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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2023March 31, 2024

OR

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

Commission File Number: 001-39325

ATLANTIC UNION BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

Virginia

54-1598552

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

4300 Cox Road

Glen Allen, Virginia 23060

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $1.33 per share

AUB

The New York Stock Exchange

Depositary Shares, Each Representing a 1/400th Interest in a Share of 6.875% Perpetual Non-Cumulative Preferred Stock, Series A

AUB.PRA

The New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).            Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Yes No

The number of shares of common stock outstanding as of October 26, 2023April 25, 2024 was 75,016,179.89,766,691.

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ATLANTIC UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX

ITEM

    

    

PAGE

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of September 30, 2023March 31, 2024 (unaudited) and December 31, 20222023 (audited)

2

Consolidated Statements of Income (unaudited) for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022

3

Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022

4

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the ninethree months ended September 30,March 31, 2024 and 2023 and 2022

5

Consolidated Statements of Cash Flows (unaudited) for the ninethree months ended September 30,March 31, 2024 and 2023 and 2022

76

Notes to Consolidated Financial Statements (unaudited)

98

Report of Independent Registered Public Accounting Firm

5242

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

5343

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

8669

Item 4.

Controls and Procedures

8871

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

8972

Item 1A.

Risk Factors

8972

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities

9072

Item 5.

Other Information

9073

Item 6.

Exhibits

9174

Signatures

9275

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Glossary of Acronyms and Defined Terms

In this Quarterly Report on Form 10-Q, unless the context suggests otherwise, the terms “we”, “us”, and “our” refer to Atlantic Union Bankshares Corporation and its direct and indirect subsidiaries, including Atlantic Union Bank.

20222023 Form 10-K

Annual Report on Form 10-K for the year ended December 31, 20222023

ACL

Allowance for credit losses

AFS

Available for sale

ALCO

Asset liability management committee

ALLL

Allowance for loan and lease losses, a component of ACL

American National

American National Bankshares Inc.

AOCI

Accumulated other comprehensive income (loss)

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

AUB

Atlantic Union Bankshares Corporation

the Bank

Atlantic Union Bank

BOLI

Bank-owned life insurance

bps

Basis points

BTFP

Bank Term Funding Program

CECL

Current expected credit losses

CFPB

Consumer Financial Protection Bureau

CME SOFR

Chicago Mercantile Exchange Secured Overnight Financing Rate

the Company

Atlantic Union Bankshares Corporation and its subsidiaries

depositary shares

Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share)

DHFB

Dixon, Hubard, Feinour & Brown, Inc.

EPS

Earnings per common share

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

Financial Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FHLB

Federal Home Loan Bank of Atlanta

FHLMC

Federal Home Loan Mortgage Corporation

FNB

FNB Corporation

FNMA

Federal National Mortgage Association

FOMC

Federal Open Market Committee

FRB

Federal Reserve Bank of Richmond

FR Y9-C

Consolidated financial statements for a U.S. bank holding company, a savings and loan holding company, a U.S. intermediate holding company, and a securities holding company

FTE

Fully taxable equivalent

GAAP

Accounting principles generally accepted in the United States

GNMA

Government National Mortgage Association

HTM

Held to maturity

ICE

Intercontinental Exchange Data Services

LHFI

Loans held for investment

LHFS

Loans held for sale

LIBOR

London Interbank Offered Rate

MBS

Mortgage-Backed Securities

merger agreement

Agreement and Plan of Merger dated July 24, 2023 by and between Atlantic Union Bankshares Corporation and American National Bankshares Inc.

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merger

Proposed merger of American National Bankshares Inc. with and into Atlantic Union Bankshares Corporation pursuant to the merger agreement

MFC

Middleburg Financial Corporation

NPA

Nonperforming assets

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NYSE

New York Stock Exchange

OCI

Other comprehensive (loss) income

PD/LGD

Probability of default/loss given default

ROU asset

Right of Use Asset

RPAs

Risk Participation Agreements

SEC

Securities and Exchange Commission

Series A preferred stock

6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share

SOFR

Secured Overnight Financing Rate

TLM

Troubled loan modification

TDR

Troubled debt restructuring

VFG

Virginia Financial Group, Inc.

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PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2023MARCH 31, 2024 AND DECEMBER 31, 20222023

(Dollars in thousands, except share data)

September 30,

December 31,

March 31,

December 31,

2023

    

2022

2024

    

2023

ASSETS

(unaudited)

(audited)

(unaudited)

(audited)

Cash and cash equivalents:

Cash and due from banks

$

233,526

$

216,384

$

168,850

$

196,754

Interest-bearing deposits in other banks

159,718

102,107

225,386

167,601

Federal funds sold

5,701

1,457

2,434

13,776

Total cash and cash equivalents

398,945

319,948

396,670

378,131

Securities available for sale, at fair value

2,084,928

2,741,816

2,202,216

2,231,261

Securities held to maturity, at carrying value

843,269

847,732

828,928

837,378

Restricted stock, at cost

104,785

120,213

110,272

115,472

Loans held for sale

6,608

3,936

12,200

6,710

Loans held for investment, net of deferred fees and costs

15,283,620

14,449,142

15,851,628

15,635,043

Less: allowance for loan and lease losses

125,627

110,768

136,190

132,182

Total loans held for investment, net

15,157,993

14,338,374

15,715,438

15,502,861

Premises and equipment, net

94,510

118,243

90,126

90,959

Goodwill

925,211

925,211

925,211

925,211

Amortizable intangibles, net

21,277

26,761

17,288

19,183

Bank owned life insurance

449,452

440,656

455,885

452,565

Other assets

649,258

578,248

623,886

606,466

Total assets

$

20,736,236

$

20,461,138

$

21,378,120

$

21,166,197

LIABILITIES

Noninterest-bearing demand deposits

$

4,144,949

$

4,883,239

$

3,845,191

$

3,963,181

Interest-bearing deposits

12,641,556

11,048,438

13,433,244

12,854,948

Total deposits

16,786,505

15,931,677

17,278,435

16,818,129

Securities sold under agreements to repurchase

134,936

142,837

66,405

110,833

Other short-term borrowings

495,000

1,176,000

600,000

810,000

Long-term borrowings

390,733

389,863

391,319

391,025

Other liabilities

540,261

448,024

493,033

479,883

Total liabilities

18,347,435

18,088,401

18,829,192

18,609,870

Commitments and contingencies (Note 7)

STOCKHOLDERS' EQUITY

Preferred stock, $10.00 par value

173

173

173

173

Common stock, $1.33 par value

99,120

98,873

99,399

99,147

Additional paid-in capital

1,779,281

1,772,440

1,782,809

1,782,286

Retained earnings

988,133

919,537

1,040,845

1,018,070

Accumulated other comprehensive loss

(477,906)

(418,286)

(374,298)

(343,349)

Total stockholders' equity

2,388,801

2,372,737

2,548,928

2,556,327

Total liabilities and stockholders' equity

$

20,736,236

$

20,461,138

$

21,378,120

$

21,166,197

Common shares outstanding

74,997,132

74,712,622

75,381,740

75,023,327

Common shares authorized

200,000,000

200,000,000

200,000,000

200,000,000

Preferred shares outstanding

17,250

17,250

17,250

17,250

Preferred shares authorized

500,000

500,000

500,000

500,000

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2024 AND 2023 AND 2022

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

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

September 30,

September 30,

March 31,

March 31,

2023

    

2022

    

2023

    

2022

2024

    

2023

Interest and dividend income:

Interest and fees on loans

$

221,380

$

144,673

$

616,544

$

382,139

$

234,600

$

189,992

Interest on deposits in other banks

1,309

941

3,815

1,229

1,280

1,493

Interest and dividends on securities:

Taxable

16,055

14,750

48,373

43,110

18,879

16,753

Nontaxable

8,415

10,792

26,220

31,889

8,156

9,308

Total interest and dividend income

247,159

171,156

694,952

458,367

262,915

217,546

Interest expense:

Interest on deposits

83,590

15,386

200,690

25,966

101,864

51,834

Interest on short-term borrowings

6,499

1,229

22,106

1,805

8,161

7,563

Interest on long-term borrowings

5,129

3,826

14,687

10,183

5,065

4,706

Total interest expense

95,218

20,441

237,483

37,954

115,090

64,103

Net interest income

151,941

150,715

457,469

420,413

147,825

153,443

Provision for credit losses

4,991

6,412

22,911

12,771

8,239

11,850

Net interest income after provision for credit losses

146,950

144,303

434,558

407,642

139,586

141,593

Noninterest income:

Service charges on deposit accounts

8,557

6,784

24,577

22,421

8,569

7,902

Other service charges, commissions and fees

2,632

1,770

6,071

5,134

1,731

1,746

Interchange fees

2,314

2,461

7,098

6,539

2,294

2,325

Fiduciary and asset management fees

4,549

4,134

13,169

18,329

4,838

4,262

Mortgage banking income

666

1,390

1,969

6,707

867

854

Loss on sale of securities

(27,594)

(40,992)

(2)

Gain (loss) on sale of securities

3

(13,400)

Bank owned life insurance income

2,973

3,445

8,671

8,858

3,245

2,828

Loan-related interest rate swap fees

2,695

2,050

6,450

8,510

1,216

1,439

Other operating income

30,302

3,550

33,905

17,527

2,789

1,672

Total noninterest income

27,094

25,584

60,918

94,023

25,552

9,628

Noninterest expenses:

Salaries and benefits

57,449

56,600

179,996

170,203

61,882

60,529

Occupancy expenses

6,053

6,408

18,503

19,685

6,625

6,356

Furniture and equipment expenses

3,449

3,673

10,765

10,860

3,309

3,752

Technology and data processing

7,923

8,273

24,631

23,930

8,127

8,142

Professional services

3,291

3,504

11,138

12,274

3,081

3,413

Marketing and advertising expense

2,219

2,343

7,387

7,008

2,318

2,351

FDIC assessment premiums and other insurance

4,258

3,094

12,231

8,344

5,143

3,899

Franchise and other taxes

4,510

4,507

13,508

13,506

4,501

4,498

Loan-related expenses

1,388

1,575

4,560

5,218

1,323

1,552

Amortization of intangible assets

2,193

2,480

6,687

8,434

1,895

2,279

Other expenses

15,775

7,466

33,036

24,550

7,069

11,503

Total noninterest expenses

108,508

99,923

322,442

304,012

105,273

108,274

Income before income taxes

65,536

69,964

173,034

197,653

59,865

42,947

Income tax expense

11,519

11,894

28,123

33,667

10,096

7,294

Net income

54,017

58,070

144,911

163,986

Net Income

$

49,769

$

35,653

Dividends on preferred stock

2,967

2,967

8,901

8,901

2,967

2,967

Net income available to common shareholders

$

51,050

$

55,103

$

136,010

$

155,085

46,802

32,686

Basic earnings per common share

$

0.68

$

0.74

$

1.81

$

2.07

$

0.62

$

0.44

Diluted earnings per common share

$

0.68

$

0.74

$

1.81

$

2.07

$

0.62

$

0.44

Dividends declared per common share

$

0.30

$

0.30

$

0.90

$

0.86

$

0.32

$

0.30

Basic weighted average number of common shares outstanding

74,999,128

74,703,699

74,942,851

75,029,000

75,197,113

74,832,141

Diluted weighted average number of common shares outstanding

74,999,128

74,705,054

74,943,999

75,034,084

75,197,376

74,835,514

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2024 AND 2023 AND 2022

(Dollars in thousands)

Three Months Ended

 

Nine Months Ended

Three Months Ended

 

September 30, 

 

September 30, 

March 31, 

 

    

2023

    

2022

 

2023

    

2022

    

2024

    

2023

 

Net income

$

54,017

$

58,070

$

144,911

$

163,986

$

49,769

$

35,653

Other comprehensive (loss) income:

 

 

 

  

 

 

 

Cash flow hedges:

 

 

 

  

 

 

 

Change in fair value of cash flow hedges (net of tax, $2,547 and $6,417 for the three months and $3,241 and $15,691 for the nine months ended September 30, 2023 and 2022, respectively)

 

(9,581)

 

(24,142)

 

(12,192)

 

(59,027)

Change in fair value of cash flow hedges (net of tax, $2,726 and $3,645 for the three months ended March 31, 2024 and 2023, respectively)

 

(10,253)

 

13,714

AFS securities:

 

 

 

 

 

 

Unrealized holding losses arising during period (net of tax, $21,051 and $32,388 for the three months and $21,178 and $112,226 for the nine months ended September 30, 2023 and 2022, respectively)

 

(79,193)

 

(121,841)

 

(79,669)

 

(422,183)

Reclassification adjustment for losses included in net income (net of tax, $5,795 and $0 for the three months and $8,609 and $0 for the nine months ended September 30, 2023 and 2022, respectively) (1)

 

21,799

 

 

32,383

 

2

Unrealized holding (losses) gains arising during period (net of tax, $5,450 and $8,525 for the three months ended March 31, 2024 and 2023, respectively)

 

(20,501)

 

32,068

Reclassification adjustment for (gains) losses included in net income (net of tax, $1 and $2,814 for the three months ended March 31, 2024 and 2023, respectively) (1)

 

(2)

 

10,586

HTM securities:

 

 

 

 

 

 

Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax) (2)

 

(2)

 

(4)

 

(7)

 

(14)

 

(2)

 

(3)

Bank owned life insurance:

 

 

 

 

 

Unrealized holding gains arising during the period

10

Reclassification adjustment for (gains) losses included in net income (3)

 

(62)

 

151

 

(145)

 

468

Unrealized holding (losses) gains arising during the period (net of tax)

(16)

10

Reclassification adjustment for gains included in net income (3)

 

(175)

 

(22)

Other comprehensive (loss) income:

 

(67,039)

 

(145,836)

 

(59,620)

 

(480,754)

 

(30,949)

 

56,353

Comprehensive (loss) income

$

(13,022)

$

(87,766)

$

85,291

$

(316,768)

Comprehensive income

$

18,820

$

92,006

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

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

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

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2024 AND 2023 AND 2022

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

  

  

  

  

  

Accumulated

  

  

  

  

  

  

Accumulated

  

Additional

Other

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2022

$

98,873

$

173

$

1,772,440

$

919,537

$

(418,286)

$

2,372,737

Balance - December 31, 2023

$

99,147

$

173

$

1,782,286

$

1,018,070

$

(343,349)

$

2,556,327

Net Income

 

35,653

 

35,653

 

49,769

 

49,769

Other comprehensive income (net of taxes of $14,983)

 

56,353

 

56,353

Dividends on common stock ($0.30 per share)

 

(22,417)

 

(22,417)

Other comprehensive income (net of taxes of $8,182)

 

(30,949)

 

(30,949)

Dividends on common stock ($0.32 per share)

 

(24,027)

 

(24,027)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

 

(2,967)

 

(2,967)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (149,684 shares)

 

199

(1,654)

(1,455)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (189,503 shares)

 

252

(2,458)

(2,206)

Stock-based compensation expense

 

2,332

 

2,332

 

2,981

 

2,981

Balance - March 31, 2023

$

99,072

$

173

$

1,773,118

$

929,806

$

(361,933)

$

2,440,236

Net Income

 

55,241

 

55,241

Other comprehensive loss (net of taxes of $12,992)

 

(48,934)

 

(48,934)

Dividends on common stock ($0.30 per share)

 

(22,498)

 

(22,498)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (11,822 shares)

 

16

89

 

105

Stock-based compensation expense

3,287

3,287

Balance - June 30, 2023

$

99,088

$

173

$

1,776,494

$

959,582

$

(410,867)

$

2,424,470

Net Income

 

54,017

 

54,017

Other comprehensive loss (net of taxes of $17,804)

 

(67,039)

 

(67,039)

Dividends on common stock ($0.30 per share)

 

(22,499)

 

(22,499)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (24,477 shares)

 

32

59

 

91

Stock-based compensation expense

2,728

2,728

Balance - September 30, 2023

$

99,120

$

173

$

1,779,281

$

988,133

$

(477,906)

$

2,388,801

Balance - March 31, 2024

$

99,399

$

173

$

1,782,809

$

1,040,845

$

(374,298)

$

2,548,928

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

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

  

  

  

  

Accumulated

  

  

  

  

  

Accumulated

  

Additional

Other

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2021

$

100,101

$

173

$

1,807,368

$

783,794

$

18,635

$

2,710,071

Balance - December 31, 2022

$

98,873

$

173

$

1,772,440

$

919,537

$

(418,286)

$

2,372,737

Net Income

 

43,690

 

43,690

 

35,653

 

35,653

Other comprehensive loss (net of taxes of $49,701)

 

(210,118)

 

(210,118)

Dividends on common stock ($0.28 per share)

 

(21,163)

 

(21,163)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

Stock purchased under stock repurchase plan (629,691 shares)

(837)

(24,181)

(25,018)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (291,723 shares)

 

387

1,044

1,431

Stock-based compensation expense

 

2,409

 

2,409

Balance - March 31, 2022

$

99,651

$

173

$

1,786,640

$

803,354

$

(191,483)

$

2,498,335

Net Income

 

62,226

 

62,226

Other comprehensive loss (net of taxes of $33,214)

(124,800)

 

(124,800)

Dividends on common stock ($0.28 per share)

(20,912)

 

(20,912)

Dividends on preferred stock ($171.88 per share)

(2,967)

 

(2,967)

Stock purchased under stock repurchase plan (649,208 shares)

(863)

(22,350)

(23,213)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (25,955 shares)

34

(154)

 

(120)

Stock-based compensation expense

2,927

2,927

Balance - June 30, 2022

$

98,822

$

173

$

1,767,063

$

841,701

$

(316,283)

$

2,391,476

Net Income

 

58,070

 

58,070

Other comprehensive loss (net of taxes of $38,806)

(145,836)

 

(145,836)

Other comprehensive income (net of taxes of $14,983)

 

56,353

 

56,353

Dividends on common stock ($0.30 per share)

(22,411)

 

(22,411)

 

(22,417)

 

(22,417)

Dividends on preferred stock ($171.88 per share)

(2,967)

 

(2,967)

 

(2,967)

 

(2,967)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (17,048 shares)

23

66

 

89

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (149,684 shares)

 

199

(1,654)

(1,455)

Stock-based compensation expense

2,729

2,729

 

2,332

 

2,332

Balance - September 30, 2022

$

98,845

$

173

$

1,769,858

$

874,393

$

(462,119)

$

2,281,150

Balance - March 31, 2023

$

99,072

$

173

$

1,773,118

$

929,806

$

(361,933)

$

2,440,236

See accompanying notes to consolidated financial statements.

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2024 AND 2023 AND 2022

(Dollars in thousands)

    

2023

    

2022

Operating activities:

 

  

 

  

Net income

$

144,911

$

163,986

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation of premises and equipment

 

9,897

 

10,652

Writedown of ROU assets, foreclosed properties and equipment

 

1,929

 

4,768

Amortization, net

 

18,215

 

23,838

Amortization related to acquisitions, net

 

3,530

 

2,271

Provision for credit losses

 

22,911

 

12,771

Losses on securities transactions

 

40,992

 

2

Gain on sale of DHFB

 

 

(9,082)

BOLI income

(8,671)

(8,858)

Originations and purchases of LHFS

 

(109,934)

 

(263,162)

Proceeds from sales of LHFS

107,264

270,853

Gains on sales of foreclosed properties and former bank premises, net

(798)

(507)

Gain on sale-leaseback transaction

(27,700)

Stock-based compensation expenses

 

8,347

 

8,065

Issuance of common stock for services

 

561

 

611

Net increase in other assets

 

(74,154)

 

(6,491)

Net increase in other liabilities

 

78,276

 

117,188

Net cash provided by operating activities

 

215,576

 

326,905

Investing activities:

 

  

 

  

Purchases of AFS securities, restricted stock, and other investments

 

(425,431)

 

(97,518)

Purchases of HTM securities

 

(13,826)

 

(225,026)

Proceeds from sales of AFS securities and restricted stock

 

856,881

 

29,719

Proceeds from maturities, calls and paydowns of AFS securities

 

133,947

 

281,542

Proceeds from maturities, calls and paydowns of HTM securities

 

15,453

 

8,223

Net increase in LHFI

(839,536)

(717,591)

Net purchases in premises and equipment

 

(3,835)

 

(3,054)

Proceeds from BOLI settlements

353

2,876

Proceeds from sale-leaseback transaction

45,805

Proceeds from sales of foreclosed properties and former bank premises

 

5,846

 

5,965

Net cash used in investing activities

 

(224,343)

 

(714,864)

Financing activities:

 

  

 

  

Net (decrease) increase in noninterest-bearing deposits

 

(738,290)

 

83,614

Net increase (decrease) in interest-bearing deposits

 

1,593,090

 

(148,497)

Net (decrease) increase in short-term borrowings

 

(688,901)

 

162,112

Cash dividends paid - common stock

 

(67,414)

 

(64,486)

Cash dividends paid - preferred stock

(8,901)

(8,901)

Repurchase of common stock

(48,231)

Issuance of common stock

 

563

 

3,849

Vesting of restricted stock, net of shares held for taxes

 

(2,383)

 

(3,060)

Net cash provided by (used in) financing activities

 

87,764

 

(23,600)

Increase (decrease) in cash and cash equivalents

 

78,997

(411,559)

Cash, cash equivalents and restricted cash at beginning of the period

 

319,948

 

802,501

Cash, cash equivalents and restricted cash at end of the period

$

398,945

$

390,942

    

2024

    

2023

Operating activities:

 

  

 

  

Net income

$

49,769

$

35,653

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Provision for credit losses

 

8,239

 

11,850

Depreciation of premises and equipment

 

2,961

 

3,427

Amortization, net

 

6,542

 

6,417

Amortization related to acquisitions, net

 

2,869

 

1,288

(Gains) losses on securities sales, net

 

(3)

 

13,400

BOLI income

 

(3,245)

 

(2,828)

Writedown of ROU assets, foreclosed properties, and equipment

 

 

112

Loans held for sale:

Originations and purchases

(41,244)

(286,526)

Proceeds from sales

 

35,770

 

283,316

Changes in operating assets and liabilities:

 

 

Net (increase) decrease in other assets

 

(11,368)

 

18,840

Net increase (decrease) in other liabilities

 

6,721

 

(22,441)

Net cash provided by operating activities

 

57,011

 

62,508

Investing activities:

 

  

 

  

Securities available for sale and restricted stock:

 

Purchases

 

(115,674)

 

(45,633)

Proceeds from sales

 

61,943

 

558,466

Proceeds from maturities, calls, and paydowns

 

60,985

 

47,338

Securities held to maturity:

 

Purchases

(13,826)

Proceeds from maturities, calls, and paydowns

 

7,374

 

5,218

Net change in other investments

(6,724)

(2,941)

Net increase in LHFI

 

(220,677)

 

(145,260)

Net purchases of premises and equipment

(2,124)

(1,624)

Proceeds from BOLI settlements

353

Proceeds from sales of foreclosed properties and former bank premises

 

 

533

Net cash (used in) provided by investing activities

 

(214,897)

 

402,624

Financing activities:

 

  

 

  

Net increase (decrease) in:

 

Non-interest-bearing deposits

 

(117,990)

 

(305,230)

Interest-bearing deposits

 

578,294

 

829,449

Short-term borrowings

(254,428)

(910,077)

Common stock:

 

Issuance

227

474

Dividends paid

 

(26,994)

 

(25,384)

Vesting of restricted stock, net of shares held for taxes

(2,684)

(2,116)

Net cash provided by (used in) financing activities

 

176,425

 

(412,884)

Increase in cash and cash equivalents

 

18,539

52,248

Cash, cash equivalents and restricted cash at beginning of the period

 

378,131

 

319,948

Cash, cash equivalents and restricted cash at end of the period

$

396,670

$

372,196

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2024 AND 2023 AND 2022

(Dollars in thousands)

    

2023

    

2022

    

2024

    

2023

Supplemental Disclosure of Cash Flow Information

 

  

 

  

 

  

 

  

Cash payments for:

 

  

 

  

 

  

 

  

Interest

$

224,809

$

34,099

$

109,148

$

58,678

Income taxes

 

15,501

 

1,224

Supplemental schedule of noncash investing and financing activities

 

  

 

  

 

  

 

  

Transfers from loans to foreclosed properties

 

 

404

Transfer from LHFI to LHFS

7,087

See accompanying notes to consolidated financial statements.

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (NYSE: AUB) is the holding company for Atlantic Union Bank.Bank, which provides banking and related financial products and services to consumers and businesses.

Basis of Financial Information

The accounting policies and practices of Atlantic Union Bankshares Corporation and subsidiaries conform to GAAP and follow general practices within the banking industry. The consolidated financial statements include the accounts of the Company, which is a financial holding company and a bank holding company that owns all of the outstanding common stock of its banking subsidiary, Atlantic Union Bank, had 109 branches and 123 ATMs located throughout Virginia and in portions of Maryland and North Carolina as of September 30, 2023. Certain non-bank financial services affiliates ofwhich owns Union Insurance Group, LLC, Atlantic Union Bank include:Financial Consultants, LLC, and Atlantic Union Equipment Finance, Inc., which provides equipment financing; Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and follow general practice within the banking industry. Accordingly,preparation of the unaudited consolidated financial statements do not include allin conformity with GAAP requires management to make estimates and assumptions that affect the informationreported amounts of assets and footnotes required by GAAP for completeliabilities at the date of the financial statements; however,statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the opinion of management all adjustments necessary for a fair presentationnear term relate to the determination of the resultsACL and the fair value of the interim periods presented have been made.financial instruments. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other period.

The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 20222023 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Adoption None of New Accounting Standards

In March 2022, the FASB issued ASU No. 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method to allow nonprepayable financial assets to be included inthese reclassifications had a closed portfolio hedge using the portfolio layer method and to allow multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2022-01 effective January 1, 2023 and it did not have significant impact on its consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02 Financial Instruments- Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors and instead requires that an entity evaluate whether a loan modification represents a new loan or a continuation of an existing loan, consistent with the accounting for other loan modifications. The amendment also introduces new disclosure requirements for modifications to loans made to a borrower experiencing financial difficulty in the form of principal forgiveness, interest rate reductions, term extensions, or other-than-insignificant payment delays. The Company refers to these modifications to borrowers experiencing financial difficulty as Troubled Loan Modifications, or TLMs. In addition, the amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted the amendments of ASU 2022-02 effective January 1, 2023 on a prospective basis. See below in Note 1 “Summary of Significant Accounting Policies” within this Item 1 of this Quarterly Report for discussion of the Company’s accounting policy for Loan Modifications and Note 3 “Loans and Allowance for Loan and Lease Losses” within this Item 1 of this Quarterly Report for more information.

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In March 2020, the FASB issued ASC 848, Reference Rate Reform. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. ASC 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASC 848 is intended to help stakeholders during the global market-wide reference rate transition period. The LIBOR cessation date for U.S. dollar settings was June 30, 2023. The amendments are effective as of March 12, 2020 through December 31, 2024 and can be adopted at an instrument level. The Company has elected the practical expedients provided in ASC 848 related to (1) accounting for contract modifications on its loans and securities tied to LIBOR and (2) asserting probability of the hedged item occurring, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. This amendment did not have a significant impactmaterial effect on the Company’s consolidated financial statements.

Loan Modifications

The Company evaluates all loan modifications according to the accounting guidance for loan refinancing and restructuring to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. If the modification meets the criteria to be accounted for as a new loan, any deferred fees and costs remaining prior to the modification are recognized in income and any new deferred fees and costs are recorded on the loan as part of the modification. If the modification does not meet the criteria to be accounted for as a new loan, any new deferred fees and costs resulting from the modification are added to the existing amortized cost basis of the loan.

The Company adopted the accounting guidance in ASU No. 2022-02 on January 1, 2023 that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, the Company no longer applies its TDR accounting policy and instead accounts for modifications in accordance with its loan modifications policy stated in the preceding paragraph. For the Company’s policy for accounting for TDRs prior to the adoption of ASU No. 2022-02, see Note 1 “Summary of Significant Accounting Policies” of the Company’s 2022 Form 10-K.

Effective January 1, 2023, the Company refers to modifications to loans where the borrower is experiencing financial difficulty and the modification is in the form of principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, or a combination of the above modifications, as troubled loan modifications, or TLMs. The Company accounts for TLMs consistently with its accounting policy for accounting for loan modifications. The ALLL on TLMs is measured using the same method as all other LHFI. Refer to Note 3 “Loans and Allowance for Loan and Lease Losses” within this Item 1 of this Quarterly Report for additional disclosures related to TLMs.

Accrued Interest Receivable

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $68.5 million and $58.9 million on LHFI, $6.7 million and $8.6 million on HTM securities, and $9.0 million and $14.2 million on AFS securities at September 30, 2023 and December 31, 2022, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. The Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended September 30, 2023 and September 30, 2022, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

Allowance for Loan and Lease Losses

The provision for loan losses is an amount sufficient to bring the ALLL to an estimated balance that management considers adequate to absorb expected losses in the loan portfolio over its expected contractual life.

The Company periodically reviews its internal policies and practices to enhance the process for estimating the ALLL. Effective September 30, 2023, the Company implemented certain changes to its ALLL estimation methodology, as described below. These changes did not have a significant impact on the overall ALLL estimate. For information regarding the Company’s ALLL methodology before September 30, 2023, as well as the components of the ALLL methodology that did not change, see See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” ofin the Company’s 20222023 Form 10-K.

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Effective September 30, 2023, the Company now uses a loan-level PD/LGD method10-K for all loan portfolios, eliminating the use of vintage and loss rate methods used for the auto and third-party consumer lending portfolios. In addition, the Company now considers various national economic variables in developing the ALLL and no longer uses the Virginia unemployment rate as its most significant economic variable. The national unemployment rate is used for all cohort models, regardless of portfolio type, and a second economic variable, such as national gross domestic product, national CRE pricing index, national home price index, and national retail sales, is used for each model dependingadditional information on the portfolio type. The ALLL quantitative estimate is sensitive to changes in the economic variable forecasts during the two-year reasonable and supportable period. In determining forecasted expected losses, the Company uses Moody’s economic variable forecasts and applies probability weights to the related economic scenarios.

The estimated loan losses that are forecasted using the methodology described above are then adjusted for changes in qualitative factorsCompany’s accounting policies. There have not inherently considered in the quantitative analysis. The qualitative factors include, among others, industry concentrations of the loan portfolio, expectedbeen any significant changes to the economic forecasts, model imprecision, factors related to credit administration.Company’s accounting policies from those disclosed in the Company’s 2023 Form 10-K that could have a material effect on the Company’s financial statements.

Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ALLL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all loan types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deteriorationin others.

