	$	(7,686	)



	September 30, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	40,367	$	40,342	$	25,179	$	25,326
Due after one year through five years	213,662		209,552		145,276		145,980
Due after five years through ten years	273,207		271,360		223,210		226,251
Due after ten years	1,384,006		1,361,887		577,674		576,665
Total AFS securities	$	1,911,242	$	1,883,141	$	971,339	$	974,222



	Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value
September 30, 2018
Obligations of states and political subdivisions	$	235,333	$	25	$	(2,648	)	$	232,710

December 31, 2017
Obligations of states and political subdivisions	$	199,639	$	4,014	$	(170	)	$	203,483



	September 30, 2018				December 31, 2017
	Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value
Due in one year or less	$	—	$	—	$	3,221	$	3,230
Due after one year through five years	3,917		3,889		44,289		44,601
Due after five years through ten years	3,500		3,479		79,114		80,532
Due after ten years	227,916		225,342		73,015		75,120
Total HTM securities	$	235,333	$	232,710	$	199,639	$	203,483



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Realized gains (losses):
Gross realized gains	$	97	$	2,890
Gross realized losses	—		(2,668		)
Net realized gains	$	97	$	222

Proceeds from sales of securities	$	27,593	$	337,109



	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



	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	$	1,351	$	1,826	$	442	$	5,042	$	9,221	$	1,160,172	$	1,178,054
Commercial Real Estate - Owner Occupied	4,218		539		3,586		25,896		3,202		1,245,684		1,283,125
Commercial Real Estate - Non-Owner Occupied	492		—		—		21,575		1,812		2,403,372		2,427,251
Multifamily Real Estate	553		—		—		86		—		542,023		542,662
Commercial & Industrial	2,239		428		256		2,299		1,404		1,147,957		1,154,583
Residential 1-4 Family - Commercial	2,535		1,892		378		16,073		1,956		696,964		719,798
Residential 1-4 Family - Mortgage	4,506		3,793		2,543		16,761		8,535		575,590		611,728
Auto	2,414		299		211		9		525		302,738		306,196
HELOC	4,783		1,392		1,291		6,179		1,273		597,198		612,116
Consumer and all other⁽¹⁾	2,640		1,140		825		826		182		570,472		576,085
Total loans held for investment	$	25,731	$	11,309	$	9,532	$	94,746	$	28,110	$	9,242,170	$	9,411,598



	30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	78	$	1,324	$	3,640	$	5,042
Commercial Real Estate - Owner Occupied	435		3,487		21,974		25,896
Commercial Real Estate - Non-Owner Occupied	33		1,811		19,731		21,575
Multifamily Real Estate	—		—		86		86
Commercial & Industrial	—		1,134		1,165		2,299
Residential 1-4 Family - Commercial	3,677		2,011		10,385		16,073
Residential 1-4 Family - Mortgage	1,242		2,826		12,693		16,761
Auto	—		—		9		9
HELOC	337		447		5,395		6,179
Consumer and all other⁽¹⁾	41		12		773		826
Total	$	5,843	$	13,052	$	75,851	$	94,746



	September 30, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans without a specific allowance
Construction and Land Development	$	11,265	$	11,973	$	—	$	16,035	$	16,214	$	—
Commercial Real Estate - Owner Occupied	9,957		10,082		—		5,427		5,527		—
Commercial Real Estate - Non-Owner Occupied	6,922		7,199		—		6,017		6,103		—
Commercial & Industrial	1,683		2,116		—		1,681		1,933		—
Residential 1-4 Family - Commercial	4,599		4,863		—		4,098		4,879		—
Residential 1-4 Family - Mortgage	10,878		11,464		—		9,512		9,786		—
HELOC	686		793		—		2,056		2,144		—
Consumer and all other⁽¹⁾	534		721		—		567		734		—
Total impaired loans without a specific allowance	$	46,524	$	49,211	$	—	$	45,393	$	47,320	$	—