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2. SECURITIES AND OTHER INVESTMENTS

Available for Sale

The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with no securities past due or on non-accrual as of September 30, 2023 and December 31, 2022.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of September 30, 2023for the periods ended are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Amortized

Gross Unrealized

Estimated

    

Cost

    

Gains

    

(Losses)

    

Fair Value

    

Cost

    

Gains

    

(Losses)

    

Fair Value

September 30, 2023

 

  

 

  

 

  

  

March 31, 2024

 

  

 

  

 

  

  

U.S. government and agency securities

$

62,221

$

$

(383)

$

61,838

$

62,561

$

208

$

(33)

$

62,736

Obligations of states and political subdivisions

 

587,340

 

 

(169,880)

 

417,460

 

585,749

 

14

 

(123,913)

 

461,850

Corporate and other bonds (1)

 

267,816

 

 

(24,998)

 

242,818

 

267,621

 

83

 

(17,440)

 

250,264

Commercial MBS

 

 

 

 

Agency

215,203

 

307

 

(50,289)

165,221

231,296

 

160

 

(42,609)

188,847

Non-agency

72,057

 

 

(2,575)

69,482

58,243

 

 

(1,756)

56,487

Total commercial MBS

287,260

 

307

 

(52,864)

234,703

289,539

 

160

 

(44,365)

245,334

Residential MBS

Agency

1,319,987

 

1

 

(268,152)

1,051,836

1,322,392

 

350

 

(220,742)

1,102,000

Non-agency

81,677

 

 

(7,131)

74,546

83,437

 

213

 

(5,397)

78,253

Total residential MBS

1,401,664

 

1

 

(275,283)

1,126,382

1,405,829

 

563

 

(226,139)

1,180,253

Other securities

 

1,727

 

 

 

1,727

 

1,779

 

 

 

1,779

Total AFS securities

$

2,608,028

$

308

$

(523,408)

$

2,084,928

$

2,613,078

$

1,028

$

(411,890)

$

2,202,216

(1) Other bonds include asset-backed securities.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, 2022for the periods ended are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Amortized

Gross Unrealized

Estimated

    

Cost

    

Gains

    

(Losses)

    

Fair Value

    

Cost

    

Gains

    

(Losses)

    

Fair Value

December 31, 2022

December 31, 2023

U.S. government and agency securities

$

70,196

$

$

(8,253)

$

61,943

$

62,367

$

1,023

$

(34)

$

63,356

Obligations of states and political subdivisions

959,999

 

137

 

(152,701)

 

807,435

586,865

 

33

 

(111,451)

 

475,447

Corporate and other bonds (1)

 

243,979

 

 

(17,599)

 

226,380

 

261,656

 

7

 

(19,774)

 

241,889

Commercial MBS

 

 

 

 

Agency

250,186

 

75

 

(39,268)

210,993

233,775

 

274

 

(41,181)

192,868

Non-agency

99,412

 

 

(4,244)

95,168

66,743

 

 

(1,965)

64,778

Total commercial MBS

349,598

 

75

 

(43,512)

306,161

300,518

 

274

 

(43,146)

257,646

Residential MBS

Agency

1,510,110

 

81

 

(233,961)

1,276,230

1,312,538

 

114

 

(205,635)

1,107,017

Non-agency

68,815

 

 

(6,812)

62,003

89,840

 

141

 

(5,827)

84,154

Total residential MBS

1,578,925

 

81

 

(240,773)

1,338,233

1,402,378

 

255

 

(211,462)

1,191,171

Other securities

 

1,664

 

 

 

1,664

 

1,752

 

 

 

1,752

Total AFS securities

$

3,204,361

$

293

$

(462,838)

$

2,741,816

$

2,615,536

$

1,592

$

(385,867)

$

2,231,261

(1) Other bonds include asset-backed securities.

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The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses. Theselosses, which are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position for the following periods ended (dollars in thousands).

Less than 12 months

More than 12 months

Total

Less than 12 months

More than 12 months

Total

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

Value

Losses

Value(2)

Losses

Value

Losses

Value

Losses

Value(2)

Losses

Value

Losses

September 30, 2023

 

 

 

 

 

 

March 31, 2024

 

 

 

 

 

 

U.S. government and agency securities

$

59,568

$

(349)

$

2,169

$

(34)

$

61,737

$

(383)

$

$

$

1,808

$

(33)

$

1,808

$

(33)

Obligations of states and political subdivisions

16,023

(3,567)

399,438

(166,313)

415,461

(169,880)

14,061

(2,301)

443,557

(121,612)

457,618

(123,913)

Corporate and other bonds(1)

 

100,231

 

(776)

 

142,587

 

(24,222)

 

242,818

 

(24,998)

 

78,546

 

(348)

 

144,239

 

(17,092)

 

222,785

 

(17,440)

Commercial MBS

 

 

Agency

15,074

(709)

135,725

(49,580)

150,799

(50,289)

35,287

(548)

140,475

(42,061)

175,762

(42,609)

Non-agency

69,482

(2,575)

69,482

(2,575)

14,536

(257)

41,951

(1,499)

56,487

(1,756)

Total commercial MBS

15,074

(709)

205,207

(52,155)

220,281

(52,864)

49,823

(805)

182,426

(43,560)

232,249

(44,365)

Residential MBS

Agency

55,550

(461)

972,755

(267,691)

1,028,305

(268,152)

43,155

(273)

974,263

(220,469)

1,017,418

(220,742)

Non-agency

19,776

(90)

45,745

(7,041)

65,521

(7,131)

16,963

(48)

35,832

(5,349)

52,795

(5,397)

Total residential MBS

75,326

(551)

1,018,500

(274,732)

1,093,826

(275,283)

60,118

(321)

1,010,095

(225,818)

1,070,213

(226,139)

Total AFS securities

$

266,222

$

(5,952)

$

1,767,901

$

(517,456)

$

2,034,123

$

(523,408)

$

202,548

$

(3,775)

$

1,782,125

$

(408,115)

$

1,984,673

$

(411,890)

December 31, 2022

 

  

 

  

 

  

 

  

 

  

 

  

December 31, 2023

 

  

 

  

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

2,594

$

(166)

$

59,269

$

(8,087)

$

61,863

$

(8,253)

$

$

$

1,980

$

(34)

$

1,980

$

(34)

Obligations of states and political subdivisions

588,668

(86,895)

187,375

(65,806)

776,043

(152,701)

11,758

(2,090)

455,931

(109,361)

467,689

(111,451)

Corporate and other bonds(1)

 

206,861

 

(15,019)

 

17,121

 

(2,580)

 

223,982

 

(17,599)

 

89,450

 

(531)

 

144,155

 

(19,243)

 

233,605

 

(19,774)

Commercial MBS

 

 

Agency

73,362

(7,024)

127,193

(32,244)

200,555

(39,268)

35,665

(547)

143,657

(40,634)

179,322

(41,181)

Non-agency

66,618

(2,231)

28,550

(2,013)

95,168

(4,244)

64,778

(1,965)

64,778

(1,965)

Total commercial MBS

139,980

(9,255)

155,743

(34,257)

295,723

(43,512)

35,665

(547)

208,435

(42,599)

244,100

(43,146)

Residential MBS

Agency

328,590

(27,769)

929,581

(206,192)

1,258,171

(233,961)

59,707

(491)

1,011,809

(205,144)

1,071,516

(205,635)

Non-agency

18,939

(1,288)

43,064

(5,524)

62,003

(6,812)

9,022

(41)

40,085

(5,786)

49,107

(5,827)

Total residential MBS

347,529

(29,057)

972,645

(211,716)

1,320,174

(240,773)

68,729

(532)

1,051,894

(210,930)

1,120,623

(211,462)

Total AFS securities

$

1,285,632

$

(140,392)

$

1,392,153

$

(322,446)

$

2,677,785

$

(462,838)

$

205,602

$

(3,700)

$

1,862,395

$

(382,167)

$

2,067,997

$

(385,867)

(1) Other bonds include asset-backed securities.

(2) Comprised of 761759 and 363757 individual securities as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at September 30, 2023March 31, 2024 and December 31, 20222023 and concluded no impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

Additionally, the majority of the Company’s MBS are issued by FNMA, FHLMC, and GNMA and do not have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a 20% simplified supervisory formula approach rating. The Company’s AFS investment portfolio is generally highly-rated or agency backed. At March 31, 2024 and December 31, 2023, all AFS securities were current with no securities past due or on non-accrual and no ACL was held against the Company’s AFS securities portfolio.

-13--10-

Table of Contents

The following table presents the amortized cost and estimated fair value of AFS securities as of September 30, 2023 and December 31, 2022,the periods ended, 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, 2023

December 31, 2022

March 31, 2024

December 31, 2023

    

Amortized

    

Estimated

    

Amortized

    

Estimated

    

Amortized

    

Estimated

    

Amortized

    

Estimated

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value

Due in one year or less

$

56,948

$

56,120

$

42,447

$

41,735

$

35,082

$

34,745

$

52,427

$

51,936

Due after one year through five years

 

138,070

 

135,530

 

158,063

 

152,523

 

168,601

 

167,029

 

150,271

 

149,545

Due after five years through ten years

 

262,259

 

236,096

 

343,303

 

312,935

 

253,073

 

234,773

 

282,309

 

261,720

Due after ten years

 

2,150,751

 

1,657,182

 

2,660,548

 

2,234,623

 

2,156,321

 

1,765,668

 

2,130,529

 

1,768,060

Total AFS securities

$

2,608,028

$

2,084,928

$

3,204,361

$

2,741,816

$

2,613,078

$

2,202,216

$

2,615,536

$

2,231,261

Refer to Note 7 “Commitments and Contingencies” within this Item 1 of this Quarterly Report 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, 2023March 31, 2024 and December 31, 2022.2023.

Accrued interest receivable on AFS securities totaled $9.1 million and $9.5 million at March 31, 2024 and December 31, 2023, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. For the three months ended March 31, 2024 and 2023, accrued interest receivable write-offs were not material to the Company’s consolidated financial statements.

Held to Maturity

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities. The Company’s HTM securities were all current, with no securities past due or on non-accrual at September 30, 2023 and December 31, 2022.

The Company reports HTM securities on the Company’s Consolidated Balance Sheets at carrying value. Carrying value is amortized cost, which includes any unamortized unrealized gains and losses recognized in AOCI prior to reclassifying the securities from AFS securities to HTM securities.

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of September 30, 2023for the periods ended are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

Fair Value

    

Value

    

Gains

    

(Losses)

Fair Value

September 30, 2023

 

  

 

  

 

  

  

March 31, 2024

  

 

  

 

  

  

Obligations of states and political subdivisions

$

700,400

$

49

$

(64,625)

$

635,824

$

695,952

$

2,851

$

(27,308)

$

671,495

Corporate and other bonds(1)

4,536

(170)

4,366

4,230

(182)

4,048

Commercial MBS

 

 

Agency

27,568

(6,788)

20,780

27,377

(5,819)

21,558

Non-agency

24,930

(904)

24,026

23,437

14

(493)

22,958

Total commercial MBS

52,498

(7,692)

44,806

50,814

14

(6,312)

44,516

Residential MBS

Agency

40,992

(7,865)

33,127

39,928

(6,365)

33,563

Non-agency

44,843

(920)

43,923

38,004

121

(402)

37,723

Total residential MBS

85,835

(8,785)

77,050

77,932

121

(6,767)

71,286

Total HTM securities

$

843,269

$

49

$

(81,272)

$

762,046

$

828,928

$

2,986

$

(40,569)

$

791,345

(1) Other bonds include asset-backed securities.

-14-

Table of Contents

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2022 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

    

Fair Value

December 31, 2022

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

687

$

$

(56)

$

631

Obligations of states and political subdivisions

705,990

2,218

(35,957)

672,251

Corporate and other bonds(1)

5,159

(10)

5,149

Commercial MBS

Agency

29,025

(4,873)

24,152

Non-agency

13,736

(126)

13,610

Total commercial MBS

42,761

(4,999)

37,762

Residential MBS

Agency

42,699

(6,427)

36,272

Non-agency

50,436

(614)

49,822

Total residential MBS

93,135

(7,041)

86,094

Total HTM securities

$

847,732

$

2,218

$

(48,063)

$

801,887

(1) Other bonds include asset-backed securities.

Credit Quality Indicators & Allowance for Credit Losses HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was insignificant at September 30, 2023 and December 31, 2022. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.

-15--11-

Table of Contents

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities for the periods ended are as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

    

Fair Value

December 31, 2023

 

  

 

  

 

  

 

  

Obligations of states and political subdivisions

699,189

6,175

(23,464)

681,900

Corporate and other bonds(1)

4,349

(100)

4,249

Commercial MBS

Agency

27,477

(5,570)

21,907

Non-agency

24,503

37

(449)

24,091

Total commercial MBS

51,980

37

(6,019)

45,998

Residential MBS

Agency

40,562

(5,713)

34,849

Non-agency

41,298

122

(342)

41,078

Total residential MBS

81,860

122

(6,055)

75,927

Total HTM securities

$

837,378

$

6,334

$

(35,638)

$

808,074

(1) Other bonds include asset-backed securities.

The following table presents the amortized cost of HTM securities as of September 30, 2023 and December 31, 2022the periods ended, by security type and credit rating (dollars in thousands):

    

U.S. Government and Agency

    

Obligations of states and political

    

Corporate and other

    

Mortgage-backed

    

Total HTM

    

Obligations of states and political

    

Corporate and other

    

Mortgage-backed

    

Total HTM

securities

subdivisions

bonds

securities

securities

subdivisions

bonds

securities

securities

September 30, 2023

March 31, 2024

Credit Rating:

 

 

 

 

 

AAA/AA/A

$

$

689,699

$

$

9,471

$

699,170

$

685,273

$

$

9,186

$

694,459

BBB/BB/B

1,171

1,171

1,160

1,160

Not Rated – Agency(1)

68,561

68,561

67,305

67,305

Not Rated – Non-Agency(2)

 

9,530

 

4,536

60,301

74,367

 

9,519

 

4,230

52,255

66,004

Total

$

$

700,400

$

4,536

$

138,333

$

843,269

$

695,952

$

4,230

$

128,746

$

828,928

December 31, 2022

December 31, 2023

Credit Rating:

 

 

 

 

 

AAA/AA/A

$

$

704,803

$

$

2,702

$

707,505

$

688,499

$

$

9,720

$

698,219

BBB/BB/B

1,187

1,187

1,166

1,166

Not Rated – Agency(1)

687

71,725

72,412

68,039

68,039

Not Rated – Non-Agency(2)

 

 

5,159

61,469

66,628

 

9,524

 

4,349

56,081

69,954

Total

$

687

$

705,990

$

5,159

$

135,896

$

847,732

$

699,189

$

4,349

$

133,840

$

837,378

(1) Generally considered not to have credit risk given the government guarantees associated with these agencies.

(2) Non-agency mortgage-backed and asset-backed securities have limited credit risk, supported by most receiving a 20% simplified supervisory formula approach rating.

-12-

Table of Contents

The following table presents the amortized cost and estimated fair value of HTM securities as of September 30, 2023 and December 31, 2022,the periods ended, 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, 2023

December 31, 2022

March 31, 2024

December 31, 2023

    

Carrying

    

Estimated

    

Carrying

    

Estimated

    

Carrying

    

Estimated

    

Carrying

    

Estimated

Value

Fair Value

Value

Fair Value

Value

Fair Value

Value

Fair Value

Due in one year or less

$

2,759

$

2,735

$

2,010

$

2,006

$

1,048

$

1,042

$

3,065

$

3,058

Due after one year through five years

 

36,604

 

36,272

 

35,044

 

35,014

 

31,730

 

32,080

 

34,093

 

34,613

Due after five years through ten years

 

43,652

 

41,057

 

19,941

 

20,239

 

67,865

 

66,426

 

45,919

 

45,263

Due after ten years

 

760,254

 

681,982

 

790,737

 

744,628

 

728,285

 

691,797

 

754,301

 

725,140

Total HTM securities

$

843,269

$

762,046

$

847,732

$

801,887

$

828,928

$

791,345

$

837,378

$

808,074

Refer to Note 7 Commitments and Contingencies within this Item 1 of this Quarterly Report 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, 2023March 31, 2024 and December 31, 2022.2023.

Accrued interest receivable on HTM securities totaled $6.7 million and $8.4 million at March 31, 2024 and December 31, 2023, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. For the three months ended March 31, 2024 and 2023, accrued interest receivable write-offs were not material to the Company’s consolidated financial statements.

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities. At March 31, 2024 and December 31, 2023, the Company’s HTM securities were all current, with no securities past due or on non-accrual. The Company’s HTM securities ACL was immaterial at March 31, 2024 and December 31, 2023.

Restricted Stock, at cost

DueThe FHLB required the Bank to restrictions placed uponmaintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s common stock investment in the FRB and the FHLB, these securities have been classified as restricted equity securities and carriedmember’s total assets 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, 2023March 31, 2024 and December 31, 2022,2023, respectively. The FRB requires the Company to maintain stock with a par value equal to 6% of its outstanding capital. At March 31, 2024 and December 31, 2023, restricted stock consists of FRB stock in the amount of $67.0 million, respectively, and FHLB stock in the amount of $37.8$43.2 million and $53.2$48.4 million, respectively.

-16-

Table of Contents

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, 2023 and 2022March 31, (dollars in thousands):

    

Three Months Ended

    

Nine Months Ended

    

    

September 30, 2023

September 30, 2023

2024

2023

Realized gains (losses)(1):

 

  

 

  

 

  

 

  

Gross realized gains

$

4

$

1,352

$

3

$

1,346

Gross realized losses

 

(27,598)

 

(42,344)

 

 

(14,746)

Net realized losses

$

(27,594)

$

(40,992)

Net realized gains (losses)

$

3

$

(13,400)

Proceeds from sales of securities

$

256,780

$

856,881

$

61,943

$

558,466

    

Three Months Ended

    

Nine Months Ended

September 30, 2022

September 30, 2022

Realized losses(1):

 

  

 

  

Gross realized losses

 

(2)

 

(2)

Net realized losses

$

(2)

$

(2)

Proceeds from sales of securities

$

12,469

$

12,469

(1) Includes gains (losses) on sales and calls of securities.

-17--13-

Table of Contents

3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The following tables exclude LHFS. The Company’s LHFI are stated at their face amount, net of deferred fees and costs, and consisted of the following at September 30, 2023 and December 31, 2022as of the periods ended (dollars in thousands):

    

September 30, 2023

    

December 31, 2022

March 31, 2024

December 31, 2023

Construction and Land Development

$

1,132,940

$

1,101,260

$

1,246,251

$

1,107,850

Commercial Real Estate – Owner Occupied

 

1,975,281

 

1,982,608

 

1,981,613

 

1,998,787

Commercial Real Estate – Non-Owner Occupied

 

4,148,218

 

3,996,130

 

4,225,018

 

4,172,401

Multifamily Real Estate

 

947,153

 

802,923

 

1,074,957

 

1,061,997

Commercial & Industrial

 

3,432,319

 

2,983,349

 

3,561,971

 

3,589,347

Residential 1-4 Family – Commercial

 

517,034

 

538,063

 

515,667

 

522,580

Residential 1-4 Family – Consumer

 

1,057,294

 

940,275

 

1,081,094

 

1,078,173

Residential 1-4 Family – Revolving

 

599,282

 

585,184

 

616,951

 

619,433

Auto

 

534,361

 

592,976

 

440,118

 

486,926

Consumer

 

126,151

 

152,545

 

113,414

 

120,641

Other Commercial

 

813,587

 

773,829

 

994,574

 

876,908

Total LHFI, net of deferred fees and costs(1)

15,283,620

14,449,142

15,851,628

15,635,043

Allowance for loan and lease losses

(125,627)

(110,768)

(136,190)

(132,182)

Total LHFI, net

$

15,157,993

$

14,338,374

$

15,715,438

$

15,502,861

(1)Total loans included unamortized premiums and discounts, and unamortized deferred fees and costs totaling $58.492.5 million and $50.479.7 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

Accrued interest receivable on LHFI totaled $72.8 million and $72.5 million, respectively, at March 31, 2024 and December 31, 2023. Accrued interest receivable write-offs were not material to the Company’s consolidated financial statements for the three months ended March 31, 2024 and 2023.

The following table shows the aging of the Company’s LHFI portfolio by class at September 30, 2023March 31, 2024 (dollars in thousands):

    

    

    

    

Greater than

    

    

30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

$

1,132,174

$

$

386

$

25

$

355

$

1,132,940

Commercial Real Estate – Owner Occupied

 

1,963,601

 

3,501

 

1,902

 

2,395

 

3,882

 

1,975,281

Commercial Real Estate – Non-Owner Occupied

 

4,134,014

 

4,573

 

797

 

2,835

 

5,999

 

4,148,218

Multifamily Real Estate

 

947,003

 

 

150

 

 

 

947,153

Commercial & Industrial

 

3,425,646

 

3,049

 

576

 

792

 

2,256

 

3,432,319

Residential 1-4 Family – Commercial

 

513,573

 

744

 

67

 

817

 

1,833

 

517,034

Residential 1-4 Family – Consumer

 

1,040,519

 

1,000

 

1,775

 

3,632

 

10,368

 

1,057,294

Residential 1-4 Family – Revolving

 

591,748

 

2,326

 

602

 

1,034

 

3,572

 

599,282

Auto

 

530,729

 

2,703

 

339

 

229

 

361

 

534,361

Consumer

 

125,373

 

517

 

164

 

97

 

 

126,151

Other Commercial

810,027

3,545

15

813,587

Total LHFI, net of deferred fees and costs

$

15,214,407

$

21,958

$

6,758

$

11,871

$

28,626

$

15,283,620

% of total loans

99.55

%

0.14

%

0.04

%

0.08

%

0.19

%

100.00

%

    

    

    

    

Greater than

    

    

30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

$

1,242,478

$

2,163

$

1,097

$

171

$

342

$

1,246,251

Commercial Real Estate – Owner Occupied

 

1,971,428

 

3,663

 

 

3,634

 

2,888

 

1,981,613

Commercial Real Estate – Non-Owner Occupied

 

4,210,657

 

2,271

 

558

 

1,197

 

10,335

 

4,225,018

Multifamily Real Estate

 

1,074,813

 

 

 

144

 

 

1,074,957

Commercial & Industrial

 

3,547,743

 

5,540

 

348

 

1,860

 

6,480

 

3,561,971

Residential 1-4 Family – Commercial

 

511,342

 

1,407

 

98

 

1,030

 

1,790

 

515,667

Residential 1-4 Family – Consumer

 

1,062,189

 

6,070

 

204

 

1,641

 

10,990

 

1,081,094

Residential 1-4 Family – Revolving

 

609,076

 

1,920

 

1,477

 

1,343

 

3,135

 

616,951

Auto

 

435,883

 

3,192

 

330

 

284

 

429

 

440,118

Consumer

 

112,658

 

418

 

197

 

141

 

 

113,414

Other Commercial

986,285

8,187

102

994,574

Total LHFI, net of deferred fees and costs

$

15,764,552

$

34,831

$

4,411

$

11,445

$

36,389

$

15,851,628

% of total loans

99.45

%

0.22

%

0.03

%

0.07

%

0.23

%

100.00

%

-18--14-

Table of Contents

The following table shows the aging of the Company’s LHFI portfolio by class at December 31, 20222023 (dollars in thousands):

    

    

    

    

Greater than

    

    

 

    

    

    

    

Greater than

    

    

 

30-59 Days

60-89 Days

90 Days and

 

30-59 Days

60-89 Days

90 Days and

 

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

 

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

 

Construction and Land Development

$

1,099,555

$

1,253

$

45

$

100

$

307

$

1,101,260

$

1,107,183

$

270

$

24

$

25

$

348

$

1,107,850

Commercial Real Estate – Owner Occupied

 

1,970,323

 

2,305

 

635

 

2,167

 

7,178

 

1,982,608

 

1,991,632

 

1,575

 

 

2,579

 

3,001

 

1,998,787

Commercial Real Estate – Non-Owner Occupied

 

3,993,091

 

1,121

 

48

 

607

 

1,263

 

3,996,130

 

4,156,089

 

545

 

184

 

2,967

 

12,616

 

4,172,401

Multifamily Real Estate

 

801,694

 

1,229

 

 

 

 

802,923

 

1,061,851

 

 

146

 

 

 

1,061,997

Commercial & Industrial

 

2,980,008

 

824

 

174

 

459

 

1,884

 

2,983,349

 

3,579,657

 

4,303

 

49

 

782

 

4,556

 

3,589,347

Residential 1-4 Family – Commercial

 

534,653

 

1,231

 

 

275

 

1,904

 

538,063

 

518,150

 

567

 

676

 

1,383

 

1,804

 

522,580

Residential 1-4 Family – Consumer

 

919,833

 

5,951

 

1,690

 

1,955

 

10,846

 

940,275

 

1,053,255

 

7,546

 

1,804

 

4,470

 

11,098

 

1,078,173

Residential 1-4 Family – Revolving

 

577,993

 

1,843

 

511

 

1,384

 

3,453

 

585,184

 

611,584

 

2,238

 

1,429

 

1,095

 

3,087

 

619,433

Auto

 

589,235

 

2,747

 

450

 

344

 

200

 

592,976

 

480,557

 

4,737

 

872

 

410

 

350

 

486,926

Consumer

 

151,958

 

351

 

125

 

108

 

3

 

152,545

 

119,487

 

770

 

232

 

152

 

 

120,641

Other Commercial

773,738

91

773,829

870,339

6,569

876,908

Total LHFI, net of deferred fees and costs

$

14,392,081

$

18,855

$

3,678

$

7,490

$

27,038

$

14,449,142

$

15,549,784

$

29,120

$

5,416

$

13,863

$

36,860

$

15,635,043

% of total loans

99.60

%

0.13

%

0.03

%

0.05

%

0.19

%

100.00

%

99.45

%

0.19

%

0.03

%

0.09

%

0.24

%

100.00

%

The following table shows the Company’s amortized cost basis of loans on nonaccrual status including those on nonaccrual status with no related ALLL, as of September 30, 2023 and December 31, 2022the periods ended (dollars in thousands):

September 30, 2023

December 31, 2022

Nonaccrual

Nonaccrual With No ALLL

Nonaccrual

Nonaccrual With No ALLL

Construction and Land Development

$

355

$

$

307

$

Commercial Real Estate – Owner Occupied

3,882

7,178

908

Commercial Real Estate – Non-Owner Occupied

5,999

4,935

1,263

Commercial & Industrial

2,256

1

1,884

1

Residential 1-4 Family – Commercial

1,833

1,904

Residential 1-4 Family – Consumer

10,368

10,846

Residential 1-4 Family – Revolving

3,572

3,453

Auto

361

200

Consumer

3

Other Commercial

Total LHFI

$

28,626

$

4,936

$

27,038

$

909

March 31, 

December 31, 

2024

2023

Commercial Real Estate – Non-Owner Occupied

$

8,003

$

4,835

Commercial & Industrial

2,098

Total LHFI

$

10,101

$

4,835

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 20222023 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

-19--15-

Table of Contents

Troubled Loan Modifications

The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. See Note 1 “Summary of Significant Accounting Policies” within thisin the “Notes to Consolidated Financial Statements” contained in Item 18 “Financial Statements and Supplementary Data” of this Quarterly Report for information on the Company’s accounting policy2023 Form 10-K for loan modifications to borrowers experiencing financial difficulty and how the Company defines TLMs.

As of September 30, 2023,TLMs for the Company had TLMs with anquarter ended March 31, 2024 were not significant at approximately $36,000. The following table presents the amortized cost basis of $29.4 million with an estimated $155,000 in allowanceTLMs for those loans. As of September 30, 2023, there was $1.5 million of unfunded commitments on loans modified and designated as TLMs since January 1, 2023.

The following tables present the amortized cost basis as of September 30, 2023 of TLMs modified during the three and nine monthsquarter ended September 30, 2023 since January 1,March 31, 2023 (dollars in thousands):

Three Months Ended September 30, 2023

 

Nine Months Ended September 30, 2023

 

    

Amortized Cost

% of Total Class of Financing Receivable

 

Amortized Cost

% of Total Class of Financing Receivable

 

Term Extension

 

 

Commercial and Industrial

$

97

NM

$

2,008

0.06

%

Commercial Real Estate – Non-Owner Occupied

0.00

%

20,133

0.49

%

Commercial Real Estate – Owner Occupied

766

0.04

%

766

0.04

%

Residential 1-4 Family – Consumer

29

NM

603

0.06

%

Total Term Extension

$

892

$

23,510

Combination - Term Extension and Interest Rate Reduction

Residential 1-4 Family – Consumer

$

127

0.01

%

$

959

0.09

%

Residential 1-4 Family – Revolving

 

0.00

%

 

15

NM

Total Combination - Term Extension and Interest Rate Reduction

$

127

$

974

Principal Forgiveness

Commercial Real Estate – Non-Owner Occupied

0.00

%

4,935

0.12

%

Total Principal Forgiveness

$

$

4,935

Total

$

1,019

$

29,419

NM= Not Meaningful

March 31, 2023

    

Amortized Cost

% of Total Class of Financing Receivable

 

Term Extension

 

Construction and Land Development

$

1,344

0.11

%

Commercial Real Estate – Non-Owner Occupied

18,792

0.47

%

Residential 1-4 Family – Consumer

168

0.02

%

Total Term Extension

$

20,304

Combination - Term Extension and Interest Rate Reduction

Residential 1-4 Family – Consumer

$

237

0.02

%

Total Combination - Term Extension and Interest Rate Reduction

$

237

Total

$

20,541

-20-

Table of Contents

The following table describes the financial effects of TLMs on a weighted average basis for TLMs within that loan type for the three and nine months ended September 30, 2023:

period ended:

Three Months Ended September 30, 2023

Term Extension

Loan Type

Financial Effect

Commercial Real Estate – Owner Occupied

Added a weighted-average 0.2 years to the life of loans.

NineThree Months Ended September 30,March 31, 2023

Term Extension

Loan Type

Financial Effect

CommercialConstruction and IndustrialLand Development

Added a weighted-average 0.2 years to the life of loans.

Commercial Real Estate – Owner Occupied

Added a weighted-average 0.20.5 years to the life of loans.

Commercial Real Estate – Non-Owner Occupied

Added a weighted-average 0.5 years to the life of loans.

Residential 1-4 Family – Consumer

Added a weighted-average 10.718.2 years to the life of loans.

Combination - Term Extension and Interest Rate Reduction

Loan Type

Financial Effect

Residential 1-4 Family – Consumer

Added a weighted-average 20.320.7 years to the life of loans and changed interest rate from variable to fixed rates, which reduced the weighted average contractual interest rate from 8.2% to 7.6%7.5% to7.4%.

Residential 1-4 Family – Revolving

Added a weighted-average 19.1 years to the life of loans and reduced the weighted average contractual interest rate from 10.5% to 7.3%.

Principal Forgiveness

Loan Type

Financial Effect

Commercial Real Estate – Non-Owner Occupied

Reduced the amortized cost basis of loans by $3.5 million.

There was no material allowance on TLMs for the three months ended March 31, 2024 and 2023.

As of March 31, 2024 and 2023, unfunded commitments on loans modified and designated as TLMs were $1.1 million and $4.4 million, respectively.

The Company considers a default of a TLM to occur when the borrower is 90 days past due following the modification or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30,March 31, 2024, the Company had three TLM loans for $1.0 million that went into default that had been designated as TLMs in the twelve-month period prior to the time of default. During the three months ended March 31, 2023, the Company did not have any significant loans either individually or in the aggregate that went into default that havehad been modified and designated as TLMs.TLMs

The Company monitors the performance of TLMs in order to determine the effectiveness of the modifications. As of September 30,March 31, 2024, $3.4 million in loans that have been modified and designated as TLMs were past due. As of March 31, 2023, no loans that have been modified and designated as TLMs arewere past due.

-21--16-

Table of Contents

Allowance for Loan and Lease Losses

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

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

The following tables show the ALLL activity by loan segment for the three and nine months ended September 30, 2023 and 2022periods presented (dollars in thousands):

Three Months Ended

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

March 31, 2024

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Commercial

Consumer

Total

Balance at beginning of period

$

92,970

$

27,713

$

120,683

$

82,753

$

28,015

$

110,768

$

105,896

$

26,286

$

132,182

Loans charged-off

 

(788)

 

(841)

 

(1,629)

 

 

(7,589)

 

(2,368)

 

(9,957)

 

(4,939)

 

(955)

 

(5,894)

Recoveries credited to allowance

 

878

 

457

 

1,335

 

1,911

 

1,626

 

3,537

 

533

 

444

 

977

Provision charged to operations

 

5,880

 

(642)

 

5,238

 

 

21,865

 

(586)

 

21,279

 

9,038

 

(113)

 

8,925

Balance at end of period

$

98,940

$

26,687

$

125,627

 

$

98,940

$

26,687

$

125,627

$

110,528

$

25,662

$

136,190

Three Months Ended

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

March 31, 2023

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Commercial

Consumer

Total

Balance at beginning of period

$

77,413

$

26,771

$

104,184

 

$

77,902

$

21,885

$

99,787

$

82,753

$

28,015

$

110,768

Loans charged-off

 

(1,086)

 

(715)

 

(1,801)

 

 

(2,852)

 

(2,415)

 

(5,267)

 

(5,007)

 

(719)

 

(5,726)

Recoveries credited to allowance

 

605

 

609

 

1,214

 

 

1,723

 

2,022

 

3,745

 

515

 

652

 

1,167

Provision charged to operations

 

6,969

 

(2,557)

 

4,412

 

 

7,128

 

2,616

 

9,744

 

9,825

 

478

 

10,303

Balance at end of period

$

83,901

$

24,108

$

108,009

$

83,901

$

24,108

$

108,009

$

88,086

$

28,426

$

116,512

The increase in net charge offs for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 is primarily due to charge-offs associated with two commercial loans.

Credit Quality Indicators

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

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. The Company defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty or TLMs, which are presented in the original vintage.

Refer to Note 3 “Loans and Allowance for Loan and Lease Losses”1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 20222023 Form 10-K for additional information on the Company’s policies and for further information on the Company’s credit quality indicators.

Commercial Loans

The table below detailsCompany uses a risk rating system as the amortized cost and gross write-offs of theprimary credit quality indicator for classes of loans within the Commercial segment bysegment.

See Note 3 “Loans and Allowance For Loan and Lease Losses” in the “Notes to Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s 2023 Form 10-K for information on the Company’s risk level and year of origination as of September 30, 2023 (dollars in thousands):rating system.

-22--17-

Table of Contents

September 30, 2023

Term Loans Amortized Cost Basis by Origination Year

Revolving

2023

2022

2021

2020

2019

Prior

Loans

Total

Construction and Land Development

Pass

$

168,844

$

459,943

$

329,757

$

22,020

$

12,638

$

42,963

$

45,247

$

1,081,412

Watch

106

4,432

16,493

836

21,867

Special Mention

168

4,514

350

5,032

Substandard

23

1,244

1,824

21,208

205

125

24,629

Total Construction and Land Development

$

169,141

$

465,619

$

352,588

$

43,228

$

12,843

$

44,274

$

45,247

$

1,132,940

Current period gross writeoff

$

$

$

$

$

$

(11)

$

$

(11)

Commercial Real Estate – Owner Occupied

Pass

$

123,946

$

261,768

$

196,135

$

246,359

$

264,095

$

763,587

$

23,835

$

1,879,725

Watch

1,325

4,021

2,815

9,671

26,719

847

45,398

Special Mention

788

859

251

992

10,312

464

13,666

Substandard

370

337

4,196

31,589

36,492

Total Commercial Real Estate – Owner Occupied

$

125,104

$

263,952

$

200,407

$

249,511

$

278,954

$

832,207

$

25,146

$

1,975,281

Current period gross writeoff

$

$

$

$

$

$

$

$

Commercial Real Estate – Non-Owner Occupied

Pass

$

310,417

$

526,072

$

714,965

$

342,131

$

483,006

$

1,494,449

$

23,728

$

3,894,768

Watch

1,691

7,754

27,825

76,136

4

113,410

Special Mention

18,980

57,063

11,855

87,898

Substandard

4,936

2,139

11,298

5,939

27,830

52,142

Total Commercial Real Estate – Non-Owner Occupied

$

315,353

$

526,072

$

718,795

$

361,183

$

535,750

$

1,655,478

$

35,587

$

4,148,218

Current period gross writeoff

$

$

$

$

$

$

(3,528)

$

$

(3,528)

Commercial & Industrial

Pass

$

730,110

$

677,320

$

449,135

$

213,937

$

131,347

$

160,071

$

887,127

$

3,249,047

Watch

596

23,517

186

1,346

18,017

4,814

25,128

73,604

Special Mention

1,809

21,723

1,094

6,890

2,753

1,848

23,984

60,101

Substandard

150

468

2,109

3,853

3,438

39,549

49,567

Total Commercial & Industrial

$

732,515

$

722,710

$

450,883

$

224,282

$

155,970

$

170,171

$

975,788

$

3,432,319

Current period gross writeoff

$

$

$

(6)

$

$

$

(18)

$

(1,813)

$

(1,837)

Multifamily Real Estate

Pass

$

14,082

$

117,935

$

244,089

$

223,382

$

46,431

$

254,568

$

28,521

$

929,008

Watch

395

395

Special Mention

250

3,734

232

4,216

Substandard

13,534

13,534

Total Multifamily Real Estate

$

14,082

$

117,935

$

244,089

$

237,166

$

50,165

$

255,195

$

28,521

$

947,153

Current period gross writeoff

$

$

$

$

$

$

$

$

Residential 1-4 Family – Commercial

Pass

$

29,169

$

63,380

$

78,926

$

71,358

$

46,347

$

212,109

$

1,070

$

502,359

Watch

49

390

586

223

765

6,124

109

8,246

Special Mention

48

1,323

1,371

Substandard

618

182

604

3,401

253

5,058

Total Residential 1-4 Family – Commercial

$

29,266

$

63,770

$

80,130

$

71,763

$

47,716

$

222,957

$

1,432

$

517,034

Current period gross writeoff

$

$

$

$

$

$

$

$

Other Commercial

Pass

$

235,254

$

126,200

$

149,863

$

84,078

$

123,799

$

65,234

$

24,947

$

809,375

Watch

32

8

3,410

3,450

Special Mention

98

649

747

Substandard

15

15

Total Other Commercial

$

235,352

$

126,200

$

149,863

$

84,110

$

123,807

$

69,293

$

24,962

$

813,587

Current period gross writeoff

$

$

$

$

$

$

(2,213)

$

$

(2,213)

Total Commercial

Pass

$

1,611,822

$

2,232,618

$

2,162,870

$

1,203,265

$

1,107,663

$

2,992,981

$

1,034,475

$

12,345,694

Watch

751

29,664

22,977

12,170

56,286

118,434

26,088

266,370

Special Mention

2,911

22,582

5,859

7,140

26,459

71,777

36,303

173,031

Substandard

5,329

1,394

5,049

48,668

14,797

66,383

39,817

181,437

Total Commercial

$

1,620,813

$

2,286,258

$

2,196,755

$

1,271,243

$

1,205,205

$

3,249,575

$

1,136,683

$

12,966,532

Total current period gross writeoff

$

$

$

(6)

$

$

$

(5,770)

$

(1,813)

$

(7,589)

The table below details the amortized cost and gross write-offs of the classes of loans within the Commercial segment by risk level and year of origination for the period presented (dollars in thousands):

March 31, 2024

Term Loans Amortized Cost Basis by Origination Year

Revolving

2024

2023

2022

2021

2020

Prior

Loans

Total

Construction and Land Development

Pass

$

57,737

$

363,088

$

457,043

$

160,837

$

24,735

$

41,955

$

78,319

$

1,183,714

Watch

1,764

3,912

19,419

152

1,065

26,312

Special Mention

65

1,898

4,375

1,332

3,247

10,917

Substandard

1,290

1,245

899

20,646

1,228

25,308

Total Construction and Land Development

$

57,737

$

366,207

$

464,098

$

185,530

$

46,865

$

47,495

$

78,319

$

1,246,251

Current period gross write-off

$

$

$

$

$

$

$

$

Commercial Real Estate – Owner Occupied

Pass

$

23,705

$

188,641

$

252,826

$

185,331

$

226,092

$

973,171

$

27,960

$

1,877,726

Watch

567

645

965

4,454

39,732

169

46,532

Special Mention

6,979

1,495

248

448

17,141

1,024

27,335

Substandard

166

2,356

27,498

30,020

Total Commercial Real Estate – Owner Occupied

$

23,705

$

196,353

$

254,966

$

186,544

$

233,350

$

1,057,542

$

29,153

$

1,981,613

Current period gross write-off

$

$

$

$

$

$

$

$

Commercial Real Estate – Non-Owner Occupied

Pass

$

64,412

$

425,552

$

573,545

$

700,044

$

321,526

$

1,857,649

$

38,073

$

3,980,801

Watch

1,506

1,690

91,236

94,432

Special Mention

7

901

48,543

12,756

62,207

Substandard

4,929

2,098

14,428

66,123

87,578

Total Commercial Real Estate – Non-Owner Occupied

$

64,419

$

430,481

$

575,051

$

704,733

$

335,954

$

2,063,551

$

50,829

$

4,225,018

Current period gross write-off

$

$

$

$

$

(3,386)

$

$

$

(3,386)

Commercial & Industrial

Pass

$

266,562

$

864,933

$

573,762

$

357,991

$

152,907

$

268,730

$

878,394

$

3,363,279

Watch

3,261

49,919

1,591

1,910

22,547

26,697

105,925

Special Mention

52

105

23,214

282

336

3,336

21,376

48,701

Substandard

96

2,682

475

4,297

2,705

33,811

44,066

Total Commercial & Industrial

$

266,614

$

868,395

$

649,577

$

360,339

$

159,450

$

297,318

$

960,278

$

3,561,971

Current period gross write-off

$

$

$

(30)

$

$

(114)

$

(7)

$

(512)

$

(663)

Multifamily Real Estate

Pass

$

3,268

$

21,729

$

129,418

$

342,949

$

220,749

$

286,990

$

51,382

$

1,056,485

Watch

110

110

Special Mention

250

79

329

Substandard

14,219

3,814

18,033

Total Multifamily Real Estate

$

3,268

$

35,948

$

129,418

$

342,949

$

220,999

$

290,993

$

51,382

$

1,074,957

Current period gross write-off

$

$

$

$

$

$

$

$

Residential 1-4 Family – Commercial

Pass

$

9,700

$

38,830

$

68,137

$

75,323

$

68,081

$

238,145

$

593

$

498,809

Watch

149

675

575

217

7,847

105

9,568

Special Mention

36

1,455

1,491

Substandard

154

609

278

4,505

253

5,799

Total Residential 1-4 Family – Commercial

$

9,700

$

39,133

$

68,812

$

76,543

$

68,576

$

251,952

$

951

$

515,667

Current period gross write-off

$

$

$

$

$

$

$

$

Other Commercial

Pass

$

83,401

$

200,038

$

167,887

$

153,248

$

108,801

$

185,488

$

75,597

$

974,460

Watch

7,064

7,485

29

4,205

18,783

Special Mention

90

617

99

806

Substandard

521

4

525

Total Other Commercial

$

83,401

$

200,649

$

174,951

$

160,733

$

108,830

$

190,314

$

75,696

$

994,574

Current period gross write-off

$

$

$

$

$

$

(890)

$

$

(890)

Total Commercial

Pass

$

508,785

$

2,102,811

$

2,222,618

$

1,975,723

$

1,122,891

$

3,852,128

$

1,150,318

$

12,935,274

Watch

5,741

63,721

31,725

6,762

166,742

26,971

301,662

Special Mention

59

7,239

26,607

5,842

2,366

74,418

35,255

151,786

Substandard

21,375

3,927

4,081

42,005

105,877

34,064

211,329

Total Commercial

$

508,844

$

2,137,166

$

2,316,873

$

2,017,371

$

1,174,024

$

4,199,165

$

1,246,608

$

13,600,051

Total current period gross write-off

$

$

$

(30)

$

$

(3,500)

$

(897)

$

(512)

$

(4,939)

-23--18-

Table of Contents

The table below details the amortized cost and gross write-offs of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 2022for the period presented (dollars in thousands):

December 31, 2022

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

Term Loans Amortized Cost Basis by Origination Year

Revolving

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

2023

2022

2021

2020

2019

Prior

Loans

Total

Construction and Land Development

Pass

$

357,688

$

499,738

$

107,559

$

17,191

$

33,801

$

36,335

$

34,345

$

1,086,657

$

289,786

$

440,473

$

192,148

$

19,536

$

10,934

$

38,841

$

64,137

$

1,055,855

Watch

242

1,637

115

1,669

3,663

84

3,611

16,249

2,127

22,071

Special Mention

2,843

411

93

3,347

4,444

1,332

367

6,143

Substandard

1,254

3,148

40

211

1,345

1,595

7,593

114

1,244

1,248

20,705

205

265

23,781

Total Construction and Land Development

$

362,027

$

504,934

$

107,599

$

17,402

$

35,261

$

39,692

$

34,345

$

1,101,260

$

289,984

$

445,328

$

214,089

$

41,573

$

11,139

$

41,600

$

64,137

$

1,107,850

Current period gross write-off

$

$

$

$

$

$

(11)

$

$

(11)

Commercial Real Estate – Owner Occupied

Pass

$

258,953

$

215,414

$

257,740

$

282,110

$

228,410

$

624,238

$

17,190

$

1,884,055

$

175,627

$

257,889

$

194,030

$

239,549

$

259,502

$

750,180

$

23,689

$

1,900,466

Watch

1,060

176

2,437

9,567

9,736

31,331

916

55,223

5,919

1,311

4,768

4,422

9,146

27,829

399

53,794

Special Mention

256

93

1,332

18,766

132

20,579

786

849

249

5,150

9,549

611

17,194

Substandard

2,565

474

4,728

1,591

12,979

414

22,751

362

326

26,645

27,333

Total Commercial Real Estate – Owner Occupied

$

260,013

$

218,411

$

260,651

$

296,498

$

241,069

$

687,314

$

18,652

$

1,982,608

$

182,694

$

260,049

$

199,047

$

244,297

$

273,798

$

814,203

$

24,699

$

1,998,787

Current period gross write-off

$

$

$

$

$

$

(141)

$

$

(141)

Commercial Real Estate – Non-Owner Occupied

Pass

$

496,079

$

661,977

$

385,084

$

517,834

$

373,126

$

1,389,507

$

34,804

$

3,858,411

$

374,221

$

548,262

$

710,122

$

334,449

$

492,782

$

1,419,882

$

35,276

$

3,914,994

Watch

2,151

2,091

11,915

19,550

20,683

2

56,392

1,520

1,690

32,326

82,930

118,466

Special Mention

232

25,578

702

7,381

33,893

67,001

12,155

79,156

Substandard

10,460

3,083

29,012

4,879

47,434

4,837

2,121

17,956

5,899

28,972

59,785

Total Commercial Real Estate – Non-Owner Occupied

$

496,311

$

664,128

$

397,635

$

558,410

$

422,390

$

1,422,450

$

34,806

$

3,996,130

$

379,058

$

549,782

$

713,933

$

352,405

$

531,007

$

1,598,785

$

47,431

$

4,172,401

Current period gross write-off

$

$

$

$

$

$

(3,528)

$

$

(3,528)

Commercial & Industrial

Pass

$

849,547

$

536,982

$

262,093

$

182,263

$

67,648

$

120,326

$

846,059

$

2,864,918

$

981,290

$

617,805

$

409,973

$

178,578

$

122,160

$

168,368

$

923,359

$

3,401,533

Watch

1,399

1,305

18,682

5,039

12,843

1,984

41,836

83,088

2,708

38,711

512

1,379

18,065

4,943

22,832

89,150

Special Mention

222

393

2,145

354

1,773

12,380

17,267

108

32,714

981

3,310

1,722

1,513

19,865

60,213

Substandard

94

513

112

2,911

1,449

1,339

11,658

18,076

146

343

2,000

925

3,181

31,856

38,451

Total Commercial & Industrial

$

851,040

$

539,022

$

281,280

$

192,358

$

82,294

$

125,422

$

911,933

$

2,983,349

$

984,106

$

689,376

$

411,809

$

185,267

$

142,872

$

178,005

$

997,912

$

3,589,347

Current period gross write-off

$

$

$

(101)

$

$

$

(17)

$

(1,812)

$

(1,930)

Multifamily Real Estate

Pass

$

111,798

$

90,952

$

204,159

$

47,240

$

59,883

$

231,745

$

52,025

$

797,802

$

21,911

$

129,854

$

321,918

$

222,172

$

45,879

$

250,887

$

50,060

$

1,042,681

Watch

350

442

416

1,208

914

914

Special Mention

3,826

87

3,913

250

81

331

Substandard

14,222

3,703

146

18,071

Total Multifamily Real Estate

$

111,798

$

90,952

$

204,159

$

51,416

$

60,325

$

232,248

$

52,025

$

802,923

$

36,133

$

129,854

$

321,918

$

222,422

$

49,582

$

252,028

$

50,060

$

1,061,997

Current period gross write-off

$

$

$

$

$

$

$

$

Residential 1-4 Family – Commercial

Pass

$

58,534

$

86,881

$

77,110

$

50,721

$

38,090

$

199,783

$

803

$

511,922

$

41,631

$

67,495

$

77,321

$

69,779

$

44,498

$

203,125

$

604

$

504,453

Watch

500

539

852

1,532

5,378

113

8,914

49

387

580

220

757

8,854

107

10,954

Special Mention

94

7,771

582

2,630

11,077

47

1,302

1,349

Substandard

632

1,400

463

473

2,883

299

6,150

57

614

279

624

3,997

253

5,824

Total Residential 1-4 Family – Commercial

$

59,034

$

87,513

$

79,143

$

59,807

$

40,677

$

210,674

$

1,215

$

538,063

$

41,784

$

67,882

$

78,515

$

70,278

$

45,879

$

217,278

$

964

$

522,580

Current period gross write-off

$

$

$

$

$

$

$

$

Other Commercial

Pass

$

197,454

$

211,438

$

149,567

$

119,795

$

3,522

$

69,243

$

14,177

$

765,196

$

201,252

$

180,346

$

165,732

$

114,838

$

123,515

$

62,284

$

9,850

$

857,817

Watch

5,095

12

3,435

8,542

14,355

32

4

3,977

18,368

Substandard

91

91

Special Mention

93

630

723

Total Other Commercial

$

202,549

$

211,438

$

149,567

$

119,807

$

3,522

$

72,678

$

14,268

$

773,829

$

215,700

$

180,346

$

165,732

$

114,870

$

123,519

$

66,891

$

9,850

$

876,908

Current period gross write-off

$

$

(101)

$

$

$

$

(3,016)

$

$

(3,117)

Total Commercial

Pass

$

2,330,053

$

2,303,382

$

1,443,312

$

1,217,154

$

804,480

$

2,671,177

$

999,403

$

11,768,961

$

2,085,718

$

2,242,124

$

2,071,244

$

1,178,901

$

1,099,270

$

2,893,567

$

1,106,975

$

12,677,799

Watch

8,296

5,269

23,749

27,735

44,218

64,896

42,867

217,030

23,115

45,540

23,799

6,053

60,298

131,574

23,338

313,717

Special Mention

3,075

889

487

39,413

2,970

30,730

12,512

90,076

1,034

33,563

5,674

4,892

6,872

80,443

32,631

165,109

Substandard

1,348

6,858

12,486

11,396

33,870

23,675

12,462

102,095

19,592

1,390

4,326

41,266

11,356

63,206

32,109

173,245

Total Commercial

$

2,342,772

$

2,316,398

$

1,480,034

$

1,295,698

$

885,538

$

2,790,478

$

1,067,244

$

12,178,162

$

2,129,459

$

2,322,617

$

2,105,043

$

1,231,112

$

1,177,796

$

3,168,790

$

1,195,053

$

13,329,870

Total current period gross write-off

$

$

(101)

$

(101)

$

$

$

(6,713)

$

(1,812)

$

(8,727)

-24--19-

Table of Contents

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost and gross write-offs of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of September 30, 2023for the period presented (dollars in thousands):

September 30, 2023

March 31, 2024

Term Loans Amortized Cost Basis by Origination Year

Term Loans Amortized Cost Basis by Origination Year

Revolving

2023

2022

2021

2020

2019

Prior

Revolving Loans

Total

2024

2023

2022

2021

2020

Prior

Loans

Total

Residential 1-4 Family – Consumer

Current

$

101,653

$

255,179

$

270,580

$

155,239

$

33,221

$

224,635

$

12

$

1,040,519

$

14,473

$

123,570

$

269,138

$

261,624

$

152,740

$

240,630

$

14

$

1,062,189

30-59 Days Past Due

47

97

33

173

650

1,000

328

1,849

393

3,500

6,070

60-89 Days Past Due

427

149

1,199

1,775

204

204

90+ Days Past Due

49

1,719

1,864

3,632

104

1,537

1,641

Nonaccrual

491

565

106

9,206

10,368

409

887

860

8,834

10,990

Total Residential 1-4 Family – Consumer

$

101,749

$

256,194

$

273,046

$

155,412

$

33,327

$

237,554

$

12

$

1,057,294

$

14,473

$

124,307

$

271,874

$

262,877

$

152,844

$

254,705

$

14

$

1,081,094

Current period gross writeoff

$

$

(16)

$

$

$

(69)

$

(39)

$

$

(124)

Current period gross write-off

$

$

$

$

$

$

(19)

$

$

(19)

Residential 1-4 Family – Revolving

Current

$

36,058

$

56,777

$

12,148

$

4,517

$

1,059

$

1,165

$

480,024

$

591,748

$

4,229

$

40,510

$

52,726

$

11,466

$

4,183

$

1,947

$

494,015

$

609,076

30-59 Days Past Due

135

2,191

2,326

180

70

1,670

1,920

60-89 Days Past Due

183

419

602

65

133

1,279

1,477

90+ Days Past Due

1,034

1,034

70

1,273

1,343

Nonaccrual

157

27

53

3,335

3,572

72

49

3,014

3,135

Total Residential 1-4 Family – Revolving

$

36,241

$

57,069

$

12,175

$

4,570

$

1,059

$

1,165

$

487,003

$

599,282

$

4,229

$

40,755

$

53,071

$

11,466

$

4,232

$

1,947

$

501,251

$

616,951

Current period gross writeoff

$

$

$

(3)

$

$

$

$

(26)

$

(29)

Current period gross write-off

$

$

$

$

(27)

$

$

$

(58)

$

(85)

Auto

Current

$

84,225

$

229,046

$

118,931

$

59,340

$

28,926

$

10,261

$

$

530,729

$

504

$

71,604

$

194,181

$

97,178

$

46,615

$

25,801

$

$

435,883

30-59 Days Past Due

229

905

851

317

315

86

2,703

368

1,398

652

424

350

3,192

60-89 Days Past Due

68

95

69

73

34

339

3

150

122

36

19

330

90+ Days Past Due

29

88

65

21

1

25

229

19

149

52

64

284

Nonaccrual

10

171

68

73

39

361

40

159

131

49

50

429

Total Auto

$

84,493

$

230,278

$

120,010

$

59,820

$

29,354

$

10,406

$

$

534,361

$

504

$

72,034

$

196,037

$

98,135

$

47,124

$

26,284

$

$

440,118

Current period gross writeoff

$

(23)

$

(410)

$

(171)

$

(101)

$

(60)

$

(48)

$

$

(813)

Current period gross write-off

$

$

(47)

$

(192)

$

(82)

$

(38)

$

(21)

$

$

(380)

Consumer

Current

$

10,803

$

26,226

$

11,550

$

8,635

$

17,174

$

25,877

$

25,107

$

125,372

$

3,108

$

10,997

$

20,417

$

9,404

$

7,365

$

35,959

$

25,408

$

112,658

30-59 Days Past Due

49

136

55

19

95

133

30

517

46

101

67

18

153

33

418

60-89 Days Past Due

12

5

12

24

59

19

33

164

26

59

3

33

60

16

197

90+ Days Past Due

10

40

37

4

7

98

12

85

39

3

2

141

Nonaccrual

Total Consumer

$

10,874

$

26,407

$

11,654

$

8,682

$

17,328

$

26,036

$

25,170

$

126,151

$

3,108

$

11,081

$

20,662

$

9,513

$

7,416

$

36,175

$

25,459

$

113,414

Current period gross writeoff

$

(15)

$

(65)

$

(90)

$

(652)

$

(14)

$

(510)

$

(56)

$

(1,402)

Current period gross write-off

$

$

(84)

$

(20)

$

(13)

$

(165)

$

(167)

$

(22)

$

(471)

Total Consumer

Current

$

232,739

$

567,228

$

413,209

$

227,731

$

80,380

$

261,938

$

505,143

$

2,288,368

$

22,314

$

246,681

$

536,462

$

379,672

$

210,903

$

304,337

$

519,437

$

2,219,806

30-59 Days Past Due

325

1,273

939

509

410

869

2,221

6,546

922

3,418

1,112

442

4,003

1,703

11,600

60-89 Days Past Due

195

500

256

93

132

1,252

452

2,880

94

342

125

69

283

1,295

2,208

90+ Days Past Due

88

128

1,821

25

1

1,896

1,034

4,993

31

304

91

104

1,604

1,275

3,409

Nonaccrual

10

819

660

126

145

9,206

3,335

14,301

449

1,118

991

98

8,884

3,014

14,554

Total Consumer

$

233,357

$

569,948

$

416,885

$

228,484

$

81,068

$

275,161

$

512,185

$

2,317,088

$

22,314

$

248,177

$

541,644

$

381,991

$

211,616

$

319,111

$

526,724

$

2,251,577

Total current period gross writeoff

$

(38)

$

(491)

$

(264)

$

(753)

$

(143)

$

(597)

$

(82)

$

(2,368)

Total current period gross write-off

$

$

(131)

$

(212)

$

(122)

$

(203)

$

(207)

$

(80)

$

(955)

-25--20-

Table of Contents

The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of December 31, 2022 (dollars in thousands):

December 31, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Residential 1-4 Family – Consumer

Current

$

212,697

$

263,734

$

162,826

$

36,197

���

$

22,629

$

221,738

$

12

$

919,833

30-59 Days Past Due

174

2,169

89

46

220

3,253

5,951

60-89 Days Past Due

413

1,277

1,690

90+ Days Past Due

64

1,891

1,955

Nonaccrual

423

307

940

9,176

10,846

Total Residential 1-4 Family – Consumer

$

212,871

$

266,326

$

162,915

$

36,614

$

24,202

$

237,335

$

12

$

940,275

Residential 1-4 Family – Revolving

Current

$

68,434

$

13,810

$

4,997

$

1,672

$

801

$

476

$

487,803

$

577,993

30-59 Days Past Due

90

1,753

1,843

60-89 Days Past Due

511

511

90+ Days Past Due

1,384

1,384

Nonaccrual

149

57

13

3,234

3,453

Total Residential 1-4 Family – Revolving

$

68,524

$

13,959

$

5,054

$

1,672

$

814

$

476

$

494,685

$

585,184

Auto

Current

$

285,036

$

154,904

$

81,710

$

44,086

$

15,974

$

7,525

$

$

589,235

30-59 Days Past Due

808

772

451

456

134

126

2,747

60-89 Days Past Due

65

129

146

76

30

4

450

90+ Days Past Due

169

111

32

12

20

344

Nonaccrual

113

18

62

2

5

200

Total Auto

$

286,078

$

155,918

$

82,436

$

44,712

$

16,152

$

7,680

$

$

592,976

Consumer

Current

$

36,513

$

15,897

$

11,019

$

23,838

$

16,084

$

19,070

$

29,537

$

151,958

30-59 Days Past Due

61

27

36

113

34

61

19

351

60-89 Days Past Due

43

17

10

11

14

21

9

125

90+ Days Past Due

22

9

12

32

33

108

Nonaccrual

3

3

Total Consumer

$

36,639

$

15,944

$

11,074

$

23,974

$

16,164

$

19,152

$

29,598

$

152,545

Total Consumer

Current

$

602,680

$

448,345

$

260,552

$

105,793

$

55,488

$

248,809

$

517,352

$

2,239,019

30-59 Days Past Due

1,133

2,968

576

615

388

3,440

1,772

10,892

60-89 Days Past Due

108

146

156

87

457

1,302

520

2,776

90+ Days Past Due

191

120

108

44

1,911

1,417

3,791

Nonaccrual

688

75

369

955

9,181

3,234

14,502

Total Consumer

$

604,112

$

452,147

$

261,479

$

106,972

$

57,332

$

264,643

$

524,295

$

2,270,980

The Company did not have any significant revolving loans convert to term during the nine months ended September 30, 2023 or the year ended December 31, 2022.

-26-

Table of Contents

Prior to the adoption of ASU 2022-02

Troubled Debt Restructurings

As of December 31, 2022, the Company had TDRs totaling $14.2 million with an estimated $739,000 of allowance for those loans. TDRs that occurred during the three and nine months ended September 30, 2022 were not significant.