Loans with a specific allowance
Construction and Land Development	$	483	$	545	$	139	$	1,536	$	1,573	$	122
Commercial Real Estate - Owner Occupied	1,852		1,937		149		1,161		1,161		94
Commercial & Industrial	855		867		317		1,295		1,319		128
Residential 1-4 Family - Commercial	1,452		1,527		227		1,062		1,068		35
Residential 1-4 Family - Mortgage	3,448		3,595		301		1,953		2,070		36
Auto	525		734		215		413		577		2
HELOC	988		1,056		173		464		535		51
Consumer and all other⁽¹⁾	145		299		75		204		309		35
Total impaired loans with a specific allowance	$	9,748	$	10,560	$	1,596	$	8,088	$	8,612	$	503
Total impaired loans	$	56,272	$	59,771	$	1,596	$	53,481	$	55,932	$	503



	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Construction and Land Development	$	12,481	$	63	$	12,083	$	203
Commercial Real Estate - Owner Occupied	11,873		102		11,966		322
Commercial Real Estate - Non-Owner Occupied	6,932		57		7,141		175
Commercial & Industrial	2,607		15		2,713		57
Residential 1-4 Family - Commercial	6,087		51		6,192		154
Residential 1-4 Family - Mortgage	14,716		26		14,823		113
Auto	609		—		685		12
HELOC	1,800		4		1,871		14
Consumer and all other⁽¹⁾	689		7		756		22
Total impaired loans	$	57,794	$	325	$	58,230	$	1,072



	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 - Commercial	4,467		36		4,536		121
Residential 1-4 Family - Mortgage	9,751		58		9,822		140
Auto	192		—		223		2
HELOC	2,460		7		2,492		29
Consumer and all other⁽¹⁾	800		8		690		20
Total impaired loans	$	52,414	$	392	$	52,335	$	1,231



	September 30, 2018					December 31, 2017
	No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment
Performing
Construction and Land Development	5	$	2,527	$	—	7	$	2,803	$	—
Commercial Real Estate - Owner Occupied	10	3,444		—		5	2,221		—
Commercial Real Estate - Non-Owner Occupied	4	4,440		—		2	715		—
Commercial & Industrial	5	1,035		—		12	2,057		—
Residential 1-4 Family - Commercial	27	2,473		—		16	1,048		—
Residential 1-4 Family - Mortgage	28	5,380		—		24	5,194		—
HELOC	2	58		—		1	20		—
Consumer and all other ⁽¹⁾	2	497		—		1	495		—
Total performing	83	$	19,854	$	—	68	$	14,553	$	—
Nonperforming
Construction and Land Development	4	$	4,371	$	—	2	$	702	$	—
Commercial Real Estate - Owner Occupied	2	205		—		2	134		—
Commercial & Industrial	8	719		—		2	108		—
Residential 1-4 Family - Commercial	2	67		—		5	558		—
Residential 1-4 Family - Mortgage	14	2,989		—		7	1,264		—
HELOC	2	64		—		1	59		—
Consumer and all other ⁽¹⁾	1	10		—		1	24		—
Total nonperforming	33	$	8,425	$	—	20	$	2,849	$	—
Total performing and nonperforming	116	$	28,279	$	—	88	$	17,402	$	—



	All Restructurings						Restructurings with Payment Default
	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018			Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
	No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment		No. of Loans	Recorded Investment
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—	—	$	—	—	$	—	—	$	—

Term modification, at a market rate
Construction and Land Development	2	$	3,545	4	$	4,809	—	$	—	3	$	1,270
Commercial Real Estate - Owner Occupied	—	—		5	1,371		—	—		—	—
Commercial Real Estate - Non-Owner Occupied	1	1,089		1	1,089		—	—		—	—
Commercial & Industrial	2	278		3	339		—	—		—	—
Residential 1-4 Family - Commercial	—	—		2	220		—	—		1	60
Residential 1-4 Family - Mortgage	—	—		5	610		1	323		1	323
Consumer and all other⁽¹⁾	1	14		1	14		—	—		—	—
Total loan term extended at a market rate	6	$	4,926	21	$	8,452	1	$	323	5	$	1,653