A TDR occurred when a lender, for economic or legal reasons, granted a concession to the borrower related to the borrower’s financial difficulties, that it would not have otherwise considered. All loans that were considered to be TDRs were evaluated for credit losses in accordance with the Company’s ALLL methodology. For the three and nine months ended September 30, 2022, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

The following table provides a summary, by class, of TDRs that continued to accrue interest underdetails the termsamortized cost and gross write-offs of the applicable restructuring agreement, which were considered to be performing,classes of loans within the Consumer segment based on their delinquency status and TDRs that had been placed on nonaccrual status, which were considered to be nonperforming, asyear of December 31, 2022origination for the period presented (dollars in thousands):

December 31, 2022

    

No. of

    

Recorded

    

Outstanding

Loans

Investment

Commitment

Performing

 

  

 

  

 

  

Construction and Land Development

 

3

$

155

$

Commercial Real Estate – Owner Occupied

 

2

 

997

 

Commercial & Industrial

 

1

 

93

 

Residential 1-4 Family – Consumer

 

83

 

7,761

 

Residential 1-4 Family – Revolving

 

3

 

254

 

5

Consumer

 

1

 

13

 

Total performing

 

93

$

9,273

$

5

Nonperforming

 

  

 

  

 

  

Commercial Real Estate – Owner Occupied

 

1

$

15

$

Commercial Real Estate – Non-Owner Occupied

 

2

233

Commercial & Industrial

 

2

 

375

 

Residential 1-4 Family – Commercial

 

3

 

332

 

Residential 1-4 Family – Consumer

 

23

 

3,869

 

Residential 1-4 Family – Revolving

3

 

93

 

Total nonperforming

 

34

$

4,917

$

Total performing and nonperforming

127

$

14,190

$

5

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

Revolving

2023

2022

2021

2020

2019

Prior

Loans

Total

Residential 1-4 Family – Consumer

Current

$

120,480

$

266,261

$

265,255

$

154,440

$

32,591

$

214,214

$

14

$

1,053,255

30-59 Days Past Due

273

2,195

705

249

181

3,943

7,546

60-89 Days Past Due

208

1,596

1,804

90+ Days Past Due

1,713

2,757

4,470

Nonaccrual

205

875

870

38

9,110

11,098

Total Residential 1-4 Family – Consumer

$

121,166

$

269,331

$

268,543

$

154,689

$

32,810

$

231,620

$

14

$

1,078,173

Current period gross write-off

$

(16)

$

(21)

$

$

(69)

$

(95)

$

$

(201)

Residential 1-4 Family – Revolving

Current

$

42,593

$

54,560

$

11,756

$

4,348

$

937

$

1,115

$

496,275

$

611,584

30-59 Days Past Due

14

39

2,185

2,238

60-89 Days Past Due

181

148

26

1,074

1,429

90+ Days Past Due

1,095

1,095

Nonaccrual

154

27

51

2,855

3,087

Total Residential 1-4 Family – Revolving

$

42,774

$

54,876

$

11,783

$

4,399

$

976

$

1,141

$

503,484

$

619,433

Current period gross write-off

$

$

(3)

$

$

$

$

(55)

$

(58)

Auto

Current

$

77,293

$

210,692

$

107,568

$

52,742

$

24,877

$

7,385

$

$

480,557

30-59 Days Past Due

526

2,022

1,095

612

292

190

4,737

60-89 Days Past Due

61

326

298

58

96

33

872

90+ Days Past Due

36

210

24

112

23

5

410

Nonaccrual

39

120

63

69

59

350

Total Auto

$

77,955

$

213,370

$

109,048

$

53,593

$

25,347

$

7,613

$

$

486,926

Current period gross write-off

(64)

$

(487)

$

(295)

$

(145)

$

(69)

$

(80)

$

$

(1,140)

Consumer

Current

$

12,453

$

23,303

$

10,442

$

7,999

$

15,176

$

24,056

$

26,058

$

119,487

30-59 Days Past Due

21

156

28

32

129

366

38

770

60-89 Days Past Due

11

82

40

14

47

21

17

232

90+ Days Past Due

63

72

10

4

3

152

Total Consumer

$

12,548

$

23,613

$

10,520

$

8,045

$

15,352

$

24,447

$

26,116

$

120,641

Current period gross write-off

(43)

$

(66)

$

(124)

$

(851)

$

(23)

$

(679)

$

(83)

$

(1,869)

Total Consumer

Current

$

252,819

$

554,816

$

395,021

$

219,529

$

73,581

$

246,770

$

522,347

$

2,264,883

30-59 Days Past Due

820

4,387

1,828

893

641

4,499

2,223

15,291

60-89 Days Past Due

461

556

338

72

143

1,676

1,091

4,337

90+ Days Past Due

99

282

1,747

112

23

2,766

1,098

6,127

Nonaccrual

244

1,149

960

120

97

9,110

2,855

14,535

Total Consumer

$

254,443

$

561,190

$

399,894

$

220,726

$

74,485

$

264,821

$

529,614

$

2,305,173

Current period gross write-off

(107)

$

(569)

$

(443)

$

(996)

$

(161)

$

(854)

$

(138)

$

(3,268)

The Company considered a defaultAs of a TDR to occur when the borrower was 90 days past due following the restructure or a foreclosureMarch 31, 2024 and repossession of the applicable collateral occurred. During the three and nine months ended September 30, 2022,December 31, 2023 the Company did not have any materialsignificant revolving loans that went into default that had been restructured in the twelve-month period priorconvert to the time of default.term.

-27--21-

Table of Contents

4. GOODWILL AND INTANGIBLE ASSETS

The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from previous 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 four years to ten years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from four years to ten years, using various methods. The Company concluded that there was no impairment to the Company’s goodwill or intangible assets as of the balance sheet date. In the normal course of business, the Company routinely monitors the impact of the changes in the financial markets and includes these assessments in the Company’s impairment process.

Effective January 1, 2023, the Company made an organizational change to move certain lines of business in the wealth management division that primarily serve Wholesale Banking customers from the Consumer Banking segment to the Wholesale Banking segment. As a result, the Company re-allocated $9.6 million and $1.6 million of goodwill and intangible assets, respectively, from the Consumer Banking segment to the Wholesale Banking segment. The Company determined that there was no impairment to the Bank’s goodwill prior to or after re-allocating goodwill. The Company restated its goodwill and intangible assets segment information for the year ended December 31, 2022 based on this organizational change.

The following table presents the Company’s goodwill and intangible assets by operating segment as of September 30, 2023 and December 31, 2022the periods ended (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

Wholesale Banking

Consumer Banking

Corporate Other

Total

September 30, 2023

 

  

 

  

 

  

  

March 31, 2024

 

  

 

  

 

  

  

Goodwill

$

639,180

$

286,031

$

$

925,211

$

639,180

$

286,031

$

$

925,211

Intangible Assets

 

1,366

 

1,108

 

18,803

 

21,277

 

1,238

 

936

 

15,114

 

17,288

December 31, 2022

 

  

 

  

 

  

 

  

December 31, 2023

 

  

 

  

 

  

 

  

Goodwill

$

639,180

$

286,031

$

$

925,211

$

639,180

$

286,031

$

$

925,211

Intangible Assets

 

1,558

 

75

 

25,128

 

26,761

 

1,302

 

989

 

16,892

 

19,183

Refer to Note 12 “Segment Reporting and Revenue” for additional information on the Company’s reportable operating segment changes.


Amortization expense of intangibles for the three months ended September 30,March 31, 2024 and 2023 and 2022 totaled $2.2$1.9 million and $2.5 million, respectively. Amortization expense of intangibles for the nine months ended September 30, 2023 and 2022 totaled $6.7 million and $8.4$2.3 million, respectively.

As of September 30, 2023,March 31, 2024, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):

For the remaining three months of 2023

$

2,095

2024

    

6,936

2025

5,289

2026

3,654

2027

2,068

Thereafter

1,235

Total estimated amortization expense

$

21,277

For the remaining nine months of 2024

    

$

5,041

2025

5,289

2026

3,654

2027

2,068

2028

843

Thereafter

393

Total estimated amortization expense

$

17,288

-28-

Table of Contents

5. LEASES

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment, including vehicles and machinery, with terms ranging from 1 month to 122 months. At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party residual value insurance to reduce its residual asset risk. At September 30, 2023 and December 31, 2022, the carrying value of residual assets covered by residual value guarantees and residual value insurance was $62.0 million and $44.3 million, respectively. For more information on the Company’s lessor arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K.

Total net investment in sales-type and direct financing leases consists of the following (dollars in thousands):

    

September 30, 2023

December 31, 2022

Sales-type and direct financing leases:

Lease receivables, net of unearned income and deferred selling profit

$

325,556

$

266,380

Unguaranteed residual values, net of unearned income and deferred selling profit

16,711

15,159

Total net investment in sales-type and direct financing leases

 

$

342,267

$

281,539

Lessee Arrangements

The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 23 years. For more information on the Company’s lessee arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K.

On September 20, 2023, the Bank entered into and closed on an agreement for the purchase and sale of 27 properties, which included 25 branches and a drive thru and parking lot, each adjacent to a sold branch, to a single purchaser, for an aggregate purchase price of $45.8 million. Concurrently, the Bank entered into absolute net lease agreements with the purchaser under which the Bank will lease each property for an initial term of 17 years with specified renewal options. The sale-leaseback transaction resulted in a pre-tax gain for the quarter ended September 30, 2023 of approximately $27.7 million, after transaction-related expenses, included in Other Operating Income in the accompanying Consolidated Statements of Income. Each lease agreement includes a 1.5% annual rent escalation during the initial term and 2.0% rent escalation during the renewal terms, if exercised. The Company recorded operating lease ROU assets and corresponding operating lease liabilities of $38.3 million and $38.1 million, respectively, which primarily drove the increases in operating ROU assets and operating lease liabilities at September 30, 2023, compared to December 31, 2022.

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

    

September 30, 2023

December 31, 2022

Operating

Finance

Operating

Finance

ROU assets

$

68,807

$

4,899

$

35,729

$

5,588

Lease liabilities

75,502

7,369

47,696

8,288

Lease Term and Discount Rate of Operating leases:

 

Weighted-average remaining lease term (years)

 

11.66

5.33

6.80

6.08

Weighted-average discount rate (1)

 

6.06

%

1.17

%

2.91

%

1.17

%

(1) A lease implicit rate or an incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date.

-29--22-

Table of Contents

Nine months ended September 30, 

 

2023

2022

Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$

68

$

79

Operating Cash Flows from Operating Leases

8,902

8,514

Financing Cash Flows from Finance Leases

919

885

ROU assets obtained in exchange for lease obligations:

Operating leases

$

38,318

$

1,268

5. LEASES

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment, including vehicles and machinery, with terms ranging from 5 months to 122 months. At March 31, 2024 and December 31, 2023, the carrying value of residual assets covered by residual value guarantees and residual value insurance was $91.5 million and $84.1 million, respectively. For more information on the Company’s lessor arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2023 Form 10-K.

Total net investment in sales-type and direct financing leases consists of the following as of the periods ended (dollars in thousands):

    

March 31, 2024

December 31, 2023

Sales-type and direct financing leases:

Lease receivables, net of unearned income and deferred selling profit

$

451,861

$

409,264

Unguaranteed residual values, net of unearned income and deferred selling profit

25,726

21,484

Total net investment in sales-type and direct financing leases

 

$

477,587

$

430,748

Lessee Arrangements

The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 22 years. For more information on the Company’s lessee arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2023 Form 10-K.

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

    

March 31, 2024

December 31, 2023

Operating

Finance

Operating

Finance

ROU assets

$

70,704

$

4,440

$

71,788

$

4,669

Lease liabilities

76,140

6,735

78,043

7,052

Lease Term and Discount Rate of Operating leases:

 

Weighted-average remaining lease term (years)

 

11.72

4.83

11.75

5.08

Weighted-average discount rate (1)

 

6.25

%

1.17

%

6.21

%

1.17

%

(1) A lease implicit rate or an incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date.

Three months ended March 31, 

 

2024

2023

Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$

20

$

24

Operating Cash Flows from Operating Leases

3,403

2,812

Financing Cash Flows from Finance Leases

317

306

ROU assets obtained in exchange for lease obligations:

Operating leases

$

1,007

$

852

Three months ended September 30, 

Nine months ended September 30, 

Three months ended March 31, 

2023

2022

2023

2022

2024

2023

Net Operating Lease Cost

$

2,381

$

2,117

 

$

7,291

$

6,658

 

$

3,102

$

2,240

Finance Lease Cost:

Amortization of right-of-use assets

230

230

689

689

230

230

Interest on lease liabilities

22

25

 

68

79

 

20

24

Total Lease Cost

$

2,633

$

2,372

$

8,048

$

7,426

$

3,352

$

2,494

-23-

Table of Contents

The maturities of lessor and lessee arrangements outstanding are presented in the table below for the years ending (dollars in thousands):

September 30, 2023

March 31, 2024

Lessor

Lessee

Lessor

Lessee

Sales-type and Direct Financing

Operating

Finance

Sales-type and Direct Financing

Operating

Finance

For the remaining three months of 2023

    

$

20,314

$

3,536

$

337

2024

84,391

13,666

1,358

For the remaining nine months of 2024

    

$

85,120

$

10,009

$

1,021

2025

 

73,581

11,603

1,392

100,667

12,670

1,392

2026

 

62,743

9,146

1,427

 

90,286

10,142

1,427

2027

 

50,928

7,759

1,462

 

90,176

8,776

1,462

2028

 

66,633

7,831

1,499

Thereafter

 

76,765

66,137

1,627

 

97,729

64,120

127

Total undiscounted cash flows

 

368,722

111,847

7,603

 

530,611

113,548

6,928

Less: Adjustments (1)

 

43,166

36,345

234

 

78,750

37,408

193

Total (2)

$

325,556

$

75,502

$

7,369

$

451,861

$

76,140

$

6,735

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

(2) Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements.

-30--24-

Table of Contents

6. 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 securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold, advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit.

Total short-term borrowings consist of the following as of September 30, 2023 and December 31, 2022the periods ended (dollars in thousands):

    

September 30, 

December 31, 

 

March 31, 

December 31, 

2023

2022

 

2024

2023

 

Securities sold under agreements to repurchase

$

134,936

$

142,837

$

66,405

$

110,833

Federal Funds Purchased

160,000

90,000

FHLB Advances

 

495,000

 

1,016,000

 

600,000

 

720,000

Total short-term borrowings

$

629,936

$

1,318,837

$

666,405

$

920,833

Average outstanding balance during the period

$

633,896

$

302,060

$

614,681

$

573,553

Average interest rate during the period

 

4.66

%  

 

1.79

%

 

5.34

%  

 

4.73

%

Average interest rate at end of period

 

5.12

%  

 

3.89

%

 

5.33

%  

 

5.15

%

The BankCompany maintains federal funds lines with several correspondent banks; the available balance was $737.0$752.0 million and $1.0 billion$682.0 million, respectively, at September 30, 2023March 31, 2024 and December 31, 2022, respectively.2023. The Company also maintains an alternate line of credit at a correspondent bank;bank, and the available balance was $25.0 million at both September 30, 2023March 31, 2024 and December 31, 2022.2023. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $6.3 billion at March 31, 2024 and $6.2 billion at December 31, 2023. The Company’s secured line of credit capacity totaled $2.0 billion and $1.7 billion, of which $1.4 billion and $988.7 million were available at March 31, 2024 and December 31, 2023, respectively.

The Company was eligible to borrow from the Federal Reserve’s BTFP, which provided additional contingent liquidity through the pledging of certain qualifying securities. The BTFP was a one-year program that began in the first quarter of 2023 and ended March 11, 2024. While the Company had access to the funds and pledged assets during the qualifying period; the Company did not borrow funds under the BTFP program.

Refer to Note 7 “Commitments and Contingencies” for additional information on the Company’s pledged collateral. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and was in compliance with these covenants as of September 30, 2023March 31, 2024 and December 31, 2022. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $6.2 billion at September 30, 2023 and $6.0 billion at December 31, 2022. The remaining credit availability on the collateral dependent line of credit with the FHLB was $5.7 billion and $4.9 billion at September 30, 2023 and December 31, 2022, respectively. Refer to Note 7 “Commitments and Contingencies” for additional information on the Company’s pledged collateral.

Starting in the first quarter of 2023, the Company was eligible to borrow from the Federal Reserve's BTFP, which provides additional contingent liquidity through the pledging of certain qualifying securities. The BTFP is a one-year program ending March 11, 2024, and the Company can borrow any time during the term and can repay the obligation at any time without penalty. As of September 30, 2023, liquidity of $531.0 million was available based on the par-value of qualifying securities from BTFP. The Company had not utilized the BTFP facility as of September 30, 2023.

Long-term Borrowings

In connection with several previous bank acquisitions, the Company issued $58.5 million and acquired $92.0 million of trust preferred capital notes. The remaining fair value discount on all acquired trust preferred capital notes was $11.9 million and $12.5 million at September 30, 2023 and December 31, 2022, respectively.

-31--25-

Table of Contents

Long-term Borrowings

Total long-term borrowings consist of the following as of September 30, 2023March 31, 2024 (dollars in thousands):

Spread to

Spread to

Principal

3-Month SOFR (1)

Rate (2)

Maturity

Investment (3)

Principal

3-Month SOFR (1)

Rate (2)

Maturity

Investment (3)

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$

22,500

 

2.75

%  

8.41

%  

6/17/2034

$

696

Trust Preferred Capital Note - Statutory Trust II

 

36,000

 

1.40

%  

7.06

%  

6/15/2036

 

1,114

Trust Preferred Capital Note – Statutory Trust I

$

22,500

 

2.75

%  

8.31

%  

6/17/2034

$

696

Trust Preferred Capital Note – Statutory Trust II

 

36,000

 

1.40

%  

6.96

%  

6/15/2036

 

1,114

VFG Limited Liability Trust I Indenture

 

20,000

 

2.73

%  

8.39

%  

3/18/2034

 

619

 

20,000

 

2.73

%  

8.29

%  

3/18/2034

 

619

FNB Statutory Trust II Indenture

 

12,000

 

3.10

%  

8.76

%  

6/26/2033

 

372

 

12,000

 

3.10

%  

8.66

%  

6/26/2033

 

372

Gateway Capital Statutory Trust I

 

8,000

 

3.10

%  

8.76

%  

9/17/2033

 

248

 

8,000

 

3.10

%  

8.66

%  

9/17/2033

 

248

Gateway Capital Statutory Trust II

 

7,000

 

2.65

%  

8.31

%  

6/17/2034

 

217

 

7,000

 

2.65

%  

8.21

%  

6/17/2034

 

217

Gateway Capital Statutory Trust III

 

15,000

 

1.50

%  

7.16

%  

5/30/2036

 

464

 

15,000

 

1.50

%  

7.06

%  

5/30/2036

 

464

Gateway Capital Statutory Trust IV

 

25,000

 

1.55

%  

7.21

%  

7/30/2037

 

774

 

25,000

 

1.55

%  

7.11

%  

7/30/2037

 

774

MFC Capital Trust II

 

5,000

 

2.85

%  

8.51

%  

1/23/2034

 

155

 

5,000

 

2.85

%  

8.41

%  

1/23/2034

 

155

Total Trust Preferred Capital Securities

$

150,500

 

  

 

  

 

  

$

4,659

$

150,500

 

  

 

  

 

  

$

4,659

Subordinated Debt (4)

2031 Subordinated Debt

250,000

%

2.875

%

12/15/2031

250,000

%

2.875

%

12/15/2031

Total Subordinated Debt (5)

$

250,000

$

250,000

Fair Value Discount (6)

(14,426)

(13,840)

Investment in Trust Preferred Capital Securities

4,659

4,659

Total Long-term Borrowings

$

390,733

$

391,319

(1)As part of the adoption of ASC 848, the index changed from Three-Month LIBOR to Three-Month CME SOFR + 0.262% in the third quarter of 2023. For more information on ASC 848, refer to Note 1 “Summary of Significant Accounting Policies” in Part 1, Item 1 of this Quarterly Report..

(2)Rate as of September 30, 2023.March 31, 2024. Calculated using non-rounded numbers.

(3) Represents the junior subordinated debentures owned by the Company in trust and is reported in “Other assets” on the Company’s Consolidated Balance Sheets.

(4)Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.

(5)Fixed-to-floating rate notes. On December 15, 2026, the interest rate changes to a floating rate of the then current Three-Month Term SOFR plus a spread of 186 bps through its maturity date or earlier redemption. The notes may be redeemed before maturity on any interest payment date occurring on or after December 15, 2026.

(6)Remaining discounts of $11.911.4 million and $2.62.4 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

-32--26-

Table of Contents

Total long-term borrowings consist of the following as of December 31, 20222023 (dollars in thousands):

Spread to

Spread to

Principal

3-Month LIBOR (1)

Rate (2)

Maturity

Investment (3)

Principal

3-Month SOFR (1)

Rate (2)

Maturity

Investment (3)

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$

22,500

 

2.75

%  

7.52

%  

6/17/2034

$

696

Trust Preferred Capital Note - Statutory Trust II

 

36,000

 

1.40

%  

6.17

%  

6/15/2036

 

1,114

Trust Preferred Capital Note – Statutory Trust I

$

22,500

2.75

%  

8.34

%  

6/17/2034

$

696

Trust Preferred Capital Note – Statutory Trust II

 

36,000

 

1.40

%  

6.99

%  

6/15/2036

 

1,114

VFG Limited Liability Trust I Indenture

 

20,000

 

2.73

%  

7.50

%  

3/18/2034

 

619

 

20,000

 

2.73

%  

8.32

%  

3/18/2034

 

619

FNB Statutory Trust II Indenture

 

12,000

 

3.10

%  

7.87

%  

6/26/2033

 

372

 

12,000

 

3.10

%  

8.69

%  

6/26/2033

 

372

Gateway Capital Statutory Trust I

 

8,000

 

3.10

%  

7.87

%  

9/17/2033

 

248

 

8,000

 

3.10

%  

8.69

%  

9/17/2033

 

248

Gateway Capital Statutory Trust II

 

7,000

 

2.65

%  

7.42

%  

6/17/2034

 

217

 

7,000

 

2.65

%  

8.24

%  

6/17/2034

 

217

Gateway Capital Statutory Trust III

 

15,000

 

1.50

%  

6.27

%  

5/30/2036

 

464

 

15,000

 

1.50

%  

7.09

%  

5/30/2036

 

464

Gateway Capital Statutory Trust IV

 

25,000

 

1.55

%  

6.32

%  

7/30/2037

 

774

 

25,000

 

1.55

%  

7.14

%  

7/30/2037

 

774

MFC Capital Trust II

 

5,000

 

2.85

%  

7.62

%  

1/23/2034

 

155

 

5,000

 

2.85

%  

8.44

%  

1/23/2034

 

155

Total Trust Preferred Capital Securities

$

150,500

 

  

 

  

 

  

$

4,659

$

150,500

 

  

 

  

 

  

$

4,659

Subordinated Debt (4)

2031 Subordinated Debt

250,000

%

2.875

%

12/15/2031

250,000

%

2.875

%

12/15/2031

Total Subordinated Debt (5)

$

250,000

$

250,000

Fair Value Discount (6)

(15,296)

(14,134)

Investment in Trust Preferred Capital Securities

4,659

4,659

Total Long-term Borrowings

$

389,863

$

391,025

(1)The index rate changed from Three-Month LIBOR to Three-Month CME SOFR +0.262% in the third quarter of 2023 due to LIBOR cessation..

(2)Rate as of December 31, 2022.2023. Calculated using non-rounded numbers.

(3) Represents the junior subordinated debentures owned by the Company in trust and is reported in "Other assets"“Other assets” on the Company’s Consolidated Balance Sheets.

(4) Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.

(5)Fixed-to-floating rate notes. On December 15, 2026, the interest changes to a floating rate of the then current Three-Month Term SOFR plus a spread of 186 bps through its maturity date or earlier redemption. The notes may be redeemed before maturity on any interest payment date occurring on or after December 15, 2026.

(6) Remaining discounts of $12.511.7 million and $2.82.5 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

As of September 30, 2023,March 31, 2024, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):

  

Trust

  

  

  

  

Preferred

  

  

  

Total

  

Capital

  

Subordinated

  

Fair Value

  

 Long-term

  

Notes

  

Debt

  

Discount (1)

  

Borrowings

For the remaining three months of 2023

$

$

$

(292)

$

(292)

2024

 

 

 

(1,187)

 

(1,187)

2025

 

 

 

(1,211)

 

(1,211)

2026

 

 

 

(1,236)

 

(1,236)

2027

 

 

 

(1,263)

 

(1,263)

Thereafter

 

155,159

 

250,000

 

(9,237)

 

395,922

Total long-term borrowings

$

155,159

$

250,000

$

(14,426)

$

390,733

  

Trust

  

  

  

  

Preferred

  

  

  

Total

  

Capital

  

Subordinated

  

Fair Value

  

 Long-term

  

Notes

  

Debt

  

Discount (1)

  

Borrowings

For the remaining nine months of 2024

$

$

$

(893)

$

(893)

2025

 

 

 

(1,211)

 

(1,211)

2026

 

 

 

(1,236)

 

(1,236)

2027

 

 

 

(1,263)

 

(1,263)

2028

(1,293)

 

(1,293)

Thereafter

 

155,159

 

250,000

 

(7,944)

 

397,215

Total long-term borrowings

$

155,159

$

250,000

$

(13,840)

$

391,319

(1) Includes discount on Trust Preferred Capital Securities and Subordinated Debt.

-33--27-

Table of Contents

7. COMMITMENTS AND CONTINGENCIES

Litigation and Regulatory Matters

In the ordinary course of its operations, the Company and its subsidiaries are subject to loss contingencies related to legal and regulatory proceedings. The Company establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. When it is practicable,applicable, the Company estimates possible loss contingencies and whether or not there is an accruedaccruable probable loss. When the Company is able to estimate such losses and when it is reasonably possible that the Company could incur losses in excess of the amounts accrued, the Company discloses the aggregate estimation of such possible losses.

As previously disclosed, on February 9, 2022, pursuant to the CFPB’s Notice and Opportunity to Respond and Advise process, the CFPB Office of Enforcement notified the Bank that it iswas considering recommending that the CFPB take legal action against the Bank in connection with alleged violations of Regulation E, 12 C.F.R. § 1005.17, and the Consumer Financial Protection Act, 12 U.S.C. §§ 5531 and 5536, in connection with the Bank’s overdraft practices and policies. In March 2023, the CFPB commenced settlement discussions with the Company to resolve the matter, which are ongoing.

and on December 7, 2023, the Bank entered into a Consent Order with the CFPB to resolve the matter. As of September 30, 2023,March 31, 2024, the Company has recorded a probable and estimable liability in connection with this matter. In addition, the Company believes that it is reasonably possible that the Company may experience losses in connection with this matter in excess of what the Company has accrued; however, the Company cannot reasonably estimate any loss beyond the estimated liability that has been recorded.

The Company cannot provide assurance whether a settlement will be reached, the final terms or timing of any such settlement, or the final amount of loss (potentially including both restitution and a civil money penalty) with respect to this matter. If the Company and the CFPB do not reach a settlement, the CFPB may commence litigation against 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 letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized on the Company’s Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet 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 and funding information, current and future economic conditions, risk ratings, and past due status among other factors in the consideration of expected credit losses in the Company’s off-balance sheet commitments to extend credit.

The Company also records an indemnification reserve based on historical statistics and loss rates related to mortgage loans previously sold. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company’s reserve for unfunded commitments and indemnification reserve totaled $15.7$15.8 million and $14.1$16.5 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.

-34--28-

Table of Contents

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

    

September 30, 2023

    

December 31, 2022

    

March 31, 2024

    

December 31, 2023

Commitments with off-balance sheet risk:

 

  

 

  

 

  

 

  

Commitments to extend credit(1)

$

5,600,928

$

5,229,252

$

5,865,505

$

5,961,238

Letters of credit

 

146,178

 

156,459

 

126,106

 

140,498

Total commitments with off-balance sheet risk

$

5,747,106

$

5,385,711

$

5,991,611

$

6,101,736

(1) Includes unfunded overdraft protection.

As of September 30,March 31, 2024 and December 31, 2023, the Company had approximately $260.4$220.1 million and $218.5 million, respectively, in deposits in other financial institutions of which $211.0$156.9 million and $154.4 million, respectively, served as collateral for cash flow, and loan swap derivatives. As of December 31, 2022, the Company had approximately $273.5 million in deposits in other financial institutions of which $196.2 million served as collateral for the Company’s cash flowfair value and loan swap derivatives. The Company had approximately $46.1$60.1 million and $74.0$60.8 million, respectively, in deposits in other financial institutions that were uninsured at September 30, 2023March 31, 2024 and December 31, 2022, respectively.2023. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

For asset/liability management purposes, the Company uses interest rate contracts to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. For the over-the-counter derivatives cleared with the central clearinghouses, the variation margin is treated as a settlement of the related derivatives fair values. Refer to Note 8 “Derivatives” within this Item 1 of this Quarterly Report for additional information.

As part of the Company’s liquidity management strategy, itthe Company 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, 2023 and December 31, 2022as of the periods ended (dollars in thousands):

Pledged Assets as of September 30, 2023

Pledged Assets as of March 31, 2024

    

    

AFS

    

HTM

    

    

    

    

AFS

    

HTM

    

    

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Public deposits

$

$

686,217

$

580,172

$

$

1,266,389

$

$

754,132

$

615,378

$

$

1,369,510

Repurchase agreements

 

 

142,537

 

 

 

142,537

 

 

199,975

 

 

 

199,975

FHLB advances

 

 

51,084

 

 

3,073,097

 

3,124,181

 

 

46,448

 

 

3,244,890

 

3,291,338

Derivatives

 

210,977

 

59,568

 

 

 

270,545

 

156,891

 

60,868

 

 

 

217,759

Fed Funds (3)

392,491

16,444

452,649

861,584

Federal Reserve Discount Window

394,700

394,700

Other purposes

 

15,248

15,248

 

16,836

16,836

Total pledged assets

$

210,977

$

1,347,145

$

596,616

$

3,525,746

$

5,680,484

$

156,891

$

1,078,259

$

615,378

$

3,639,590

$

5,490,118

(1) Balance represents market value.

(2) Balance represents carryingbook value.

Pledged Assets as of December 31, 2023

    

    

AFS

    

HTM

    

    

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Public deposits

$

$

749,398

$

621,494

$

$

1,370,892

Repurchase agreements

 

 

174,075

 

 

 

174,075

FHLB advances

 

 

48,718

 

 

2,960,926

 

3,009,644

Derivatives

 

154,382

 

61,311

 

 

 

215,693

Federal Reserve Discount Window (3)

411,661

17,356

418,468

847,485

Other purposes

 

15,591

15,591

Total pledged assets

$

154,382

$

1,460,754

$

638,850

$

3,379,394

$

5,633,380

(1) Balance represents market value.

(2) Balance represents book value.

(3) Includes AFS and HTM securities pledged under the BTFP program.

Pledged Assets as of December 31, 2022

    

    

AFS

    

HTM

    

    

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Public deposits

$

$

713,761

$

579,550

$

$

1,293,311

Repurchase agreements

 

 

159,221

 

 

 

159,221

FHLB advances

 

 

36,039

 

 

2,679,316

 

2,715,355

Derivatives

 

196,180

 

57,114

 

 

 

253,294

Fed Funds

458,680

458,680

Other purposes

 

27,311

865

28,176

Total pledged assets

$

196,180

$

993,446

$

580,415

$

3,137,996

$

4,908,037

(1) Balance represents market value.

(2) Balance represents book value.

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8. 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 that do not qualify for hedge accounting and consist of interest rate contracts, which include loan swaps, interest rate cap agreements, interest rate lock commitments, RPAs, and foreign exchange contracts.

Derivatives Counterparty Credit Risk

Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract. The Company’s exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on the Company’s Consolidated Balance Sheets, assuming no recoveries of underlying collateral. The Company clears certain over-the-counter derivatives with central clearinghouses through futures commission merchants due to applicable regulatory requirements, which reduces the Company’s counterparty risk.

The Company also enters into legally enforceable master netting agreements and collateral agreements, where possible, with certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset exposures and require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty. For the over-the-counter derivatives cleared with central clearinghouses, the variation margin is treated as settlement of the related derivatives fair values.

Derivatives designated as accounting hedges

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 financial instruments. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging a notional amount, equal to the principal amount of the borrowings or commercial loans, for fixed-rate interest based on benchmarked interest rates. The original terms and conditions of the interest rate swaps vary in range and length. Amounts receivable or payable are recognized as accrued under the terms of the agreements.

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

For derivatives designated and qualifying as cash flow hedges, ineffectiveness is not measured or separately disclosed. Rather, as long as the hedging relationship continues to qualify for hedge accounting, the entire change in the fair value of the hedging instrument is recorded in OCI and recognized in earnings as the hedged transaction affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item.

At September 30, 2023 and December 31, 2022, the Company had interest rate swaps designated and qualifying as cash flow hedges of the Company’s forecasted variable interest receipts on variable rate loans due to changes in the interest rate with a notional amount of $900 million. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. 

Fair Value Hedges

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. At September 30, 2023 and December 31, 2022, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled $79.3 million and $83.6 million, respectively, and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $12.8 million and $11.0 million, respectively.

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AFS Securities: The Company has a swap agreement to hedge the interest rate risk on a portion of its fixed rate AFS securities. At September 30, 2023 and December 31, 2022, the aggregate notional amount of the related hedged items of the AFS securities totaled $50.0 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $2.6 million and $1.9 million, respectively.

The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging, and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded on the Company’s Consolidated Statements of Income. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows on the derivative hedging instrument with the changes in fair value or cash flows on the designated hedged item or transactions for the risk being hedged. If a hedging relationship ceases to qualify for hedge accounting, the relationship is discontinued and future changes in the fair value of the derivative instrument are recognized in current period earnings. For a discontinued or terminated fair value hedging relationship, all remaining basis adjustments to the carrying amount of the hedged item are amortized to interest income or expense over the remaining life of the hedged item consistent with the amortization of other discounts or premiums. Previous balances deferred in AOCI from discontinued or terminated cash flow hedges are reclassified to interest income or expense as the hedged transactions affect earnings or over the originally specified term of the hedging relationship. The Company’s hedges continue to be highly effective and had no material impact on the Consolidated Statements of Income.

Derivatives not designated as accounting hedges

Interest Rate Contracts:During the normal course of business, the Company enters into interest rate contracts with borrowers to help meet their financing needs. Upon entering into interest rate contracts, the Company enters into offsetting positions with a third party in order to minimize interest rate risk. These interest rate contracts qualify as financial derivatives with fair values as reported in “Other assets” and “Other liabilities” on the Company’s Consolidated Balance Sheets.

RPAs:The Company enters into RPAs where it may either sell or assume credit risk related to a borrower’s performance under certain non-hedging interest rate derivative contracts on participated loans. The Company manages its credit risk under RPAs by monitoring the creditworthiness of the borrowers based on the Company’s normal credit review process. RPAs are carried at fair value with changes in fair value recorded in “Other operating income” on the Company’s Consolidated Statements of Income.

Foreign Exchange Contracts:The Company enters into certain foreign exchange derivative contracts that are not designated as accounting hedges primarily to support the banking needs of certain commercial banking customers. These foreign exchange contracts qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” on the Company’s Consolidated Balance Sheets with changes in fair value recorded in “Other operating income” on the Company’s Consolidated Statements of Income. At September 30, 2023 and December 31, 2022, the Company’s foreign exchange derivative contracts had an aggregate notional amount of $12.3 million and $10.4 million, respectively. Unrealized losses at both September 30, 2023 and December 31, 2022 were not significant. The Company had no foreign exchange derivative contracts at September 30, 2022.

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8. DERIVATIVES

The Company has cash flow and fair value hedges that are derivatives designated as accounting hedges. The Company also has derivatives not designated as accounting hedges that include foreign exchange contracts, interest rate contracts, and RPAs. The Company’s mortgage banking derivatives do not have a material impact to the Company and are not included within the derivatives disclosures noted below. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2023 Form 10-K for additional information on the Company’s polices regarding derivatives.

The following table summarizes key elements of the Company’s derivative instruments as of September 30, 2023 and December 31, 2022,the periods ended, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):

    

September 30, 2023

    

December 31, 2022

    

March 31, 2024

    

December 31, 2023

Derivative (2)

Derivative (2)

Derivative (2)

Derivative (2)

    

Notional or

    

    

    

Notional or

    

    

    

Notional or

    

    

    

Notional or

    

    

Contractual

Contractual

Contractual

Contractual

Amount (1)

Assets

Liabilities

Amount (1)

Assets

Liabilities

Amount (1)

Assets

Liabilities

Amount (1)

Assets

Liabilities

Derivatives designated as accounting hedges:

Interest rate contracts: (3)

 

 

  

 

  

 

  

 

  

 

 

  

 

  

 

  

 

  

Cash flow hedges

$

900,000

$

$

14,955

$

900,000

$

1,163

$

6,599

$

900,000

$

$

9,442

$

900,000

$

1,419

$

4,359

Fair value hedges

 

129,309

 

5,102

 

 

133,576

 

4,117

 

Fair value hedges:

 

 

 

 

 

 

Loans

76,830

1,922

78,072

1,633

Securities

50,000

1,898

50,000

1,329

Derivatives not designated as accounting hedges:

Interest rate contracts (3)(4)

 

6,248,254

 

117,917

 

276,814

 

5,820,005

 

75,030

 

229,401

 

6,603,129

 

95,427

 

216,438

 

6,595,975

 

88,646

 

202,202

Foreign exchange contracts

12,758

12

897

12,726

16

1,219

Cash collateral (received)/pledged (5)

$

(15,080)

$

$

(14,879)

$

(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.

(3) The Company’s cleared derivatives are classified as a single-unit of accounting, resulting in the fair value of the designated swap being reduced by the variation margin, which is treated as settlement of the related derivatives fair value for accounting purposes.purposes and is reported on a net basis.

(4) Includes RPAs.

(5) The fair value of derivative assets and liabilities is presented on a gross basis. The Company has not applied collateral netting; as such the amounts of cash collateral received or pledged are not offset against the derivative assets and derivative liabilities in the Consolidated Balance Sheets.

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The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of September 30, 2023 and December 31, 2022the periods ended (dollars in thousands):

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

    

    

Cumulative

    

    

Cumulative

    

    

Cumulative

    

    

Cumulative

Amount of Basis

Amount of Basis

Amount of Basis

Amount of Basis

Adjustments

Adjustments

Adjustments

Adjustments

Included in the

Included in the

Included in the

Included in the

Carrying Amount

Carrying

Carrying Amount

Carrying

Carrying Amount

Carrying

Carrying Amount

Carrying

of Hedged

Amount of the

of Hedged

Amount of the

of Hedged

Amount of the

of Hedged

Amount of the

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Amount (1)

 

Assets/(Liabilities)

Amount (1)

 

Assets/(Liabilities)

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)

$

84,482

$

(2,589)

$

91,388

$

(1,889)

$

80,236

$

(1,888)

$

82,203

$

(1,323)

Loans(3)

 

79,309

 

(12,635)

 

83,576

 

(10,832)

 

76,830

 

(10,507)

 

78,072

 

(9,392)

(1) These amounts include the amortized cost basis of the investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2023 and December 31, 2022, the amortized cost basis of this portfolio was $84.5 million and $91.4 million, respectively, and the cumulative basis adjustment associated with this hedge was $2.6 million and $1.9 million, respectively. The amount of the designated hedged item at September 30, 2023March 31, 2024 and December 31, 20222023 totaled $50 million.

(2) Carrying value represents amortized cost.

(3)The fair value of the swaps associated with the derivative related to hedged items at September 30, 2023March 31, 2024 and December 31, 20222023 was an unrealized gain of $12.810.7 million and $11.09.6 million, respectively.

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9. STOCKHOLDERS’ EQUITY

Share Repurchase Programs

AsThe Company’s share repurchase program activity is dependent on management’s determination of September 30, 2023,its capital deployment needs, subject to market, economic, and regulatory conditions. Authorized repurchase programs allow the Company does not have anto repurchase its common stock through either open market transactions or privately negotiated transactions. During the quarters ended March 31, 2024 and 2023, there were no active share repurchase program. The Company’s prior share repurchase plan expired on Decemberprograms.

Series A Preferred Stock

On June 9, 2022. During the nine months ended September 30, 2022,2020, the Company repurchased an aggregateissued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of 1.3 millionits Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares (or $48.2 million), and nonepursuant to the exercise in full by the underwriters of these shares were repurchased during the third quarter of 2022.their option to purchase additional depositary shares.

Accumulated Other Comprehensive Income (Loss)

The change in AOCI for the three and nine months ended September 30, 2023March 31, 2024 is summarized as follows, net of tax (dollars in thousands):

    

    

Unrealized Gains

    

    

    

    

    

Unrealized Gains

    

    

    

(Losses)

(Losses)

Unrealized

for AFS

Unrealized

Unrealized

for AFS

Unrealized

 (Losses)

Securities

Change in Fair

Gains

 (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses) on

on AFS

Transferred to

Value of Cash

(Losses) on

Securities

HTM

Flow Hedge

BOLI

Total

Securities

HTM

Flow Hedge

BOLI

Total

AOCI (loss) – June 30, 2023

$

(353,811)

$

12

$

(57,221)

$

153

$

(410,867)

AOCI (loss) – December 31, 2023

$

(302,532)

$

6

$

(42,165)

$

1,342

$

(343,349)

Other comprehensive (loss) income:

 

 

  

 

 

  

Other comprehensive loss before reclassification

 

(79,193)

(9,581)

 

(88,774)

 

(20,501)

(10,253)

(16)

 

(30,770)

Amounts reclassified from AOCI into earnings

 

21,799

(2)

(62)

 

21,735

 

(2)

(2)

(175)

 

(179)

Net current period other comprehensive loss

 

(57,394)

 

(2)

 

(9,581)

 

(62)

 

(67,039)

 

(20,503)

 

(2)

 

(10,253)

 

(191)

 

(30,949)

AOCI (loss) – September 30, 2023

$

(411,205)

$

10

$

(66,802)

$

91

$

(477,906)

AOCI (loss) – March 31, 2024

$

(323,035)

$

4

$

(52,418)

$

1,151

$

(374,298)

    

    

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

AOCI (loss) – December 31, 2022

$

(363,919)

$

17

$

(54,610)

$

226

$

(418,286)

Other comprehensive income (loss):

 

 

  

Other comprehensive (loss) income before reclassification

 

(79,669)

(12,192)

10

 

(91,851)

Amounts reclassified from AOCI into earnings

 

32,383

(7)

(145)

 

32,231

Net current period other comprehensive loss

 

(47,286)

 

(7)

 

(12,192)

 

(135)

 

(59,620)

AOCI (loss) – September 30, 2023

$

(411,205)

$

10

$

(66,802)

$

91

$

(477,906)

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The change in AOCI for the three and nine months ended September 30, 2022March 31, 2023 is summarized as follows, net of tax (dollars in thousands):

    

    

Unrealized Gain

    

    

    

    

    

Unrealized Gain

    

    

    

(Losses)

(Losses)

Unrealized

for AFS

Unrealized

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses)

on AFS

Transferred to

Value of Cash

(Losses)

Securities

HTM

Flow Hedge

on BOLI

Total

Securities

HTM

Flow Hedge

on BOLI

Total

AOCI (loss) – June 30, 2022

$

(277,577)

$

25

$

(36,452)

$

(2,279)

$

(316,283)

AOCI (loss) – December 31, 2022

$

(363,919)

$

17

$

(54,610)

$

226

$

(418,286)

Other comprehensive (loss) income:

 

 

Other comprehensive loss before reclassification

 

(121,841)

(24,142)

(145,983)

Other comprehensive income before reclassification

 

32,068

13,714

10

45,792

Amounts reclassified from AOCI into earnings

 

(4)

151

147

 

10,586

(3)

(22)

10,561

Net current period other comprehensive (loss) income

 

(121,841)

 

(4)

 

(24,142)

 

151

 

(145,836)

AOCI (loss) – September 30, 2022

$

(399,418)

$

21

$

(60,594)

$

(2,128)

$

(462,119)

Net current period other comprehensive income (loss)

 

42,654

 

(3)

 

13,714

 

(12)

 

56,353

AOCI (loss) – March 31, 2023

$

(321,265)

$

14

$

(40,896)

$

214

$

(361,933)

    

    

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

AOCI – December 31, 2021

$

22,763

$

35

$

(1,567)

$

(2,596)

$

18,635

Other comprehensive (loss) income:

 

Other comprehensive loss before reclassification

 

(422,183)

(59,027)

(481,210)

Amounts reclassified from AOCI into earnings

 

2

(14)

468

456

Net current period other comprehensive (loss) income

 

(422,181)

 

(14)

 

(59,027)

 

468

 

(480,754)

AOCI (loss) – September 30, 2022

$

(399,418)

$

21

$

(60,594)

$

(2,128)

$

(462,119)

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10. FAIR VALUE MEASUREMENTS

The Company follows ASC 820, Fair Value Measurement 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.

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. Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2023 Form 10-K for additional information on the valuation techniques used by the Company.

Derivative Instruments

AFS Securities: AFS securities are recorded at fair value on a recurring basis. The Company’s investment portfolio is primarily valued using fair value measurements that are Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio; no material differences were identified during the valuations as of March 31, 2024 and December 31, 2023.

As discussed in Note 8 “Derivatives” within this Item 1The carrying value of this Quarterly Report, the Company records derivative instruments atrestricted FRB and FHLB stock approximates fair value based on a recurring basis. The Company utilizes derivative instruments as partthe redemption provisions of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assetseach entity and liabilities, as well as to manageis therefore excluded from the Company’s exposure to credit risk related to borrower’s performance under interest rate derivatives. 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 the Bloomberg Valuation Service’s derivative pricing functions. No significant differences were identified during the validation as of September 30, 2023 and December 31, 2022. 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.

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).disclosure table below.

Loans Held for Sale: Residential loans originated for sale in the open market are carried at fair value. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded in current period earnings as a component of “Mortgage banking income” on the Company’s Consolidated Statements of Income.

The 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 ICE, which evaluates securities based on market data. ICE 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.

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Derivative Instruments: 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, as well as to manage the Company’s exposure to credit risk related to borrower’s performance under interest rate derivatives. 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 the Bloomberg Valuation Service’s derivative pricing functions. The Company determines the fair value of rate lock commitments, delivery contracts, and 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 or be funded. No significant differences were identified during the valuations as of March 31, 2024 and December 31, 2023. 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.

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 the 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 significant differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No significant differences were identified during the validation as of September 30, 2023 and December 31, 2022.

The carrying value of restricted FRB and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the table below.

Loans Held for Sale

Residential loans originated for sale in the open market are carried at fair value. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded in current period earnings as a component of “Mortgage banking income” on the Company’s Consolidated Statements of Income.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022as of the periods ended (dollars in thousands):

    

Fair Value Measurements at September 30, 2023 using

    

Fair Value Measurements at March 31, 2024 using

    

    

Significant

    

    

    

    

Significant

    

    

Quoted Prices in

Other

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Identical Assets

Inputs

Inputs

Level 1

Level 2

Level 3

Balance

Level 1

Level 2

Level 3

Balance

ASSETS

  

 

  

 

  

 

  

  

 

  

 

  

 

  

AFS securities:

  

 

  

 

  

 

  

  

 

  

 

  

 

  

U.S. government and agency securities

$

59,568

$

2,270

$

$

61,838

$

60,868

$

1,868

$

$

62,736

Obligations of states and political subdivisions

 

 

417,460

 

 

417,460

 

 

461,850

 

 

461,850

Corporate and other bonds(1)

 

 

242,818

 

 

242,818

 

 

250,264

 

 

250,264

MBS

 

 

1,361,085

 

 

1,361,085

 

 

1,425,587

 

 

1,425,587

Other securities

 

 

1,727

 

 

1,727

 

 

1,779

 

 

1,779

LHFS

 

 

6,608

 

 

6,608

 

 

12,200

 

 

12,200

Financial Derivatives(2)

 

 

123,019

 

 

123,019

 

 

99,259

 

 

99,259

LIABILITIES

Financial Derivatives(2)

$

$

291,769

$

$

291,769

$

$

226,777

$

$

226,777

(1) Other bonds include asset-backed securities.

(2) Includes hedged and non-hedged derivatives.

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Table of Contents

    

Fair Value Measurements at December 31, 2022 using

    

Fair Value Measurements at December 31, 2023 using

    

    

Significant

    

    

    

    

Significant

    

    

Quoted Prices in

Other

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Identical Assets

Inputs

Inputs

Level 1

Level 2

Level 3

Balance

Level 1

Level 2

Level 3

Balance

ASSETS

  

 

  

 

  

 

  

  

 

  

 

  

 

  

AFS securities:

  

 

  

 

  

 

  

  

 

  

 

  

 

  

U.S. government and agency securities

$

56,606

$

5,337

$

$

61,943

$

61,311

$

2,045

$

$

63,356

Obligations of states and political subdivisions

807,435

807,435

 

 

475,447

 

 

475,447

Corporate and other bonds(1)

 

 

226,380

 

 

226,380

 

 

241,889

 

 

241,889

MBS

 

 

1,644,394

 

 

1,644,394

 

 

1,448,817

 

 

1,448,817

Other securities

 

 

1,664

 

 

1,664

 

 

1,752

 

 

1,752

LHFS

3,936

3,936

 

 

6,710

 

 

6,710

Financial Derivatives(2)

��

 

 

80,310

 

 

80,310

 

 

93,027

 

 

93,027

LIABILITIES

 

  

 

  

 

  

 

  

Financial Derivatives(2)

$

$

236,000

$

$

236,000

$

$

206,561

$

$

206,561

(1) Other bonds include asset-backed securities.

(2) Includes hedged and non-hedged derivatives.

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 GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets after they are evaluated for impairment. The primary assets accounted for at fair value on a nonrecurring basis are related to loans held for sale, foreclosed properties, former bank premises, and collateral-dependent loans that are individually assessed. When the asset is secured by real estate, the Company measures the fair value utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. Management may discount the value from the appraisal in determining the fair value if, based on its understanding of the market conditions, the collateral had been impaired below the appraised value (Level 3). The nonrecurring valuation adjustments for these assets did not have a significant impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

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

Cash Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Cash Equivalents

For those short-term instruments,Supplementary Data” in the carrying amount is a reasonable estimate ofCompany’s 2023 Form 10-K for additional information on the valuation techniques used by the Company to measure fair value.

HTM Securities

Cash and Cash Equivalents: The carrying amount is a reasonable estimate of fair value.
HTM Securities: The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2; however, there are a few investments that are considered to be Level 3. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio; no material differences were identified during the valuations as of March 31, 2024 and December 31, 2023.

The Company’s HTM investment portfolio is primarily valued using fair value measurements that are considered to be Level 2, utilizes the same valuation approach as described above with the AFS securities portfolio. Any significant differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No significant differences were identified during the validation as of September 30, 2023 and December 31, 2022.

The Company’s Level 3 HTM securities are a result of a prior 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 incorporates considerations for the complexity of the instrument, likelihood it will be called, and credit ratings. The Company reviews the valuations obtained for any material differences between valuation sources by analyzing the various inputs and results utilized by each pricing source. No significant differences were identified during the validation as of September 30, 2023 and December 31, 2022.

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Loans and Leases
Loans and Leases: The fair value of loans and leases were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans and leases. The fair value of performing loans and leases were estimated through use of discounted cash flows. Credit loss assumptions were based on market probability of default/loss given default for loan and lease cohorts. The discount rate was based primarily on recent market origination rates. Fair value of loans and leases individually assessed and their respective levels within the fair value hierarchy are described in the previous section related to fair value measurements of assets that are measured on a nonrecurring basis.
Accrued Interest:

The fair value of loans and leases were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans and leases. The fair value of performing loans and leases were estimated through use of discounted cash flows.  Credit loss assumptions were based on market PD/LGD for loan and lease cohorts.  The discount rate was based primarily on recent market origination rates. Fair value of loans and leases individually assessed and their respective levels within the fair value hierarchy are described in the previous section related to fair value measurements of assets that are measured on a nonrecurring basis.

Bank Owned Life Insurance

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

Deposits

The fair value of demand deposits, savings accounts, brokered deposits, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposits 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.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Bank Owned Life Insurance: The carrying value of BOLI approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.
Deposits: The fair value of demand deposits, savings accounts, brokered deposits, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposits 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.
Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and any other short-term borrowings approximate their fair value. The fair values of the Company’s long-term borrowings, including trust preferred securities are estimated using discounted cash flow analyses, based on the current incremental borrowing rates for similar types of borrowing arrangements.

The carrying values and estimated fair values of the Company’s financial instruments at September 30, 2023 and December 31, 2022as of the periods ended are as follows (dollars in thousands):

Fair Value Measurements at September 30, 2023 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

$

398,945

$

398,945

$

$

$

398,945

AFS securities

 

2,084,928

 

59,568

 

2,025,360

 

 

2,084,928

HTM securities

 

843,269

 

 

760,786

 

1,260

 

762,046

Restricted stock

 

104,785

 

 

104,785

 

 

104,785

LHFS

 

6,608

 

 

6,608

 

 

6,608

LHFI, net of deferred fees and costs

 

15,283,620

 

 

 

14,712,224

 

14,712,224

Financial Derivatives(1)

 

123,019

 

 

123,019

 

 

123,019

Accrued interest receivable

 

85,663

 

 

85,663

 

 

85,663

BOLI

 

449,452

 

 

449,452

 

 

449,452

LIABILITIES

 

  

 

  

 

  

 

  

 

  

Deposits

$

16,786,505

$

$

16,758,971

$

$

16,758,971

Borrowings

 

1,020,669

 

 

947,640

 

 

947,640

Accrued interest payable

 

17,046

 

 

17,046

 

 

17,046

Financial Derivatives(1)

 

291,769

 

 

291,769

 

 

291,769

Fair Value Measurements at March 31, 2024 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

$

396,670

$

396,670

$

$

$

396,670

AFS securities

 

2,202,216

 

60,868

 

2,141,348

 

 

2,202,216

HTM securities

 

828,928

 

 

790,123

 

1,222

 

791,345

Restricted stock

 

110,272

 

 

110,272

 

 

110,272

LHFS

 

12,200

 

 

12,200

 

 

12,200

LHFI, net of deferred fees and costs

 

15,851,628

 

 

 

15,235,459

 

15,235,459

Financial Derivatives (1)

 

99,259

 

 

99,259

 

 

99,259

Accrued interest receivable

 

90,299

 

 

90,299

 

 

90,299

BOLI

 

455,885

 

 

455,885

 

 

455,885

LIABILITIES

 

  

 

  

 

  

 

  

 

  

Deposits

$

17,278,435

$

$

17,254,950

$

$

17,254,950

Borrowings

 

1,057,724

 

 

990,347

 

 

990,347

Accrued interest payable

 

26,175

 

 

26,175

 

 

26,175

Financial Derivatives (1)

 

226,777

 

 

226,777

 

 

226,777

(1) Includes hedged and non-hedged derivatives.

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Table of Contents

    

Fair Value Measurements at December 31, 2022 using

    

Fair Value Measurements at December 31, 2023 using

Quoted Prices

Significant

Quoted Prices

Significant

in Active

Other

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Total Fair

Markets for

Observable

Unobservable

Total Fair

Identical Assets

Inputs

Inputs

Value

Identical Assets

Inputs

Inputs

Value

Carrying

Carrying

Value

Level 1

Level 2

Level 3

Balance

Value

Level 1

Level 2

Level 3

Balance

ASSETS

Cash and cash equivalents

$

319,948

$

319,948

$

$

$

319,948

$

378,131

$

378,131

$

$

$

378,131

AFS securities

 

2,741,816

 

56,606

 

2,685,210

 

 

2,741,816

 

2,231,261

 

61,311

 

2,169,950

 

 

2,231,261

HTM securities

 

847,732

 

 

798,778

 

3,109

 

801,887

 

837,378

 

 

806,834

 

1,240

 

808,074

Restricted stock

 

120,213

 

 

120,213

 

 

120,213

 

115,472

 

 

115,472

 

 

115,472

LHFS

3,936

 

3,936

 

3,936

 

6,710

 

 

6,710

 

 

6,710

LHFI, net of deferred fees and costs

 

14,449,142

 

 

 

13,974,926

 

13,974,926

 

15,635,043

 

 

 

15,148,256

 

15,148,256

Financial Derivatives(1)

 

80,310

 

 

80,310

 

 

80,310

 

93,027

 

 

93,027

 

 

93,027

Accrued interest receivable

 

81,953

 

 

81,953

 

 

81,953

 

91,370

 

 

91,370

 

 

91,370

BOLI

 

440,656

 

 

440,656

 

 

440,656

 

452,565

 

 

452,565

 

 

452,565

LIABILITIES

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposits

$

15,931,677

$

$

15,927,361

$

$

15,927,361

$

16,818,129

$

$

16,799,791

$

$

16,799,791

Borrowings

 

1,708,700

 

 

1,645,095

 

 

1,645,095

 

1,311,858

 

 

1,154,694

 

 

1,154,694

Accrued interest payable

 

5,268

 

 

5,268

 

 

5,268

 

20,528

 

 

20,528

 

 

20,528

Financial Derivatives(1)

 

236,000

 

 

236,000

 

 

236,000

 

206,561

 

 

206,561

 

 

206,561

(1) Includes hedged and non-hedged derivatives.

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. EARNINGS PER SHARE

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

The following table presents basic and diluted EPS calculations for the three and nine monthsperiods ended September 30, 2023 and 2022 (dollars in thousands except per share data):

Three Months Ended

Nine Months Ended

Three Months Ended

September 30, 

September 30, 

March 31, 

2023

2022

2023

2022

2024

2023

Net Income

Net Income

$

54,017

$

58,070

$

144,911

$

163,986

$

49,769

$

35,653

Less: Preferred Stock Dividends

2,967

2,967

8,901

8,901

2,967

2,967

Net income available to common shareholders

$

51,050

$

55,103

$

136,010

$

155,085

$

46,802

$

32,686

Weighted average shares outstanding, basic

 

74,999

 

74,704

 

74,943

 

75,029

 

75,197

 

74,832

Dilutive effect of stock awards

 

 

1

 

1

 

5

 

 

3

Weighted average shares outstanding, diluted

 

74,999

 

74,705

 

74,944

 

75,034

 

75,197

 

74,835

Earnings per common share, basic

$

0.68

$

0.74

$

1.81

$

2.07

$

0.62

$

0.44

Earnings per common share, diluted

$

0.68

$

0.74

$

1.81

$

2.07

$

0.62

$

0.44

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12. SEGMENT REPORTING AND REVENUE

Operating Segments

Effective January 1, 2023, the Company made an organizational change to move certain lines of business in the wealth management division that primarily serve Wholesale Banking customers from the Consumer Banking segment to the Wholesale Banking segment. As a result, the Company reallocated $9.6 million of goodwill from the Consumer Banking segment to the Wholesale Banking segment and restated its prior segment information for the year ended December 31, 2022, based on this organizational change. Goodwill was evaluated for impairment prior to and immediately following the organizational change. Refer to Note 4 “Goodwill and Intangible Assets” within this Item 1 “Financial Statements” of this Quarterly Report for additional information. In addition, effective January 1, 2023, the Company restated its prior segment operating results for the three and nine months ended September 30, 2022, resulting in a reallocation of noninterest income ($3.0 million and $9.5 million, respectively) and noninterest expense ($4.0 million and $12.1 million, respectively) from the Consumer Banking segment to the Wholesale Banking segment.

As of September 30, 2023, the Company’s operating segments include the following:

Wholesale Banking: The Wholesale Banking segment provides loan and deposit services, as well as treasury management, and capital market services to wholesale customers primarily throughout Virginia, Maryland, North Carolina, and South Carolina. These customers include commercial real estate and commercial and industrial customers. This segment also includes the Company’s equipment finance subsidiary, which has nationwide exposure. The private banking and trust businesses also reside in the Wholesale Banking segment.
Consumer Banking: The Consumer Banking segment provides loan and deposit services to consumers and small businesses throughout Virginia, Maryland, and North Carolina. Consumer Banking includes the home loan division and investment management and advisory services businesses.
Corporate Other: Corporate Other includes the Company’s Corporate Treasury functions, such as management of the investment securities portfolio, long-term debt, short-term liquidity and funding activities, balance sheet risk management, and other corporate support functions, as well as intercompany eliminations.

Segment Reporting Methodology

The Company has two reportable operating segments, Wholesale Banking and Consumer Banking, with corporate support functions and intercompany eliminations being presented within Corporate Other.