Term modification, below market rate
Commercial Real Estate - Non-Owner Occupied	1	$	2,782	1	$	2,782	—	$	—	—	$	—
Residential 1-4 Family - Commercial	5	297		8	901		—	—		—	—
Residential 1-4 Family - Mortgage	4	1,301		8	1,711		—	—		—	—
HELOC	2	46		2	46		—	—		—	—
Total loan term extended at a below market rate	12	$	4,426	19	$	5,440	—	$	—	—	$	—

Total	18	$	9,352	40	$	13,892	1	$	323	5	$	1,653



	Nine Months Ended September 30, 2018
	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	$	9,709	$	400	$	(703	)	$	(1,218	)	$	8,188
Commercial Real Estate - Owner Occupied	2,931		488		(174		)	(300		)	2,945
Commercial Real Estate - Non-Owner Occupied	7,544		82		(94		)	806			8,338
Multifamily Real Estate	1,092		5		—			525			1,622
Commercial & Industrial	4,552		413		(692		)	2,429			6,702
Residential 1-4 Family - Commercial	4,437		306		(137		)	(2,147		)	2,459
Residential 1-4 Family - Mortgage	1,524		235		(640		)	405			1,524
Auto	975		365		(759		)	760			1,341
HELOC	1,360		554		(488		)	(70		)	1,356
Consumer and all other⁽¹⁾	4,084		1,234		(6,412		)	7,913			6,819
Total	$	38,208	$	4,082	$	(10,099	)	$	9,103		$	41,294



	September 30, 2018
	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	$	11,748	$	139	$	1,161,264	$	8,049	$	5,042	$	—	$	1,178,054	$	8,188
Commercial Real Estate - Owner Occupied	11,809		149		1,245,420		2,796		25,896		—		1,283,125		2,945
Commercial Real Estate - Non-Owner Occupied	6,922		—		2,398,754		8,338		21,575		—		2,427,251		8,338
Multifamily Real Estate	—		—		542,576		1,622		86		—		542,662		1,622
Commercial & Industrial	2,538		317		1,149,746		6,385		2,299		—		1,154,583		6,702
Residential 1-4 Family - Commercial	6,051		227		697,674		2,232		16,073		—		719,798		2,459
Residential 1-4 Family - Mortgage	14,326		301		580,641		1,223		16,761		—		611,728		1,524
Auto	525		215		305,662		1,126		9		—		306,196		1,341
HELOC	1,674		173		604,263		1,183		6,179		—		612,116		1,356
Consumer and all other⁽¹⁾	679		75		574,580		6,744		826		—		576,085		6,819
Total loans held for investment, net	$	56,272	$	1,596	$	9,260,580	$	39,698	$	94,746	$	—	$	9,411,598	$	41,294



	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,112,422	$	49,278	$	11,299	$	13	$	1,173,012
Commercial Real Estate - Owner Occupied	1,191,608		37,261		28,360		—		1,257,229
Commercial Real Estate - Non-Owner Occupied	2,377,408		22,536		5,732		—		2,405,676
Multifamily Real Estate	530,613		11,963		—		—		542,576
Commercial & Industrial	1,107,669		36,496		8,119		—		1,152,284
Residential 1-4 Family - Commercial	686,249		12,729		4,747		—		703,725
Residential 1-4 Family - Mortgage	575,419		5,540		13,928		80		594,967
Auto	302,347		2,612		1,208		20		306,187
HELOC	596,925		5,177		3,835		—		605,937
Consumer and all other⁽¹⁾	570,951		3,486		800		22		575,259
Total	$	9,051,611	$	187,078	$	78,028	$	135	$	9,316,852