Segment Results

The following tables present the Company’s operating segment reporting is based on a “management approach”results for the three months ended March 31, (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

2024

Net interest income

$

80,874

$

69,237

$

(2,286)

$

147,825

Provision for credit losses

 

5,366

2,873

8,239

Net interest income after provision for credit losses

 

75,508

66,364

(2,286)

139,586

Noninterest income

 

8,363

12,615

4,574

25,552

Noninterest expenses

 

44,299

55,536

5,438

105,273

Income before income taxes

$

39,572

$

23,443

$

(3,150)

$

59,865

2023

Net interest income

$

67,540

$

63,145

$

22,758

$

153,443

Provision for credit losses

 

10,487

1,340

23

11,850

Net interest income after provision for credit losses

 

57,053

61,805

22,735

141,593

Noninterest income

 

7,414

12,178

(9,964)

9,628

Noninterest expenses

 

42,123

57,246

8,905

108,274

Income before income taxes

$

22,344

$

16,737

$

3,866

$

42,947

The following table presents the Company’s operating segment results for key balance sheet metrics as described in Note 1 “Summary of Significant Accounting Policies” of the Company’s 2022 Form 10-K. Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process. A management fee for operations and administrative support services is charged to all subsidiaries and eliminatedperiods ended (dollars in the consolidated totals. For additional information on the methodologies used in preparing the operating segment results, refer to Note 17 “Segment Reporting and Revenue” in the Company’s 2022 Form 10-K.thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

March 31, 2024

LHFI, net of deferred fees and costs (1)

$

12,941,541

$

2,921,874

$

(11,787)

$

15,851,628

Goodwill

639,180

286,031

925,211

Deposits

6,403,103

10,101,594

773,738

17,278,435

December 31, 2023

LHFI, net of deferred fees and costs (1)

$

12,688,833

$

2,958,811

$

(12,601)

$

15,635,043

Goodwill

639,180

286,031

925,211

Deposits

6,403,432

9,816,562

598,135

16,818,129

(1) Corporate Other includes acquisition accounting fair value adjustments.

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Table of Contents

Segment Results

The following tables present the Company’s operating segment results for the three months and nine months ended September 30, 2023 and 2022 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other (1)

Total

Three Months Ended September 30, 2023

Net interest income

$

68,049

$

63,912

$

19,980

$

151,941

Provision for credit losses

 

9,310

(4,319)

4,991

Net interest income after provision for credit losses

 

58,739

68,231

19,980

146,950

Noninterest income

 

9,468

13,722

3,904

27,094

Noninterest expenses

 

40,039

54,994

13,475

108,508

Income before income taxes

$

28,168

$

26,959

$

10,409

$

65,536

Three Months Ended September 30, 2022 (2)

Net interest income

$

77,625

$

58,749

$

14,341

$

150,715

Provision for credit losses

 

8,470

(2,058)

6,412

Net interest income after provision for credit losses

 

69,155

60,807

14,341

144,303

Noninterest income

 

8,453

11,939

5,192

25,584

Noninterest expenses

 

40,164

54,740

5,019

99,923

Income before income taxes

$

37,444

$

18,006

$

14,514

$

69,964

Wholesale Banking

Consumer Banking

Corporate Other (1)

Total

Nine Months Ended September 30, 2023

Net interest income

$

201,722

$

190,806

$

64,941

$

457,469

Provision for credit losses

 

25,853

(2,947)

5

22,911

Net interest income after provision for credit losses

 

175,869

193,753

64,936

434,558

Noninterest income

 

25,743

38,188

(3,013)

60,918

Noninterest expenses

 

123,207

168,971

30,264

322,442

Income before income taxes

$

78,405

$

62,970

$

31,659

$

173,034

Nine Months Ended September 30, 2022 (2)

Net interest income

$

221,979

$

157,918

$

40,516

$

420,413

Provision for credit losses

 

12,844

(100)

27

12,771

Net interest income after provision for credit losses

 

209,135

158,018

40,489

407,642

Noninterest income

 

25,967

45,135

22,921

94,023

Noninterest expenses

 

118,216

165,523

20,273

304,012

Income before income taxes

$

116,886

$

37,630

$

43,137

$

197,653

(1) For the three and nine months ended September 30, 2023, noninterest expenses include $8.7 million ($8.7 million included within other expenses and ($67,000) included within salaries and benefits) and $12.6 million ($9.8 million included within other expenses and $2.8 million included within salaries and benefits), respectively, in expenses associated with strategic cost saving initiatives, principally composed of severance costs related to headcount reductions, costs related to modifying certain third-party vendor contracts, and charges for exiting certain leases.

(2) As discussed above, the segment operating results for the three and nine months ended September 30, 2022 include a reallocation from Consumer Banking to Wholesale Banking.

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The following table presents the Company’s operating segment results for key balance sheet metrics as of September 30, 2023 and December 31, 2022 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

As of September 30, 2023

LHFI, net of deferred fees and costs (1)

$

12,343,799

$

2,953,367

$

(13,546)

$

15,283,620

Goodwill

639,180

286,031

925,211

Deposits

6,537,472

9,726,079

522,954

16,786,505

As of December 31, 2022

LHFI, net of deferred fees and costs (1)(2)

$

11,476,258

$

2,990,017

$

(17,133)

$

14,449,142

Goodwill (3)

639,180

286,031

925,211

Deposits (4)

6,128,729

9,724,598

78,350

15,931,677

(1) Corporate Other includes acquisition accounting fair value adjustments.

(2) Wholesale Banking includes a $136.6 million reallocation from Consumer Banking due to the January 1, 2023 organizational change discussed above.

(3) Wholesale Banking includes a $9.6 million reallocation from Consumer Banking due to the January 1, 2023 organizational change discussed above.

(4) Wholesale Banking includes a $258.7 million reallocation from Consumer Banking due to the January 1, 2023 organizational change discussed above.

Revenue

The majority of the Company’s noninterest income is being accounted for in accordance with ASC 606, Revenue from Contracts with Customers and comes from short term contracts associated with fees for services provided on deposit accounts and credit cards from the Consumer and Wholesale Banking segments, as well as fiduciary and asset management fees from the Consumer Banking and Wholesale Banking segments. Refer to Note 17 “Segment Reporting and Revenue” in the Company’s 2022 Form 10-K for additional information on the Company’s contract balances, performance obligations, and mortgage banking income.

Noninterest income disaggregated by major source for the three and nine months ended September 30, 2023 and 2022,March 31, consisted of the following (dollars in thousands):

    

Three Months Ended

 

Nine Months Ended

September 30, 

September 30, 

 

September 30, 

September 30, 

2023

2022

 

2023

2022

2024

2023

Noninterest income:

 

  

 

  

  

 

  

 

  

 

  

Deposit Service Charges (1):

 

  

 

  

  

 

  

Service charges on deposit accounts (1):

 

  

 

  

Overdraft fees

$

5,210

$

3,831

$

14,873

$

14,130

$

4,748

$

4,823

Maintenance fees & other

 

3,347

 

2,953

 

9,704

 

8,291

 

3,821

 

3,079

Other service charges, commissions, and fees (1)

 

2,632

 

1,770

 

6,071

 

5,134

 

1,731

 

1,746

Interchange fees(1)

 

2,314

 

2,461

 

7,098

 

6,539

 

2,294

 

2,325

Fiduciary and asset management fees (1):

 

 

 

 

 

 

Trust asset management fees

 

3,120

 

3,035

 

9,329

 

9,726

 

3,356

 

3,107

Registered advisor management fees

 

 

 

 

5,088

Brokerage management fees

 

1,429

 

1,099

 

3,840

 

3,515

 

1,482

 

1,155

Mortgage banking income

 

666

 

1,390

 

1,969

 

6,707

 

867

 

854

Loss on sale of securities

(27,594)

(40,992)

(2)

Gain (loss) on sale of securities

3

(13,400)

Bank owned life insurance income

 

2,973

 

3,445

 

8,671

 

8,858

 

3,245

 

2,828

Loan-related interest rate swap fees

 

2,695

 

2,050

 

6,450

 

8,510

 

1,216

 

1,439

Other operating income (2)

 

30,302

 

3,550

 

33,905

 

17,527

Other operating income

 

2,789

 

1,672

Total noninterest income

$

27,094

$

25,584

$

60,918

$

94,023

$

25,552

$

9,628

(1) Income within scope of ASC 606, Revenue from Contracts with Customers.

(2)Includes a $27.7 million gain related to the sale-leaseback transaction for the three and nine months ended September 30, 2023, and a $9.1 million gain related to the sale of DHFB for the nine months ended September 30, 2022.

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The following tables present noninterest income disaggregated by reportable operating segment for the three and nine months ended September 30, 2023 and 2022March 31, (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other (1)(2)

Total

Three Months Ended September 30, 2023

Noninterest income:

 

  

 

  

 

  

 

  

Deposit service charges

$

2,184

$

6,373

$

$

8,557

Other service charges and fees

399

2,233

2,632

Fiduciary and asset management fees

3,050

1,499

4,549

Mortgage banking income

666

666

Other income

3,835

2,951

3,904

10,690

Total noninterest income

$

9,468

$

13,722

$

3,904

$

27,094

Three Months Ended September 30, 2022 (3)

Noninterest income:

 

  

 

  

 

  

 

  

Deposit service charges

$

1,783

$

5,001

$

$

6,784

Other service charges and fees

513

1,257

1,770

Fiduciary and asset management fees

2,960

1,174

4,134

Mortgage banking income

1,390

1,390

Other income

3,197

3,117

5,192

11,506

Total noninterest income

$

8,453

$

11,939

$

5,192

$

25,584

Wholesale Banking

Consumer Banking

Corporate
Other (1)(2)

Total

Wholesale Banking

Consumer Banking

Corporate Other (1)(2)

Total

Nine Months Ended September 30, 2023

2024

Noninterest income:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposit service charges

$

6,268

$

18,309

$

$

24,577

Other service charges and fees

1,140

4,931

6,071

Service charges on deposit accounts

$

2,611

$

5,958

$

$

8,569

Other service charges, commissions and fees

396

1,335

1,731

Fiduciary and asset management fees

9,118

4,051

13,169

3,286

1,552

4,838

Mortgage banking income

1,969

1,969

867

867

Other income

9,217

8,928

(3,013)

15,132

2,070

2,903

4,574

9,547

Total noninterest income

$

25,743

$

38,188

$

(3,013)

$

60,918

$

8,363

$

12,615

$

4,574

$

25,552

Nine Months Ended September 30, 2022 (3)

2023

Noninterest income:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposit service charges

$

4,990

$

17,431

$

$

22,421

Other service charges and fees

1,342

3,792

5,134

Service charges on deposit accounts

$

1,975

$

5,927

$

$

7,902

Other service charges, commissions and fees

445

1,301

1,746

Fiduciary and asset management fees

9,501

8,828

18,329

3,035

1,227

4,262

Mortgage banking income

6,707

6,707

854

854

Other income

10,134

8,377

22,921

41,432

1,959

2,869

(9,964)

(5,136)

Total noninterest income

$

25,967

$

45,135

$

22,921

$

94,023

$

7,414

$

12,178

$

(9,964)

$

9,628

(1) For the three and nine months ended September 30, 2022, other income primarily includes a $9.1 million gain related to the sale of DHFB and income from BOLI.

(2) For the three and nine months ended September 30,March 31, 2023, other income primarily includes a $27.713.4 million gain related to the sale-leaseback transaction,of losses incurred on the sale of AFS securities, ($27.6 million and $41.0 million, respectively), and income from BOLI.BOLI and equity method investment income.

(3)(2) As discussed above, noninterest income forFor the three and nine months ended September 30, 2022March 31, 2024, other income primarily includes a reallocationincome from Consumer Banking to Wholesale Banking.BOLI and equity method investment income.

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13. SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events through NovemberMay 2, 2023,2024, the date the financial statements were issued.

On October 26, 2023,April 1, 2024, the Company completed its previously announced merger with American National, pursuant to the Agreement and Plan of Merger, dated as of July 24, 2023. Under the terms of the merger agreement, at the effective time of the merger, each outstanding share of American National common stock was converted into 1.35 shares of the Company’s Board of Directors declared a quarterly dividend oncommon stock, resulting in the outstandingCompany issuing 14.3 million shares of its Series A preferred stock. The Series A preferredcommon stock, is represented by depositary shares, each representing a 1/400th ownership interest in a share of Series A preferred stock. The dividend of $171.88 per share (equivalent to $0.43 per outstanding depositary share) is payable on December 1, 2023 to preferred shareholders of recordvalued at approximately $505.8 million as of November 16, 2023.

The Company’s BoardMarch 28, 2024, which was the last trading day prior to the consummation of Directors also declared a quarterly dividendthe acquisition. In addition, cash consideration of $0.32 per share$76,000 was paid for the settlement of common stock. The common stock dividend is payable on November 24, 2023 to common shareholders of record as of November 10, 2023.fractional shares.

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Report of Independent Registered Public Accounting Firm

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

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Atlantic Union Bankshares Corporation and Subsidiaries (the Company) as of September 30, 2023,March 31, 2024, the related consolidated statements of income, comprehensive income (loss), and changes in stockholders’ equity for the three and nine-monththree-month periods ended September 30,March 31, 2024 and 2023, and 2022, the consolidated statements of cash flows for the nine-monththree-month periods ended September 30,March 31, 2024 and 2023, and 2022, 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, 2022,2023, the related consolidated statements of income, comprehensive (loss) 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 23, 2023,22, 2024, 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, 2022,2023, 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

NovemberMay 2, 20232024

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

Management’sThe following discussion and analysis is presented to aidprovides information about the reader in understanding and evaluating themajor components of our results of operations, financial condition, liquidity, and capital resources of the Company and its subsidiaries.resources. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements, the notesour “Consolidated Financial Statements,” our “Notes to the financial statements,Consolidated Financial Statements,” and the other financial data included in this report, as well as the Company’s 2022our 2023 Form 10-K, including underthe section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section therein. Highlighted in the discussion are material changes from prior reporting periods and identifiable trends materially affecting the Company. ResultsOur 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.

In management’sthe following discussion and analysis, the Company provideswe provide certain financial information determined by methods other than in accordance with GAAP. These non-GAAP financial measures are a supplement to GAAP, which iswe used to prepare the Company’sour 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’sour non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company usesWe use the non-GAAP financial measures discussed herein in itsour analysis of the Company’sour performance. The Company’s managementManagement believes that these non-GAAP financial measures provide additional understanding of our ongoing operations, enhance comparability of our results of operations with prior periods and show the effects of significant gains and charges in the periods presented without the impact of items or events that may obscure trends in the Company’sour underlying performance. Non-GAAP financial measures may be identified with the symbol (+) and may be labeled as adjusted.  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 GAAP financial measures.

FORWARD-LOOKING STATEMENTS

Certain statements in this reportQuarterly Report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include, without limitation, statements regarding our expectations with regard to our business, financial and operating results, including our deposit base and funding and the impact of future economic conditions, anticipated changes in the interest rate environments and the related impacts on the Company’sour net interest margin, changes in economic conditions, management’s belief regarding liquidity and capital resources, and the expected impact of our cost saving measures initiated in the second quarter of 2023, statements regarding the pendingour recently completed merger with American National, and statements that include other projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such forward-looking statements are based on certain assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties, and other factors, some of which cannot be predicted or quantified, that may cause actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Forward-looking statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” “continue,” “confidence,” or words of similar meaning or other statements concerning opinions or judgment of the Company and our management about future events. Although we believe that our expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of our existing knowledge of our business and operations, there can be no assurance that actual future results, performance, or achievements of, or trends affecting, us will not differ materially from any projected future results, performance, achievements or trends expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of or changes in:

market interest rates and their related impacts on macroeconomic conditions, customer and client behavior, our funding costs and our loan and securities portfolios;
inflation and its impacts on economic growth and customer and client behavior;
adverse developments in the financial industry generally, such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer and client behavior;
the sufficiency of liquidity;

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general economic and financial market conditions, in the United States generally and particularly in the markets in which we operate and which our loans are concentrated, including the effects of declines in real estate values, an increase in unemployment levels and slowdowns in economic growth;

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the failureimpact of purchase accounting with respect to close our previously announced merger with American National, when expected or at all because required regulatory, American National shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all, and the risk that any regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed merger;
the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;
any change in the purchase accounting assumptions used regarding the American National assets acquired and liabilities assumed to determine the fair value and credit marks, particularly in light of the current rising interest rate environment;marks;
the possibility that the anticipated benefits of the proposedour merger with American National, including anticipated cost savings and strategic gains, are not realized when expected or at all;
the proposed merger being more expensive or taking longer to complete than anticipated,all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where we do business, or as a result of other unexpected factors or events;
the diversion of management’s attention from ongoing business operations and opportunities do to the proposed merger;
potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed merger;our merger with American National;
the dilutive effect of sharesintegration of the Company’s common stock tobusiness and operations of American National may take longer or be issued at the completion of the proposed merger;more costly than anticipated;
changes in the Company’s or American National’s share price before closing;
monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of the Treasury and the Federal Reserve;
the quality or composition of our loan or investment portfolios and changes therein;
demand for loan products and financial services in our market areas;
our ability to manage our growth or implement our growth strategy;
the effectiveness of expense reduction plans;
the introduction of new lines of business or new products and services;
our ability to recruit and retain key employees;
real estate values in our lending area;
changes in accounting principles, standards, rules, and interpretations, and the related impact on our financial statements;
an insufficient ACL or volatility in the ACL resulting from the CECL methodology, either alone or as that may be affected by changing economic conditions, credit concentrations, inflation, changing interest rates, or other factors;
our liquidity and capital positions;
concentrations of loans secured by real estate, particularly commercial real estate;
the effectiveness of our credit processes and management of our credit risk;
our ability to compete in the market for financial services and increased competition from fintech companies;
technological risks and developments, and cyber threats, attacks, or events;
operational, technological, cultural, regulatory, legal, credit, and other risks associated with the exploration, consummation and integration of potential future acquisitions, whether involving stock or cash considerations;
the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, geopolitical conflicts or public health events (such as pandemics), and of governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of our borrowers to satisfy their obligations to us, on the value of collateral securing loans, on the demand for our loans or our other products and services, on supply chains and methods used to distribute products and services, on incidents of cyberattack and fraud, on our liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of our business operations and on financial markets and economic growth;
the discontinuation of LIBOR and its impact on the financial markets, and our ability to manage operational, legal, and compliance risks related to the discontinuation of LIBOR and implementation of one or more alternate reference rates;
performance by our counterparties or vendors;
deposit flows;
the availability of financing and the terms thereof;

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the level of prepayments on loans and mortgage-backed securities;
legislative or regulatory changes and requirements;
actual or potential claims, damages, and fines related to litigation or government actions, which may result in, among other things, additional costs, fines, penalties, restrictions on our business activities, reputational harm, or other adverse consequences;
the effects of changes in federal, state or local tax laws and regulations;
any event or development that would cause us to conclude that there was an impairment of any asset, including intangible assets, such as goodwill; and
other factors, many of which are beyond our control.

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 20222023 Form 10-K Part II, Item 1A, “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2023 and March 31, 2023, and related disclosures in other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All risk factors and uncertainties described herein and therein should be considered in evaluating forward-looking statements, and all of the forward-looking statements made in this report are expressly qualified by the cautionary statements contained or

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referred to herein and therein. 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 our businesses or operations. Readers are cautioned not to rely too heavily on the forward-looking statements contained in this Quarterly Report, and undue reliance should not be placed on such forward-looking statements.Report. Forward-looking statements speak only as of the date they are made. We do not intend or assume any obligation to update, revise or clarify any forward-looking statements that may be made from time to time by or on behalf of the Company, whether as a result of new information, future events or otherwise.otherwise, except as required by law.

CRITICAL ACCOUNTING ESTIMATES

The Company’sWe prepare our consolidated financial statements are prepared based on the application of accounting and reporting policies in accordance with GAAP and conform to general practices within the banking industry. The Company’sOur financial position and results of operations are affected by management’s application of accounting policies, which require the use of estimates, assumptions, and judgments, which may prove inaccurate or are subject to variations. Changes in underlying factors, estimates, assumptions or judgements could result in material changes in the Company’sour consolidated financial position and/or results of operations.

Certain accounting policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. The Company hasWe have identified the ALLLallowance for loan and lease losses and fair value measurements as accounting policies that require the most difficult, subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change. Therefore, the Company evaluateswe evaluate these accounting policies and related critical accounting estimates on an ongoing basis and updatesupdate them as needed. Management has discussed these accounting policies and critical accounting estimates summarized below with the Audit Committee of the Board of Directors.

Effective September 30, 2023, the Company implemented certain changes to its ALLL estimation methodology. These changes did not have a significant impact on the overall ALLL estimate. The ALLL represents the estimated balance that management considers adequate to absorb expected credit losses over the expected contractual life of the loan portfolio. The Company estimates the ALLL using a loan-level PD/LGD method for all loans.

Determining the appropriateness of the ALLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ALLL in future periods. There are both internal factors (i.e., loan balances, credit quality, and the contractual lives of loans) and external factors (i.e., economic conditions such as trends in housing prices, interest rates GDP, inflation, and unemployment) that can impact the ALLL estimate.

The Company considers a number of external economic variables in developing the ALLL. Prior to September 30, 2023, the most significant of these external economic variables was the Virginia unemployment rate. The Company now considers various national economic variables in developing the ALLL, including the national unemployment rate, national gross domestic product, national CRE pricing index, national home price index, and national retail sales. The national

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unemployment rate is used in all models regardless of the loan portfolio type, and a second economic variable is used in each cohort model depending on the loan portfolio type. The ALLL quantitative estimate is sensitive to changes in the economic variable forecasts during the two-year reasonable and supportable period. In determining forecasted expected losses, the Company uses multiple Moody’s economic variable forecasts and applies probability weights to the related economic scenarios. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans, and therefore the appropriateness of the ALLL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ALLL because a wide variety of factors and inputs are considered in estimating the ALLL and changes in those factors and inputs may not occur at the same rate and may not be consistent across all loan types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

The Company reviews its ALLL estimation process regularly for appropriateness as the economic and internal environment are constantly changing. While the ALLL estimate represents management’s current estimate of expected credit losses, due to uncertainty surrounding internal and external factors, there is potential that the estimate may not be adequate over time to cover credit losses in the portfolio. While management uses available information to estimate expected losses on loans, future changes in the ALLL may be necessary based on changes in portfolio composition, portfolio credit quality, economic conditions and/or other factors.

The Company providesWe provide additional information on itsabout our critical accounting estimates in Note 1 “Summary of Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in its 2022our 2023 Form 10-K. The Company’sThere have been no material changes to our critical accounting policies, or the estimates made pursuant to those policies during the most recent quarter from those disclosed in our 2023 Form 10-K. Our 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“Financial Statements and Supplementary Data"Data” of the Company’s 2022our 2023 Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS (ISSUED BUT NOT FULLY ADOPTED)

In MarchNovember 2023, the FASB issued ASU No. 2023-022023-07 Investments—Equity MethodSegment Reporting (Topic 280): Improvements to Reportable Segment

Disclosures, which requires enhanced segment reporting disclosures. This guidance requires that interim disclosures align to

the annual disclosure requirements and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. Priorintroduces additional disclosures intended to the issuance of ASU 2023-02, companies could only apply the proportional amortization method to low-income-housing tax credit structures. Topic 323 allows for the expansion of use of the proportional amortization method to all tax equity investments that meet certain conditions. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the income tax credits and other income tax benefits received and presents this net amount as a component of income tax expense (benefit).provide more insight into segment

operations. The amendments are effective for fiscal years beginning after December 15,14, 2023, includingand interim periods within those fiscal years. Early adoption is permitted. The Company evaluated

years beginning after December 15, 2024. We are evaluating the impact of ASU No. 2023-022023-07 on our consolidated financial

statements.

In December 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures.

This guidance requires enhanced disclosure for the rate reconciliation and concluded that it will not have a significantincome taxes paid disclosures and aligns the

guidance to SEC Regulation S-X disclosure requirements. The amendments are effective for annual periods beginning after

December 15, 2024. We are evaluating the impact of ASU No. 2023-09 on itsour consolidated financial statements.

ABOUT ATLANTIC UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (NYSE: AUB)(NYSE: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 109135 branches and 123approximately 150 ATMs located throughout Virginia and in portions of Maryland and North Carolina as of September 30, 2023.April 1, 2024. Certain non-bank financial services affiliates of Atlantic Union Bank include: Atlantic Union Equipment Finance, Inc., which provides equipment financing; Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

Shares of the Company’sour common stock are traded on the New York Stock Exchange under the symbol "AUB". Additional information is available on the Company’sour website at https://investors.atlanticunionbank.com. The information contained on the Company’sour website is not a part of or incorporated into this Quarterly Report.

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RESULTS OF OPERATIONS

INDUSTRY IMPACTSMerger with American National Bankshares Inc.

On April 1, 2024, we completed our merger with American National, the holding company for American National Bank and Trust Company. Under the terms of the merger agreement, at the effective time of the merger, each outstanding share of American National common stock was converted into 1.35 shares of our common stock. With the acquisition of American National, we acquired 26 branches, deepening our presence in Central, Western and Southern Virginia and providing entry into North Carolina’s Piedmont Triad region and Raleigh.

We incurred pre-tax merger costs of approximately $1.9 million and $1.0 million, respectively, for the quarters ended March 31, 2024 and December 31, 2023 related to the merger with American National. Because the merger closed on April 1, 2024, the historical consolidated financial results of American National are not included in our results of operations for the quarter ended March 31, 2024.

Industry Events

In March and Aprilthe spring of 2023, the banking industry experienced significant volatility due to three high-profile bank failures. These bank failures resulted in significant concerns within the banking industry related to liquidity, deposit outflows, and unrealized losses on investment securities. These concerns and volatility in the banking industry may persist if other industry participants experience similar high-profile financial challenges or if other banks are closed by federal or state banking regulators. These events in the banking industry havebank failures reinforced the importance of maintaining access to diverse sources of funding and the benefits of a robust and stable deposit base. Volatility in the banking industry may persist if other industry participants experience similar high-profile financial challenges if other banks are closed by federal or state banking regulators, or if other unforeseen sources of financial stress materialize.

In light of the bank closures and uncertainty in the banking industry, a continued rising interest rate environment, and persistent concerns about recessionary conditions in the U.S. economy, the Company continues to actively monitor balance sheet trends, deposit flows, and liquidity needs to ensure that the Company and the BankWe are able to meet the needs of the Bank’s customers and maintain financial flexibility. During the first nine months of 2023, the Company’s LHFI, net of deferred fees and costs, and total deposits increased from December 31, 2022 by $834.5 million and $854.8 million, respectively, and the Company’s short-term borrowings decreased by $688.9 million from December 31, 2022. As of September 30, 2023, the Company estimates that approximately 73.2% of the Company’s deposits were insured or collateralized, and that the Company maintained available liquidity sources to cover approximately 132% of uninsured and uncollateralized deposits. In addition, to further bolster the Company’s funding position, the Company augmented customer deposit growth by also increasing brokered deposits to $516.7 million at September 30, 2023.

Despite the negative developments within the broader banking industry during the first nine months of 2023, the Company’s and the Bank’s regulatory capital ratios continued to exceed the standards to be considered well-capitalized under regulatory requirements. See “Capital Resources” within this Item 2 for additional information about the Company’s regulatory capital.

The Company is continually monitoring the impact of other various global and national events on the Company’sour results of operations and financial condition, including inflation, and rising interest rates. Inflation has risen, although at a slower pace inrates and geopolitical conflicts. The timing and impact of inflation, market interest rates, and the second halfcompetitive landscape of 2023, as a resultdeposits on our business and results of growth in economic activityoperations will depend on future developments, which are highly uncertain and demand for goods and services, as well as labor shortages and global supply chain issues.difficult to predict. In an effort to combat inflation, the FOMC increased the Federal Funds target rates throughout 2022 and 2023 to its current range of 5.25% to 5.50%. These developments helped drive the increased deposit costs that we continue to experience. While inflation eased in 2023, it remains elevated over the FOMC’s long-run target of 2%. The FOMC has noted that it will continue to assess additional information and its implications for monetary policy, and in determining future actions with respect to the target rates, the FOMC will take into account the cumulative tighteningconsider a wide range of monetary policy, the lags with which monetary policy affects economic activityinformation, including readings on labor market conditions, inflation pressures and inflation and economicexpectations, and financial and international developments. The FOMC also left open the potential for decreases to the target rates in 2024, none of which were executed in the first quarter of 2024, and confirmed the continued reduction to the Federal Reserve’s holdings of U.S. Treasury securities and agency debt and agency MBS. These developments helped drive the meaningful increase in deposit costs and deposit competition that the Company continues to experience. The Company anticipates that the net impact of these factors will result in a continued contraction of its net interest margin. The timing and impact of inflation, market interest rates, and the competitive landscape of deposits on the Company's business and results of operations will depend on future developments, which are highly uncertain and difficult to predict. The CompanyWe will continue to deploy various asset liability management strategies to seek to manage the Company'sour risk related to interest rate fluctuations.fluctuations and monitor balance sheet trends, deposit flows, and liquidity needs to ensure that we are able to meet the needs of our customers and maintain financial flexibility. Refer to “Liquidity” within this Item 2 for additional information about the Company’sour liquidity and “Quantitative and Qualitative Disclosures about Market Risk” in Part II,I, Item 3 of this Quarterly Report for additional information about the Company’s interest rate sensitivity.

RECENT STRATEGIC ACTIONSAt March 31, 2024, our LHFI (net of deferred fees and costs) and total deposits increased from December 31, 2023 by $216.6 million and $460.3 million, respectively, and our short-term borrowings decreased by $254.4 million from December 31, 2023.

Merger with American National Bankshares Inc.As of March 31, 2024, we estimate that approximately 70.5% of our deposits were insured or collateralized, and that we maintained available liquidity sources to cover approximately 106.1% of uninsured and uncollateralized deposits. In addition, to further bolster our funding position, we augmented customer deposit growth by also increasing brokered deposits to $665.3 million at March 31, 2024, an increase of $116.9 million from December 31, 2023.

On July 24, 2023,Our regulatory capital ratios continued to exceed the Company and American National entered into a merger agreement. Under the merger agreement, American National will merge with and into the Company, with the Company continuing as the surviving entity. Immediately following the merger, American National Bank and Trust Company will merge with and into the Bank, with the Bank continuing as the surviving bank. Subjectstandards to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding share of American National common stock will be converted into the right to receive 1.35 shares of the Company’s common stock. The merger agreement was unanimously approved by the boards of directors of the Company and American National, and is subject to customary closing conditions, including receipt of requiredconsidered well-capitalized under regulatory approvals and American National shareholder approval. The proposed merger is expected to close in the first quarter of 2024.requirements. See “Capital Resources” within this Item 2 for additional information about our regulatory capital.

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During the third quarter of 2023, the Company incurred pre-tax merger costs of approximately $2.0 million related to the proposed merger with American National.

Cost Saving Initiatives

As previously disclosed, the Company initiated a series of strategic cost saving measures during the second quarter of 2023 that is expected to reduce our annual expense run rate by approximately $17 million. As a result of these measures, the Company incurred pre-tax expenses of $8.7 million in the third quarter of 2023 and $3.9 million in the second quarter of 2023, principally composed of severance charges related to headcount reductions, costs related to modifying certain third-party vendor contracts, and charges for exiting certain leases.

Sale-Leaseback Transaction

On September 20, 2023, the Bank executed a sale-leaseback transaction and sold 27 properties, which consisted of 25 branches and a drive thru and parking lot, each adjacent to a sold branch, to a single purchaser for an aggregate purchase price of $45.8 million. Concurrently, the Bank entered into absolute net lease agreements with the purchaser under which the Bank will lease each of the properties for an initial term of 17 years with specified renewal options. The sale-leaseback transaction resulted in a pre-tax gain of approximately $27.7 million during the third quarter of 2023, after transaction-related expenses. Refer to Note 5 “Leases” within Part I, Item 1 “Financial Statements” of this Quarterly Report for additional information.

AFS Securities Sales

Concurrent with the sale-leaseback transaction, also on September 20, 2023, the Company restructured a portion of its investment portfolio by selling low yielding AFS securities with a book value of $228.3 million, resulting in a pre-tax net loss of $27.7 million. The net proceeds from the securities sale transaction were reinvested into higher yielding AFS securities at the end of the third quarter of 2023.

During the first quarter of 2023, the Company executed a balance sheet repositioning strategy and sold AFS securities with a total book value of $505.7 million at a pre-tax loss of $13.4 million and used the net proceeds to reduce existing high costing FHLB borrowings. The deleverage strategy provided the Company with improved liquidity, enhanced tangible common equity, and additional run rate earnings.

SUMMARY OF FINANCIAL RESULTS

Executive Overview

ThirdFirst Quarter Net Income & Performance Metrics

Net income available to common shareholders was $51.1$46.8 million and basic and diluted EPS was $0.68$0.62 for the thirdfirst quarter of 2023,2024, compared to $55.1$32.7 million and $0.74$0.44 for the thirdfirst quarter of 2022.2023.
Adjusted operating earnings available to common shareholders(+), which excludes (net of taxes) expenses incurred associated with our strategic cost saving initiatives principally composed of severance charges, merger-related costs ($1.6 million in 2024), a FDIC special assessment ($664,000 in 2024), a legal reserve related to headcount reductions, costs related to modifying certain third-party vendor contracts, and charges for exiting certain leasesour previously disclosed settlement with the CFPB ($6.94.0 million in 2023), merger-related costs associated with the American National merger ($2.0 million in 2023),and gains or losses on the sale of securities ($21.82,000 gains in 2024 and $10.6 million in 2023), and the gain related to the sale-leaseback transaction ($21.9 millionlosses in 2023), was $59.8$49.0 million and adjusted diluted operating EPS (+) was $0.80$0.65 for the quarter ended September 30, 2023,March 31, 2024, compared to adjusted operating earnings available to common shareholders(+) of $55.1$47.2 million and diluted adjusted operating EPS(+) of $0.74 for the third quarter of 2022.

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Nine Month Net Income & Performance Metrics

Net income available to common shareholders was $136.0 million and basic and diluted EPS was $1.81$0.63 for the first nine monthsquarter of 2023, compared to $155.1 million and $2.07 for the first nine months of 2022.
Adjusted operating earnings available to common shareholders(+), which excludes (net of taxes) expenses incurred associated with our strategic cost saving initiatives ($10.0 million in 2023), merger-related costs associated with the American National merger ($2.0 million in 2023), the legal reserve associated with an ongoing regulatory matter as previously disclosed ($4.0 million in 2023), strategic branch closing and facility consolidation costs ($4.4 million in 2022), losses on the sale of securities ($32.4 million in 2023 and $2,000 in 2022), the gain related to the sale-leaseback transaction ($21.9 million in 2023), and the gain on sale of DHFB ($8.0 million in 2022), was $162.4 million and adjusted diluted operating EPS (+) was $2.17 for the nine months ended September 30, 2023, compared to adjusted operating earnings available to common shareholders(+) of $151.5 million and diluted adjusted operating EPS(+) of $2.02 for the first nine months of 2022.2023.

Balance Sheet

Total assets were $20.7$21.4 billion at September 30, 2023,March 31, 2024, an increase of $275.1$211.9 million or approximately 1.8%4.0% (annualized) from December 31, 2022.2023. Total assets increased during the first nine monthsquarter of 20232024 primarily due to a $834.5$216.6 million or 5.6% (annualized) increase in LHFI net(net of deferred fees and costs, driven primarily by increases in the commercial and industrial, commercial real estate non-owner occupied, and multifamily real estate portfolios, partially offset by a $676.8 million decrease in the investment securities portfolio, primarily due to the sales of AFS securities executed during the period, as well as a decline in the market value of the AFS securities portfolio, due to the impact of market interest rate fluctuations.costs) from December 31, 2023.
Total LHFI, net of deferred fees and costs, were $15.3 billion at September 30, 2023, an increase of $834.5 million or 7.7% (annualized) from December 31, 2022.
Total investments were $3.0$3.1 billion at September 30, 2023,March 31, 2024, a decrease of $676.8$42.7 million from December 31, 2022.2023 mainly driven by higher unrealized losses on AFS securities. AFS securities totaled $2.1$2.2 billion at September 30, 2023, compared to $2.7 billion atboth March 31, 2024 and December 31, 2022.2023. At September 30, 2023,March 31, 2024, total net unrealized losses on the AFS securities portfolio were $523.1$410.9 million, an increase of $60.6$26.6 million from $462.5$384.3 million at December 31, 2022.2023. HTM securities are carried at cost and totaled $843.3$828.9 million at September 30, 2023,March 31, 2024, compared to $847.7$837.4 million at December 31, 20222023 and had net unrealized losses of $81.2$37.6 million at September 30, 2023,March 31, 2024, an increase of $35.4$8.3 million from $45.8$29.3 million at December 31, 2022, due primarily to changes in interest rates and market conditions during the first nine months of 2023.
At September 30, 2023,March 31, 2024, total deposits were $16.8$17.3 billion, an increase of $854.8$460.3 million or approximately 7.2%11.0% (annualized) from December 31, 2022,2023, due to a $1.6$578.3 billion increase in interest-bearing deposits, which included approximately $516.7$116.9 million in brokered deposits, partially offset by a $738.3$118.0 million decrease in demand deposits, as customers continued to move funds from lower to higher yielding deposit products.

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Net Interest IncomeNET INTEREST INCOME

Net interest income, which represents theour principal source of revenue, for the Company, is the amount by which interest income exceeds interest expense. The netOur interest margin isrepresents net interest income expressed as a percentage of average earning assets. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level ofour net interest income, the net interest margin, and net income.

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:presented (dollars in thousands):

For the Three Months Ended

For the Three Months Ended

September 30, 

March 31, 

    

2023

    

2022

    

Change

    

    

2024

    

2023

    

Change

    

(Dollars in thousands)

Average interest-earning assets

$

18,462,505

$

17,879,222

$

583,283

 

  

$

19,089,393

$

18,238,088

$

851,305

 

  

Interest and dividend income

$

247,159

$

171,156

$

76,003

 

  

$

262,915

$

217,546

$

45,369

 

  

Interest and dividend income (FTE) (+)

$

250,903

$

174,998

$

75,905

  

$

266,636

$

221,334

$

45,302

  

Yield on interest-earning assets

 

5.31

%  

 

3.80

%  

 

151

bps

 

5.54

%  

 

4.84

%  

 

70

bps

Yield on interest-earning assets (FTE) (+)

 

5.39

%  

 

3.88

%  

 

151

 

bps

 

5.62

%  

 

4.92

%  

 

70

 

bps

Average interest-bearing liabilities

$

13,481,946

$

11,867,217

$

1,614,729

 

  

$

14,324,634

$

12,846,109

$

1,478,525

 

  

Interest expense

$

95,218

$

20,441

$

74,777

 

  

$

115,090

$

64,103

$

50,987

 

  

Cost of interest-bearing liabilities

 

2.80

%  

 

0.68

%  

 

212

 

bps

 

3.23

%  

 

2.02

%  

 

121

 

bps

Cost of funds

 

2.04

%  

 

0.45

%  

 

159

 

bps

 

2.43

%  

 

1.42

%  

 

101

 

bps

Net interest income

$

151,941

$

150,715

$

1,226

 

  

$

147,825

$

153,443

$

(5,618)

 

  

Net interest income (FTE) (+)

$

155,685

$

154,557

$

1,128

 

  

$

151,546

$

157,231

$

(5,685)

 

  

Net interest margin

 

3.27

%  

 

3.34

%  

 

(7)

 

bps

 

3.11

%  

 

3.41

%  

 

(30)

 

bps

Net interest margin (FTE) (+)

 

3.35

%  

 

3.43

%  

 

(8)

 

bps

 

3.19

%  

 

3.50

%  

 

(31)

 

bps

For the thirdfirst quarter of 2023,2024, our net interest income was $151.9$147.8 million, an increasea decrease of $1.2$5.6 million from the thirdfirst quarter of 2022. For the third quarter of 2023, net2023. Net interest income (FTE)(+) for the first quarter of 2024 was $155.7$151.5 million, an increasea decrease of $1.1$5.7 million from the thirdfirst quarter of 2022.2023. In the thirdfirst quarter of 2023,2024, our net interest margin decreased 730 bps to 3.27%3.11% from 3.34%3.41% in the thirdfirst quarter of 2022,2023, and our net interest margin (FTE)(+) decreased 831 bps to 3.35%3.19% in the thirdfirst quarter of 20232024 from 3.43%3.50% for the same period of 2022.2023. The decreases in net interest margin and net interest margin (FTE)(+) were primarily driven by an increase in interest expense primarily due to higher deposit costs resulting from increases in market interest rates and changes in the deposit mix, as depositors migratedcontinued to migrate to higher cost interest bearing deposit accounts, during the third quarter of 2023,and higher average deposit balances, as well as higher borrowing costs due to increased short-term borrowings and funding costs associated with increased market interest rates. These increases in interest expense were partially offset by higher loan yields due to increased short-termmarket interest rates, impacting variable rate loans, as well as net loan growth.

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For the Nine Months Ended

September 30, 

    

2023

    

2022

    

Change

    

(Dollars in thousands)

Average interest-earning assets

$

18,264,957

$

17,803,550

$

461,407

 

  

Interest and dividend income

$

694,952

$

458,367

$

236,585

 

  

Interest and dividend income (FTE) (+)

$

706,150

$

469,122

$

237,028

 

  

Yield on interest-earning assets

 

5.09

%  

 

3.44

%  

 

165

 

bps

Yield on interest-earning assets (FTE) (+)

 

5.17

%  

 

3.52

%  

 

165

 

bps

Average interest-bearing liabilities

$

13,103,073

$

11,752,110

$

1,350,963

 

  

Interest expense

$

237,483

$

37,954

$

199,529

 

  

Cost of interest-bearing liabilities

 

2.42

%  

 

0.43

%  

 

199

 

bps

Cost of funds

 

1.74

%  

 

0.28

%  

 

146

 

bps

Net interest income

$

457,469

$

420,413

$

37,056

 

  

Net interest income (FTE) (+)

$

468,667

$

431,168

$

37,499

 

  

Net interest margin

 

3.35

%  

 

3.16

%  

 

19

 

bps

Net interest margin (FTE) (+)

 

3.43

%  

 

3.24

%  

 

19

 

bps

For the first nine months of 2023, net interest income was $457.5 million, an increase of $37.1 million from the same period of 2022. For the first nine months of 2023, net interest income (FTE)(+) was $468.7 million, an increase of $37.5 million from the same period of 2022. In the first nine months of 2023, net interest margin increased 19 bps to 3.35% from 3.16% in the first nine months of 2022, and net interest margin (FTE)(+) increased 19 bps to 3.43% in the first nine months of 2023 from 3.24% in the first nine months of 2022. The increases in net interest margin and net interest margin (FTE)(+) were primarily driven by higher loan yields due to increased short-term interest rates impacting variable rate loans, as well as net loan growth. These increases were partially offset by an increase in interest expense primarily due to higher deposit costs resulting from increases in market interest rates and changes in the deposit mix as depositors migrated to higher cost interest bearing deposit accounts during the nine months ended September 30, 2023, as well as higher borrowing costs due to increased short-term borrowings and funding costs associated with increased market interest rates.

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The following tables showtable shows 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 indicatedended (dollars in thousands):

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

For the Three Months Ended September 30, 

 

For the Three Months Ended March 31, 

 

2023

2022

 

2024

2023

 

    

    

Interest

    

    

    

Interest

    

 

    

    

Interest

    

    

    

Interest

    

 

Average

Income /

Yield /

Average

Income /

Yield /

 

Average

Income /

Yield /

Average

Income /

Yield /

 

��

Balance

Expense (1)

Rate (1)(2)

Balance

Expense (1)

Rate (1)(2)

 

(Dollars in thousands)

Balance

Expense (1)

Rate (1)(2)

Balance

Expense (1)

Rate (1)(2)

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Securities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Taxable

$

1,799,675

$

16,055

 

3.54

%  

$

2,193,279

$

14,750

 

2.67

%

$

1,895,820

$

18,879

 

4.01

%  

$

2,038,215

$

16,753

 

3.33

%

Tax-exempt

 

1,301,983

 

10,653

 

3.25

%  

 

1,625,328

 

13,661

 

3.33

%

 

1,257,736

 

10,324

 

3.30

%  

 

1,429,346

 

11,782

 

3.34

%

Total securities

 

3,101,658

 

26,708

 

3.42

%  

 

3,818,607

 

28,411

 

2.95

%

 

3,153,556

 

29,203

 

3.72

%  

 

3,467,561

 

28,535

 

3.34

%

LHFI, net of deferred fees and costs(3)

 

15,139,761

 

222,698

 

5.84

%  

 

13,733,447

 

145,433

 

4.20

%

 

15,732,599

 

235,832

 

6.03

%  

 

14,505,611

 

191,178

 

5.35

%

Other earning assets

 

221,086

 

1,497

 

2.69

%  

 

327,168

 

1,154

 

1.40

%

 

203,238

 

1,601

 

3.17

%  

 

264,916

 

1,621

 

2.48

%

Total earning assets

 

18,462,505

$

250,903

 

5.39

%  

 

17,879,222

$

174,998

 

3.88

%

 

19,089,393

$

266,636

 

5.62

%  

 

18,238,088

$

221,334

 

4.92

%

Allowance for loan and lease losses

 

(121,229)

 

  

 

(104,746)

 

  

 

  

 

(133,090)

 

  

 

(112,172)

 

  

 

  

Total non-earning assets

 

2,254,913

 

  

 

2,206,024

 

  

 

  

 

2,266,453

 

  

 

2,258,435

 

  

 

  

Total assets

$

20,596,189

 

  

$

19,980,500

 

  

 

  

$

21,222,756

 

  

$

20,384,351

 

  

 

  

Liabilities and Stockholders' Equity:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

8,697,801

$

57,378

 

2.62

%  

$

8,247,650

$

11,342

 

0.55

%

$

8,952,119

$

65,254

 

2.93

%  

$

8,344,900

$

38,315

 

1.86

%

Regular savings

 

964,971

 

499

 

0.21

%  

 

1,171,071

 

64

 

0.02

%

 

900,580

 

501

 

0.22

%  

 

1,087,435

 

364

 

0.14

%

Time deposits

 

2,914,004

 

25,713

 

3.50

%  

 

1,745,224

 

3,980

 

0.90

%

 

3,459,138

 

36,109

 

4.20

%  

 

2,291,530

 

13,155

 

2.33

%

Total interest-bearing deposits

 

12,576,776

 

83,590

 

2.64

%  

 

11,163,945

 

15,386

 

0.55

%

 

13,311,837

 

101,864

 

3.08

%  

 

11,723,865

 

51,834

 

1.79

%

Other borrowings

 

905,170

 

11,628

 

5.10

%  

 

703,272

 

5,055

 

2.85

%

 

1,012,797

 

13,226

 

5.25

%  

 

1,122,244

 

12,269

 

4.43

%

Total interest-bearing liabilities

 

13,481,946

$

95,218

 

2.80

%  

 

11,867,217

$

20,441

 

0.68

%

 

14,324,634

$

115,090

 

3.23

%  

 

12,846,109

$

64,103

 

2.02

%

Noninterest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Demand deposits

 

4,218,835

 

  

 

5,324,279

 

  

 

  

 

3,835,344

 

  

 

4,693,347

 

  

 

  

Other liabilities

 

448,506

 

  

 

352,005

 

  

 

  

 

494,535

 

  

 

421,295

 

  

 

  

Total liabilities

 

18,149,287

 

  

 

17,543,501

 

  

 

  

 

18,654,513

 

  

 

17,960,751

 

  

 

  

Stockholders' equity

 

2,446,902

 

  

 

2,436,999

 

  

 

  

 

2,568,243

 

  

 

2,423,600

 

  

 

  

Total liabilities and stockholders' equity

$

20,596,189

 

  

$

19,980,500

 

  

 

  

$

21,222,756

 

  

$

20,384,351

 

  

 

  

Net interest income

$

155,685

 

  

 

  

$

154,557

 

  

Net interest income (FTE)(+)

$

151,546

 

  

 

  

$

157,231

 

  

Interest rate spread

 

2.59

%  

 

  

 

  

 

3.20

%  

 

2.39

%  

 

  

 

  

 

2.90

%  

Cost of funds

 

2.04

%  

 

  

 

  

 

0.45

%  

 

2.43

%  

 

  

 

  

 

1.42

%  

Net interest margin (FTE)(+)

 

3.35

%  

 

  

 

  

 

3.43

%  

 

3.19

%  

 

  

 

  

 

3.50

%  

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

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

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

-62-

Table of Contents

For the Nine Months Ended September 30, 

 

2023

2022

 

    

    

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

$

1,900,154

$

48,373

 

3.40

%  

$

2,375,933

$

43,110

 

2.43

%

Tax-exempt

 

1,347,133

 

33,189

 

3.29

%  

 

1,605,375

 

40,366

 

3.36

%

Total securities

 

3,247,287

 

81,562

 

3.36

%  

 

3,981,308

 

83,476

 

2.80

%

LHFI, net of deferred fees and costs(3)

 

14,799,520

 

620,328

 

5.60

%  

 

13,521,507

 

383,799

 

3.79

%

Other earning assets

 

218,150

 

4,260

 

2.61

%  

 

300,735

 

1,847

 

0.82

%

Total earning assets

 

18,264,957

$

706,150

 

5.17

%  

 

17,803,550

$

469,122

 

3.52

%

Allowance for loan and lease losses

 

(117,048)

 

  

 

(102,783)

 

  

 

  

Total non-earning assets

 

2,249,609

 

  

 

2,172,877

 

  

 

  

Total assets

$

20,397,518

 

  

$

19,873,644

 

  

 

  

Liabilities and Stockholders' Equity:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

8,478,017

$

142,646

 

2.25

%  

$

8,203,629

$

15,748

 

0.26

%

Regular savings

 

1,021,875

 

1,294

 

0.17

%  

 

1,161,145

 

175

 

0.02

%

Time deposits

 

2,571,114

 

56,750

 

2.95

%  

 

1,726,341

 

10,043

 

0.78

%

Total interest-bearing deposits

 

12,071,006

 

200,690

 

2.22

%  

 

11,091,115

 

25,966

 

0.31

%

Other borrowings

 

1,032,067

 

36,793

 

4.77

%  

 

660,995

 

11,988

 

2.42

%

Total interest-bearing liabilities

 

13,103,073

$

237,483

 

2.42

%  

 

11,752,110

$

37,954

 

0.43

%

Noninterest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Demand deposits

 

4,428,039

 

  

 

5,306,675

 

  

 

  

Other liabilities

 

422,573

 

  

 

301,337

 

  

 

  

Total liabilities

 

17,953,685

 

  

 

17,360,122

 

  

 

  

Stockholders' equity

 

2,443,833

 

  

 

2,513,522

 

  

 

  

Total liabilities and stockholders' equity

$

20,397,518

 

  

$

19,873,644

 

  

 

  

Net interest income

$

468,667

 

  

 

  

$

431,168

 

  

Interest rate spread

 

2.75

%  

 

  

 

  

 

3.09

%  

Cost of funds

 

1.74

%  

 

  

 

  

 

0.28

%  

Net interest margin (FTE)(+)

 

3.43

%  

 

  

 

  

 

3.24

%  

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

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

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

-63--49-

Table of Contents

The Volume Rate Analysis table below presents changes in net interest income (FTE)(+) 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 for the three and nine monthsperiods ended September 30, 2023 and 2022 (dollars in thousands):

Three Months Ended

 

Nine Months Ended

Three Months Ended

September 30, 2023 vs. September 30, 2022

 

September 30, 2023 vs. September 30, 2022

March 31, 2024 vs. March 31, 2023

Increase (Decrease) Due to Change in:

 

Increase (Decrease) Due to Change in:

Increase (Decrease) Due to Change in:

    

Volume

    

Rate

    

Total

 

Volume

    

Rate

    

Total

    

Volume

    

Rate

    

Total

Earning Assets:

Securities:

Taxable

$

(2,954)

$

4,259

$

1,305

$

(9,787)

$

15,050

$

5,263

$

(1,232)

$

3,358

$

2,126

Tax-exempt

 

(2,654)

 

(354)

 

(3,008)

 

(6,377)

 

(800)

 

(7,177)

 

(1,408)

 

(50)

 

(1,458)

Total securities

 

(5,608)

 

3,905

 

(1,703)

 

(16,164)

 

14,250

 

(1,914)

 

(2,640)

 

3,308

 

668

Loans, net(1)

 

16,100

 

61,165

 

77,265

 

39,136

 

197,393

 

236,529

 

17,018

 

27,636

 

44,654

Other earning assets

 

(464)

 

807

 

343

 

(631)

 

3,044

 

2,413

 

(426)

 

406

 

(20)

Total earning assets

$

10,028

$

65,877

$

75,905

$

22,341

$

214,687

$

237,028

$

13,952

$

31,350

$

45,302

Interest-Bearing Liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

652

$

45,384

$

46,036

$

545

$

126,353

$

126,898

$

2,968

$

23,971

$

26,939

Regular savings

 

(13)

 

448

 

435

 

(23)

 

1,142

 

1,119

 

(71)

 

208

 

137

Time deposits(1)

 

4,112

 

17,621

 

21,733

 

6,960

 

39,747

 

46,707

 

8,807

 

14,147

 

22,954

Total interest-bearing deposits

 

4,751

 

63,453

 

68,204

 

7,482

 

167,242

 

174,724

 

11,704

 

38,326

 

50,030

Other borrowings(1)

 

1,757

 

4,816

 

6,573

 

9,119

 

15,686

 

24,805

 

(1,274)

 

2,231

 

957

Total interest-bearing liabilities

 

6,508

 

68,269

 

74,777

 

16,601

 

182,928

 

199,529

 

10,430

 

40,557

 

50,987

Change in net interest income (FTE)(+)

$

3,520

$

(2,392)

$

1,128

$

5,740

$

31,759

$

37,499

$

3,522

$

(9,207)

$

(5,685)

(1) The rate-related changes in interest income on loans, deposits, and other borrowings include the impact of lower accretion of the acquisition-related fair market value adjustments, which are detailed below.


The impact of net accretion related to acquisition accounting fair value adjustments for the first, second, and third quarters of 2022 and 2023 are reflected in the following table (dollars in thousands):

The impact of net accretion related to acquisition accounting fair value adjustments for the quarters ended March 31, 2024 and 2023 are reflected in the following table (dollars in thousands):

    

    

    

    

    

    

    

    

Loan

Deposit

Borrowings

Loan

Deposit

Borrowings

Accretion

Amortization

Amortization

Total

Accretion

Amortization

Amortization

Total

For the quarter ended March 31, 2022

$

2,253

$

(10)

(203)

$

2,040

For the quarter ended June 30, 2022

2,879

(11)

(207)

2,661

For the quarter ended September 30, 2022

1,326

(11)

(209)

1,106

For the quarter ended March 31, 2023

1,106

(14)

(209)

883

$

1,106

$

(14)

$

(209)

$

883

For the quarter ended June 30, 2023

1,073

(7)

(213)

853

For the quarter ended September 30, 2023

1,300

(6)

(215)

1,079

For the quarter ended March 31, 2024

819

(1)

(216)

602

-64--50-

Table of Contents

Noninterest Income

For the Three Months Ended

 

September 30, 

Change

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

Noninterest income:

Service charges on deposit accounts

$

8,557

$

6,784

$

1,773

26.1

%

Other service charges, commissions, and fees

 

2,632

 

1,770

 

862

48.7

%

Interchange fees

 

2,314

 

2,461

 

(147)

(6.0)

%

Fiduciary and asset management fees

 

4,549

 

4,134

 

415

10.0

%

Mortgage banking income

 

666

 

1,390

 

(724)

(52.1)

%

Loss on sale of securities

(27,594)

(27,594)

NM

Bank owned life insurance income

 

2,973

 

3,445

 

(472)

(13.7)

%

Loan-related interest rate swap fees

 

2,695

 

2,050

 

645

31.5

%

Other operating income

 

30,302

 

3,550

 

26,752

NM

Total noninterest income

$

27,094

$

25,584

$

1,510

5.9

%

NONINTEREST INCOME

NoninterestThree Months Ended March 31, 2024 and 2023

March 31, 

Change

 

    

2024

    

2023

    

$

%

 

(Dollars in thousands)

 

Noninterest income:

Service charges on deposit accounts

$

8,569

$

7,902

$

667

8.4

%

Other service charges, commissions and fees

 

1,731

 

1,746

 

(15)

(0.9)

%

Interchange fees

 

2,294

 

2,325

 

(31)

(1.3)

%

Fiduciary and asset management fees

 

4,838

 

4,262

 

576

13.5

%

Mortgage banking income

 

867

 

854

 

13

1.5

%

Gain (loss) on sale of securities

3

(13,400)

13,403

NM

Bank owned life insurance income

 

3,245

 

2,828

 

417

14.7

%

Loan-related interest rate swap fees

 

1,216

 

1,439

 

(223)

(15.5)

%

Other operating income

 

2,789

 

1,672

 

1,117

66.8

%

Total noninterest income

$

25,552

$

9,628

$

15,924

165.4

%

NM = Not Meaningful

Our noninterest income increased $1.5$15.9 million or 5.9% to $27.1 million for the quarter ended September 30, 2023, compared165.4% to $25.6 million for the quarter ended September 30, 2022,March 31, 2024, compared to $9.6 million for the quarter ended March 31, 2023, primarily driven by a $27.7$13.4 million gain related to the sale-leaseback transaction, included within other operating income, and a $1.8 million increase in service charges on deposit accounts, partially offset by a $27.6 million lossof losses incurred on the sale of AFS securities executed in the thirdfirst quarter of 2023.2023 and a $1.1 million increase in other operating income primarily due to an increase in equity method investment income.

AdjustedOur adjusted operating noninterest income,(+) which excludes gains and losses on sale of securities ($27.6 million(gains of $3,000 in 2023)2024 and the gain related to the sale-leaseback transaction ($27.7losses of $13.4 million in 2023), increased $1.4$2.5 million or 5.5%10.9% to $27.0$25.5 million for the quarter ended September 30, 2023,March 31, 2024, compared to $25.6$23.0 million for the quarter ended September 30, 2022.March 31, 2023. The increase in adjusted operating noninterest income(+) was primarily driven by a $1.8$1.1 million increase in other operating income discussed above, a $667,000 increase in service charges on deposit accounts a $862,000 increase in other service charges, commissions, and fees due primarily to a merchantimproved margins in treasury management services, vendor contract signing bonus, and a $645,000$576,000 increase in loan-related interest rate swapfiduciary and asset management fees due to several new swap transactions. These increasesan increase in adjusted operating noninterest incomeassets under management.(+)

were partially offset by a $948,000 decrease in other operating income primarily due to a decline in equity method investment income, and a $724,000 decrease in mortgage banking income due to a decline in mortgage loan origination volumes and a decrease in gain on sale margins due to increases in market interest rates.

-65--51-

Table of Contents

For the Nine Months Ended

 

September 30, 

Change

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

Noninterest income:

Service charges on deposit accounts

$

24,577

$

22,421

$

2,156

9.6

%

Other service charges, commissions, and fees

 

6,071

 

5,134

 

937

18.3

%

Interchange fees

 

7,098

 

6,539

 

559

8.5

%

Fiduciary and asset management fees

 

13,169

 

18,329

 

(5,160)

(28.2)

%

Mortgage banking income

 

1,969

 

6,707

 

(4,738)

(70.6)

%

Loss on sale of securities

(40,992)

(2)

(40,990)

NM

Bank owned life insurance income

 

8,671

 

8,858

 

(187)

(2.1)

%

Loan-related interest rate swap fees

 

6,450

8,510

(2,060)

(24.2)

%

Other operating income

 

33,905

17,527

16,378

93.4

%

Total noninterest income

$

60,918

$

94,023

$

(33,105)

(35.2)

%

NONINTEREST EXPENSE

Three Months Ended March 31, 2024 and 2023

March 31, 

Change

 

    

2024

    

2023

    

$

%

 

(Dollars in thousands)

 

Noninterest expense:

Salaries and benefits

$

61,882

$

60,529

$

1,353

2.2

%

Occupancy expenses

 

6,625

 

6,356

 

269

4.2

%

Furniture and equipment expenses

 

3,309

 

3,752

 

(443)

(11.8)

%

Technology and data processing

 

8,127

 

8,142

 

(15)

(0.2)

%

Professional services

 

3,081

 

3,413

 

(332)

(9.7)

%

Marketing and advertising expense

 

2,318

 

2,351

 

(33)

(1.4)

%

FDIC assessment premiums and other insurance

 

5,143

 

3,899

 

1,244

31.9

%

Franchise and other taxes

 

4,501

 

4,498

 

3

0.1

%

Loan-related expenses

 

1,323

 

1,552

 

(229)

(14.8)

%

Amortization of intangible assets

 

1,895

 

2,279

 

(384)

(16.8)

%

Other expenses

 

7,069

 

11,503

 

(4,434)

(38.5)

%

Total noninterest expense

$

105,273

$

108,274

$

(3,001)

(2.8)

%

Noninterest incomeOur noninterest expense decreased $33.1$3.0 million or 35.2%2.8% to $60.9 million for the nine months ended September 30, 2023, compared to $94.0 million for the nine months ended September 30, 2022, primarily driven by $41.0 million of losses incurred on the sale of AFS securities executed in the first and third quarters of 2023, partially offset by a $16.4 million increase in other operating income, which included a $27.7 million gain related to the sale-leaseback transaction during the third quarter of 2023, partially offset by a $9.1 million gain on sale of DHFB in the second quarter of 2022.

Adjusted operating noninterest income,(+) which excludes losses on sale of securities ($41.0 million in 2023 and $2,000 in 2022), the gain on sale of DHFB ($9.1 million in 2022), and the gain related to the sale-leaseback transaction ($27.7 million in 2023), decreased $10.7 million or 12.6% for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The decrease in adjusted operating noninterest income(+) was primarily driven by a $5.2 million decrease in fiduciary and asset management fees due to a decrease in assets under management mainly driven by the DHFB sale executed in the second quarter of 2022, a $4.7 million decrease in mortgage banking income due to a decline in mortgage loan origination volumes and decrease in gain on sale margins due to increases in market interest rates, a $2.2 million decrease in other operating income primarily due to a decline in equity method investment income, and a $2.1 million decrease in loan-related interest rate swap fees primarily due to lower transaction volumes. These decreases in adjusted operating noninterest income(+) were partially offset by a $2.2 million increase in service charges on deposit accounts, a $937,000 increase in other service charges, commissions, and fees due primarily to a merchant services vendor contract signing bonus, and a $559,000 increase in interchange fees.

-66-

Table of Contents

Noninterest Expense

For the Three Months Ended

 

September 30, 

Change

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

Noninterest expense:

Salaries and benefits

$

57,449

$

56,600

$

849

1.5

%

Occupancy expenses

 

6,053

 

6,408

 

(355)

(5.5)

%

Furniture and equipment expenses

 

3,449

 

3,673

 

(224)

(6.1)

%

Technology and data processing

 

7,923

 

8,273

 

(350)

(4.2)

%

Professional services

 

3,291

 

3,504

 

(213)

(6.1)

%

Marketing and advertising expense

 

2,219

 

2,343

 

(124)

(5.3)

%

FDIC assessment premiums and other insurance

 

4,258

 

3,094

 

1,164

37.6

%

Franchise and other taxes

 

4,510

 

4,507

 

3

0.1

%

Loan-related expenses

 

1,388

 

1,575

 

(187)

(11.9)

%

Amortization of intangible assets

 

2,193

 

2,480

 

(287)

(11.6)

%

Other expenses

 

15,775

 

7,466

 

8,309

111.3

%

Total noninterest expense

$

108,508

$

99,923

$

8,585

8.6

%

Noninterest expense increased $8.6 million or 8.6% to $108.5$105.3 million for the quarter ended September 30, 2023,March 31, 2024, compared to $99.9$108.3 million for the quarter ended September 30, 2022,March 31, 2023, primarily driven by a $8.3$4.4 million decrease in other expenses, as the prior year included a legal reserve related to our previously disclosed settlement with the CFPB, partially offset by merger-related costs incurred in 2024 associated with our merger with American National. The decrease in noninterest expense was partially offset by $1.4 million increase in salaries and benefits expense primarily driven by an increase in stock compensation expense due to additional equity grants and an increase in group insurance costs, and a $1.2 million increase in FDIC assessment premiums and other expensesinsurance primarily due primarily to expenses associated with strategic cost saving initiatives and merger-related costs.a FDIC special assessment recognized in the first quarter of 2024.

AdjustedOur adjusted operating noninterest expense,(+) which excludes amortization of intangible assets ($2.21.9 million in 20232024 and $2.5 million in 2022), expenses associated with strategic cost saving initiatives ($8.7$2.3 million in 2023), and merger-related costs associated with the American National merger ($2.01.9 million in 2024), a FDIC special assessment ($840,000 in 2024), and a legal reserve related to our previously disclosed settlement with the CFPB ($5.0 million in 2023), decreased $1.8 million$331,000 or 1.8%0.3% to $95.7$100.7 million for the quarter ended September 30, 2023,March 31, 2024, compared to $97.4$101.0 million for the quarter ended September 30, 2022.March 31, 2023. The decrease in adjusted operating non-interestnoninterest expense(+) was primarily driven by a $2.4$1.3 million decrease in other expenses, reflecting a decline in branch closing and trailing costs related to the closure of five branches in the first quarter of 2023 and a decrease in non-credit related losses on customer transactions, and a $355,000$443,000 decrease in occupancy expenses reflecting the impacts of strategic actions,furniture and a $350,000 decrease in technology and data processing expense.equipment expenses. These decreases in adjusted operating non-interestnoninterest expense(+) were partially offset by a $1.2 million increase in FDIC assessment premiums and other insurance reflecting an increase in the FDIC assessment rates, effective January 1, 2023, and a $916,000 increase in salaries and benefits expense.

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For the Nine Months Ended

 

September 30, 

Change

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

Noninterest expense:

Salaries and benefits

$

179,996

$

170,203

$

9,793

5.8

%

Occupancy expenses

 

18,503

 

19,685

 

(1,182)

(6.0)

%

Furniture and equipment expenses

 

10,765

 

10,860

 

(95)

(0.9)

%

Technology and data processing

 

24,631

 

23,930

 

701

2.9

%

Professional services

 

11,138

 

12,274

 

(1,136)

(9.3)

%

Marketing and advertising expense

 

7,387

 

7,008

 

379

5.4

%

FDIC assessment premiums and other insurance

 

12,231

 

8,344

 

3,887

46.6

%

Franchise and other taxes

 

13,508

 

13,506

 

2

0.0

%

Loan-related expenses

 

4,560

 

5,218

 

(658)

(12.6)

%

Amortization of intangible assets

 

6,687

 

8,434

 

(1,747)

(20.7)

%

Other expenses

 

33,036

 

24,550

 

8,486

34.6

%

Total noninterest expense

$

322,442

$

304,012

$

18,430

6.1

%

Noninterest expense increased $18.4 million or 6.1% to $322.4 million for the nine months ended September 30, 2023, compared to $304.0 million for the nine months ended September 30, 2022, primarily driven by a $9.8$1.4 million increase in salaries and benefits expense which includes $2.8 million in expenses associated with strategic cost saving initiatives, and an $8.5 million increase in other expenses in 2023, due primarily to expenses related to strategic cost saving initiatives, merger-related costs, and the legal reserve associated with an ongoing regulatory matter previously disclosed, partially offset by strategic branch closing and facility consolidation costs in 2022.discussed above.

Adjusted operating noninterest expense,(+) which excludes amortization of intangible assets ($6.7 million in 2023 and $8.4 million in 2022), expenses associated with strategic cost saving initiatives ($12.6 million in 2023), merger-related costs associated with the American National merger ($2.0 million in 2023), the legal reserve associated with an ongoing regulatory matter previously disclosed ($5.0 million in 2023), and strategic branch closing and facility consolidation costs ($5.5 million in 2022), increased $6.1 million or 2.1% to $296.2 million for the nine months ended September 30, 2023, compared to $290.1 million for the nine months ended September 30, 2022. The increase in adjusted operating non-interest expense(+) was primarily driven by a $7.0 million increase in salaries and benefits expense, outside of severance charges related to headcount reductions from our cost saving initiatives in the second quarter of 2023, a $3.9 million increase in FDIC assessment premiums and other insurance primarily due to the increase in the FDIC assessment rates, effective January 1, 2023, and a $701,000 increase in technology and data processing expense. These increases in adjusted operating non-interest expense(+) were partially offset by a $2.8 million decrease in other expenses primarily due to a decrease of non-credit related losses on customer transactions, a $1.2 million decrease in occupancy expenses, and a $1.1 million decrease in professional services related to strategic projects that occurred in the prior year.

Segment Results

Effective January 1, 2023, the Company made an organizational change to move certain lines of business in the wealth management division that primarily serve Wholesale Banking customers from the Consumer Banking segment to the Wholesale Banking segment. As a result, the Company re-allocated $9.6 million of goodwill from the Consumer Banking segment to the Wholesale Banking segment and restated its prior segment information for the year ended December 31, 2022, based on this organizational change. In addition, the Company restated its prior segment operating results for the three and nine months ended September 30, 2022, resulting in a reallocation of noninterest income ($3.0 million and $9.5 million, respectively) and noninterest expense ($4.0 million and $12.1 million, respectively) from the Consumer Banking segment to the Wholesale Banking segment. Refer to Note 4 “Goodwill and Intangible Assets” and Note 12 “Segment Reporting and Revenue” within Part I, Item 1 “Financial Statements” of this Quarterly Report for additional information.

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SEGMENT RESULTS

Wholesale Banking

TheOur Wholesale Banking segment provides loan, leasing, and deposit services, as well as treasury management, SBA lending and capital market services to wholesale customers primarily throughout Virginia, Maryland, North Carolina, and South Carolina. These customers include commercial real estate and commercial and industrial customers. This segment also includes the Company’s theour equipment finance subsidiary, which has nationwide exposure. The private banking and trust businesses also reside in the Wholesale Banking segment.

The following table presents operating results for the three and nine months ended September 30, 2023 and 2022March 31, for the Wholesale Banking segment (dollars in thousands):

    

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

2023

2022 (1)

 

2023

2022 (1)

Net interest income

$

68,049

$

77,625

$

201,722

$

221,979

Provision for credit losses

9,310

8,470

25,853

12,844

Net interest income after provision for credit losses

58,739

69,155

175,869

209,135

Noninterest income

9,468

8,453

25,743

25,967

Noninterest expense

 

40,039

 

40,164

 

123,207

 

118,216

Income before income taxes

$

28,168

$

37,444

$

78,405

$

116,886

(1) Operating results include a reallocation from the Consumer Banking segment, due to the January 1, 2023 organizational change discussed in Note 12, “Segment Reporting and Revenue,” in Part I, Item 1 of this Quarterly Report.

2024

2023

 

Net interest income

$

80,874

$

67,540

Provision for credit losses

5,366

10,487

Net interest income after provision for credit losses

75,508

57,053

Noninterest income

8,363

7,414

Noninterest expense

 

44,299

 

42,123

Income before income taxes

$

39,572

$

22,344

Wholesale Banking income before income taxes decreasedincreased by $17.2 million to $39.6 million for the three and nine months ended September 30, 2023 asMarch 31, 2024, compared to $22.3 million for the three and nine months ended September 30, 2022, by $9.3 million and $38.5 million, respectively.March 31, 2023. The decreases wereincrease was primarily due to a decreasean increase in net interest income driven by spread compressionhigher volumes of loans, favorable spreads on both the loan and deposit portfolio asportfolios, and a result of the rapid rise in interest rates, and an increasedecrease in the provision for credit losses due to increased uncertainty in the economic outlook and loan growth during 2023. In addition,losses. Our noninterest expenseincome also increased for the first ninethree months of 20232024 compared to the same period in 2022,2023, primarily due to an increase in service charges on deposit accounts due primarily to improved margins in treasury management services. The increase in income before income taxes was partially offset by an increase in noninterest expense due to an increase in salaries and benefits expense. For the three months ended September 30, 2023 compared to the same period in 2022, the decrease in net interest income and the increase in the provision for credit losses were partially offset by an increase in noninterest incomeexpense primarily driven by an increase in loan-related interest rate swap feesstock compensation expense due to several new swap transactions.additional equity grants and an increase in group insurance costs.

The following table presents the key balance sheet metrics as of September 30, 2023 and December 31, 2022the periods ended for the Wholesale Banking segment (dollars in thousands):

September 30, 2023

December 31, 2022 (1)

LHFI, net of deferred fees and costs

$

12,343,799

$

11,476,258

Total Deposits

6,537,472

6,128,729

(1) Includes a reallocation of LHFI, net of deferred fees and costs, and total deposits from the Consumer Banking segment of $136.6 million and $258.7 million, respectively, due to the January 1, 2023 organizational change discussed in Note 12, “Segment Reporting and Revenue,” in Part I, Item 1 of this Quarterly Report.

March 31, 2024

December 31, 2023

LHFI, net of deferred fees and costs

$

12,941,541

$

12,688,833

Total Deposits

6,403,103

6,403,432


LHFI, net of deferred fees and costs, for the Wholesale Banking segment increased $867.5$252.7 million or 10.1%8.0% (annualized) to $12.3$12.9 billion at September 30, 2023March 31, 2024, compared to December 31, 2022,2023 with growth across the other commercial, construction and industrial,land development, and commercial real estate non-owner occupied and multifamily real estate loan portfolios.

Wholesale banking deposits increased $408.7 million or 8.9% (annualized)decreased $329,000 to $6.5$6.4 billion at September 30, 2023March 31, 2024 compared to December 31, 2022. This increase2023. The decrease compared to the prior quarter was primarily driven by an increase in interest checking accounts, partially offset by a decrease in demand deposits, time deposits, and savings accounts, and was almost wholly offset by an increase in money market balances.balances and interest checking accounts.

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Consumer Banking

TheOur Consumer Banking segment provides loan and deposit services to consumers and small businesses throughout Virginia, Maryland, and North Carolina. Consumer Banking includes the home loan division, which has nationwide exposure, and investment management and advisory services businesses.

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The following table presents operating results for the three and nine months ended September 30, 2023 and 2022March 31, for the Consumer Banking segment (dollars in thousands):

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

2023

2022 (1)

2023

2022 (1)

Net interest income

$

63,912

$

58,749

$

190,806

$

157,918

Provision for credit losses

(4,319)

(2,058)

(2,947)

(100)

Net interest income after provision for credit losses

68,231

60,807

193,753

158,018

Noninterest income

13,722

11,939

38,188

45,135

Noninterest expense

 

54,994

 

54,740

 

168,971

 

165,523

Income before income taxes

$

26,959

$

18,006

$

62,970

$

37,630

(1) Operating results include a reallocation to the Wholesale Banking segment, due to the January 1, 2023 organizational change discussed in Note 12, “Segment Reporting and Revenue,” in Part I, Item 1 of this Quarterly Report.

2024

2023

Net interest income

$

69,237

$

63,145

Provision for credit losses

2,873

1,340

Net interest income after provision for credit losses

66,364

61,805

Noninterest income

12,615

12,178

Noninterest expense

 

55,536

 

57,246

Income before income taxes

$

23,443

$

16,737

Consumer Banking income before income taxes increased by $6.7 million to $23.4 million for the three and nine months ended September 30, 2023,March 31, 2024, compared to $16.7 million for the three and nine months ended September 30, 2022 by $9.0 million and $25.3 million, respectively.March 31, 2023. The increases wereincrease was primarily driven by an increase in net interest income due to favorable funding credit on deposits and increased interest income attributabledeposits. Our noninterest expense also decreased for the three months ended March 31, 2024 compared to the higher interest rate environmentsame period in 2023, primarily due to a decrease in technology and higher average loan balances,data processing expense. The increase in income before income taxes was partially offset by spread compression on the loan portfolio and a decreasean increase in the provision for credit losses primarily driven by runoffcontinued uncertainty in the third-party lending and autoeconomic outlook on certain portfolios. In addition, for the three months ended September 30, 2023 compared to the same period in 2022, noninterest income increased primarily due to an increase in service charges on deposit accounts and an increase in other service charges, commissions, and fees primarily due to a merchant services vendor contract signing bonus.

For the nine months ended 2023 compared to the same period in 2022, the increase in net interest income and the decrease in the provision for credit losses were partially offset by a decrease in noninterest income, primarily due to a decline in fiduciary and asset management fees driven by a decrease in assets under management primarily due to the sale of DHFB in the second quarter of 2022, and a decrease in mortgage banking income due to a decline in mortgage loan origination volumes driven by the rapid increase in market interest rates and a decline in gain on sale margins due to increases in market interest rates. In addition, noninterest expense increased driven by an increase in salaries and benefits expense, as well as an increase in FDIC assessment premiums and other insurance due to the increase in the FDIC assessment rates, effective January 1, 2023.

The following table presents the key balance sheet metrics as of September 30, 2023 and December 31, 2022the periods ended for the Consumer Banking segment (dollars in thousands):

September 30, 2023

December 31, 2022 (1)

LHFI, net of deferred fees and costs

$

2,953,367

$

2,990,017

Total Deposits

9,726,079

9,724,598

(1) Includes a reallocation of LHFI, net of deferred fees and costs, and total deposits to the Wholesale Banking segment of $136.6 million and $258.7 million, respectively, due to the January 1, 2023 organizational change discussed in Note 12, “Segment Reporting and Revenue,” in Part I, Item 1 of this Quarterly Report.

March 31, 2024

December 31, 2023

LHFI, net of deferred fees and costs

$

2,921,874

$

2,958,811

Total Deposits

10,101,594

9,816,562

LHFI, net of deferred fees and costs, for the Consumer Banking segment decreased $36.7$36.9 million or 1.6%5.0% (annualized) to $3.0$2.9 billion at September 30, 2023March 31, 2024 compared to December 31, 2022.2023. The decrease compared to the prior quarter primarily occurred across the auto loan portfolio due to the exit from our indirect automobile financing business during the second quarter of 2023, as part of theour strategic cost saving initiatives.

Consumer Banking deposits totaled $9.7increased $285.0 million or 11.7% (annualized) to $10.1 billion at both September 30, 2023 andMarch 31, 2024 compared to December 31, 2022.2023. The increase compared to the prior quarter was primarily due to an increase in time deposits was almost wholly offset by a decrease in demand deposits,as depositors continued to migrate to higher costing interest checking accounts, savingsbearing deposit accounts and an increase in money market balances, as customers moved funds from lower to higher yielding deposit products.balances.

Income TaxesINCOME TAXES

The Company’sOur provision for income taxes is based on our results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, we report certain items of income and expense in different periods for financial reporting and tax return purposes. We recognize the tax effects of these temporary differences in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statements and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

Our effective tax rate for the three months ended September 30,March 31, 2024 and 2023 and 2022 was 17.6%16.9% and 17.0%, respectively. The effective tax rate for the nine months ended September 30, 2023 and 2022 was 16.3% and 17.0%,

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respectively. The changes for the three months and nine months periods in 2023, compared to the same periods in 2022, is a result of the proportionality of tax-exempt income as compared to pre-tax income in the periods.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

OverviewBalance Sheet

Assets

At September 30, 2023,March 31, 2024, we had total assets were $20.7of $21.4 billion, an increase of $275.1$211.9 million or approximately 1.8%4.0% (annualized) from December 31, 2022.2023. The increase in total assets was primarily due to an increase in LHFI, net of deferred fees and costs, of $834.5$216.6 million driven primarily by increases in the construction and land development and other commercial and industrial, commercial real estate non-owner occupied and multifamily real estate portfolios, partially offset by a decline in the investment securities portfolio of $676.8 million, primarily due to the AFS securities sales during the first and third quarters of 2023 and the decline in market value of the AFS securities portfolio due to the impact of market interest rate fluctuations.loan portfolios.

LHFI, net of deferred fees and costs, were $15.3$15.9 billion at September 30, 2023,March 31, 2024, an increase of $834.5$216.6 million or 7.7%5.6% (annualized) from December 31, 2022.2023. At September 30, 2023,March 31, 2024, quarterly average LHFI, net of deferred fees and costs, increased $1.4$1.2 billion or 10.2%8.5% from the same period in the prior year. Refer to "Loan Portfolio" within this Item 2 and Note 3 "Loans and Allowance for Loan and Lease Losses" in Part I, Item 1 of this Quarterly Report for additional information on our loan activity.

At September 30, 2023,March 31, 2024, we had total investments were $3.0of $3.1 billion, a decrease of $676.8$42.7 million or 5.4% (annualized) from December 31, 2022.2023. AFS securities totaled $2.1$2.2 billion at September 30, 2023, a $656.9 million decrease fromboth March 31, 2024 and December 31, 2022.2023. At September 30, 2023,March 31, 2024, total net unrealized losses on the AFS securities portfolio were $523.1$410.9 million, compared to $462.5$384.3 million at December 31, 2022.2023. HTM securities totaled $843.3$828.9 million at September 30, 2023, a $4.5 million decrease fromMarch 31, 2024, compared to $837.4 at December 31, 2022,2023, with net unrealized losses of $81.2$37.6 million at September 30, 2023,March 31, 2024, compared to $45.8$29.3 million at December 31, 2022.2023.

Liabilities and Stockholders’ Equity

At September 30, 2023,March 31, 2024, we had total liabilities were $18.3of $18.8 billion, an increase of $259.0$219.3 million or approximately 1.9%4.7% (annualized) from $18.1 billion at December 31, 2022,2023, which was primarily driven by an increase in deposits of $854.8$460.3 million, partially offset by a decrease in total borrowings of $688.0$254.1 million.

Total deposits at September 30, 2023March 31, 2024 were $16.8$17.3 billion, an increase of $854.8$460.3 million or approximately 7.2%11.0% (annualized) from December 31, 2022. For the quarter ended September 30, 2023,2023. At March 31, 2024, quarterly average deposits increased $307.4$730.0 million or 1.9%4.4% from the same period in the prior year. Total deposits at September 30, 2023 increased from December 31, 20222023 primarily due to a $1.6 billion$578.3 million increase in interest-bearing deposits, which includes $1.1 billionincluded $461.4 million of interest-bearing customer deposits and $509.3$116.9 million in brokered deposits, partially offset by a $738.3$118.0 million decrease in demand deposits, as customers continued to move funds from lower to higher yielding products. Refer to “Deposits” within this Item 2 for additional information on this topic.

Total short-term and long-term borrowings at September 30, 2023March 31, 2024 were $1.0$1.1 billion, compared to $1.7 billion at December 31, 2022, a decrease of $688.0$254.1 million or 40.3%19.4% from December 31, 2023, primarily due to paydowns of short-term borrowings.borrowings due to deposit growth. Refer to Note 6 “Borrowings” in Part I, Item 1 and “Executive Overview” within this Item 2 of this Quarterly Report for additional information on our borrowing activity.

At September 30, 2023,March 31, 2024, our stockholders’ equity was $2.4$2.5 billion, an increasea decrease of $16.1$7.4 million from December 31, 2022.2023. The Company’snet decrease was primarily attributable to the increase in other comprehensive losses primarily due to the increase in net unrealized losses on the AFS securities portfolio. Our consolidated regulatory capital ratios continue to exceed the minimum capital requirements and are considered “well-capitalized” for regulatory purposes. Refer to “Capital Resources” within this Item 2, as well as Note 9 "Stockholders’ Equity" in Part I, Item 1 of this Quarterly Report for additional information on our capital resources.

During the thirdfirst quarter of 2023, the Company2024, we declared and paid a quarterly dividend on theour outstanding shares of Series A Preferred Stock of $171.88 per share (equivalent to $0.43 per outstanding depositary share), consistent with the fourth quarter of 20222023 and the thirdfirst quarter of 2022.2023. During the thirdfirst quarter of 2023, the Company2024, we also declared and paid cash dividends of $0.30$0.32 per common share, consistent with the fourth quarter of 20222023 and an increase of $0.02 per share or approximately 6.7% from the thirdfirst quarter of 2022.2023.

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At September 30, 2023, the CompanyMarch 31, 2024, we had no active share repurchase programs, as the most recent share repurchase program expired on December 9, 2022. Under that repurchase program, the Company repurchased an aggregate of approximately 1.3 million shares (or approximately $48.2 million) in 2022.

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Securities SECURITIES

At September 30, 2023, the CompanyMarch 31, 2024, we had total investments of $3.0$3.1 billion, or 14.6%14.7% of total assets, as compared to $3.7$3.2 billion, or 18.1%15.0% of total assets, at December 31, 2022.2023. This decrease was primarily due to the sales ofincrease in unrealized losses in the AFS securities executed during the period andportfolio caused by the decline in market value of the AFS securities portfolio due to the impact of market interest rate fluctuations, which was partially offset by growth in the Company’s HTM portfolio. The Company seeksfluctuations. We seek to diversify itsour portfolio to minimize risk, and focuseswe focus on purchasing MBS 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’sour MBS are agency-backed securities, which have a government guarantee. For information regarding the hedge transaction related to AFS securities, see Note 8 "Derivatives"“Derivatives” in Part I, Item 1 of this Quarterly Report.

The table below sets forth a summary of the AFS securities, HTM securities, and restricted stock as of the dates indicatedperiods ended (dollars in thousands):

    

September 30, 

    

December 31, 

2023

2022

March 31, 2024

December 31, 2023

Available for Sale:

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

61,838

$

61,943

$

62,736

$

63,356

Obligations of states and political subdivisions

 

417,460

 

807,435

 

461,850

 

475,447

Corporate and other bonds

 

242,818

 

226,380

 

250,264

 

241,889

MBS

 

 

 

 

Commercial

234,703

306,161

245,334

257,646

Residential

1,126,382

1,338,233

1,180,253

1,191,171

Total MBS

1,361,085

1,644,394

1,425,587

1,448,817

Other securities

 

1,727

 

1,664

 

1,779

 

1,752

Total AFS securities, at fair value

 

2,084,928

 

2,741,816

 

2,202,216

 

2,231,261

Held to Maturity:

 

  

 

  

 

  

 

  

U.S. government and agency securities

687

Obligations of states and political subdivisions

 

700,400

 

705,990

 

695,952

 

699,189

Corporate and other bonds

4,536

5,159

4,230

4,349

MBS

 

 

 

 

Commercial

52,498

42,761

50,814

51,980

Residential

85,835

93,135

77,932

81,860

Total MBS

138,333

135,896

128,746

133,840

Total held to maturity securities, at carrying value

 

843,269

 

847,732

 

828,928

 

837,378

Restricted Stock:

 

  

 

  

 

  

 

  

FRB stock

 

67,032

 

67,032

 

67,032

 

67,032

FHLB stock

 

37,753

 

53,181

 

43,240

 

48,440

Total restricted stock, at cost

 

104,785

 

120,213

 

110,272

 

115,472

Total investments

$

3,032,982

$

3,709,761

$

3,141,416

$

3,184,111

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The following table summarizes the weighted average yields(1) for AFS securities by contractual maturity date of the underlying securities as of September 30, 2023:March 31, 2024:

    

1 Year or

    

    

5 – 10

    

Over 10

    

 

    

1 Year or

    

    

5 – 10

    

Over 10

    

 

Less

1 - 5 Years

Years

Years

Total

 

Less

1 - 5 Years

Years

Years

Total

 

U.S. government and agency securities

 

%

4.58

%

6.02

%

%

4.64

%

 

%

4.60

%

6.38

%

%

4.64

%

Obligations of states and political subdivisions

 

4.55

%

 

3.57

%

2.24

%

2.19

%

2.22

%

 

2.63

%

 

3.65

%

1.91

%

2.19

%

2.21

%

Corporate bonds and other securities

 

3.64

%

 

7.12

%

4.68

%

5.80

%

4.97

%

 

1.48

%

 

6.60

%

4.54

%

5.80

%

4.97

%

MBS:

 

 

 

 

Commercial

3.88

%

3.32

%

6.22

%

2.37

%

2.82

%

7.27

%

5.46

%

6.20

%

2.77

%

3.63

%

Residential

1.98

%

5.50

%

3.49

%

2.38

%

2.46

%

2.45

%

6.69

%

4.73

%

2.52

%

2.65

%

Total MBS

3.88

%

5.04

%

4.73

%

2.38

%

2.52

%

7.27

%

6.37

%

5.45

%

2.55

%

2.82

%

Total AFS securities

 

3.88

%

 

5.20

%

4.63

%

2.34

%

2.76

%

 

6.97

%

5.65

%

4.60

%

2.48

%

2.95

%

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

The following table summarizes the weighted average yields(1) for HTM securities by contractual maturity date of the underlying securities as of September 30, 2023:March 31, 2024:

    

1 Year or

    

    

5 – 10

    

Over 10

    

 

    

1 Year or

    

    

5 – 10

    

Over 10

    

 

Less

1 - 5 Years

Years

Years

Total

 

Less

1 - 5 Years

Years

Years

Total

 

Obligations of states and political subdivisions

2.44

%

4.10

%

3.36

%

3.49

%

3.49

%

2.74

%

4.12

%

3.41

%

3.49

%

3.50

%

Corporate bonds and other securities

%

%

%

6.02

%

6.02

%

%

%

%

5.44

%

5.44

%

MBS:

 

 

Commercial

%

%

%

4.51

%

4.51

%

%

%

%

4.32

%

4.32

%

Residential

%

5.50

%

%

3.56

%

4.08

%

%

5.65

%

%

3.71

%

4.17

%

Total MBS

%

5.50

%

%

3.99

%

4.24

%

%

5.65

%

%

3.99

%

4.23

%

Total HTM securities

 

2.44

%

4.98

%

3.36

%

3.58

%

3.63

%

 

2.74

%

5.01

%

3.41

%

3.58

%

3.62

%

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


Weighted average yield is calculated as the tax-equivalent yield on a pro rata basis for each security based on its relative amortized cost.

As of September 30, 2023, the CompanyMarch 31, 2024, we maintained a diversified municipal bond portfolio with approximately 67%68% of itsour holdings in general obligation issues and the majority of the remainder primarily backed by revenue bonds. Issuances within the State of Texas represented 19% of the total municipal portfolio; no other state had a concentration above 10%. Substantially all municipal holdings are considered investment grade. When purchasing municipal securities, the Company focuseswe focus on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.

LIQUIDITY


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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. The Company’sOur largest source of liquidity on a consolidated basis is the customer deposit base generated by our wholesale and consumer businesses. These deposits provide relatively stable and low-cost funding. Total deposits at September 30, 2023March 31, 2024 were $16.8$17.3 billion, an increase of $854.8$460.3 million or approximately 7.2%11.0% (annualized) from December 31, 2022. For the quarter ended September 30, 2023, quarterly average2023. Total deposits increased $307.4$578.3 million or 1.9% (annualized) compared to the prior quarter. Total deposits at September 30, 2023 increased from December 31, 2022 due to a $1.6 billion increase ofin interest-bearing deposits, which includes $509.3a $116.9 million increase in brokered deposits, partially offset by a $738.3$118.0 million decrease in demand deposits, as customers continued to move funds from lower to higher costingyielding products. Refer to “Deposits” within this Item 2 for additional information on this topic.

Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, LHFS, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Companyus include itsour capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the Federal Reserve Discount Window, the purchase of brokered certificates of deposit, corporate line of credit with

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a large correspondent bank, and debt and capital issuance. Management believes the Company’sour overall liquidity to be sufficient to satisfy itsour depositors’ requirements and to meet itsour customers’ credit needs.

Starting in the first quarter of 2023, the Company is eligible to borrow from the Federal Reserve's BTFP, which provides additional contingent liquidity through the pledging of certain qualifying securities. The BTFP is a one-year program ending March 11, 2024, and the Company can borrow any time during the term and can repay the obligation at any time without penalty. As of September 30, 2023, liquidity of $531.0 million was available based on the par-value of qualifying securities from BTFP. The Company did not utilize the BTFP facility as of September 30, 2023.

The CompanyWe closely monitorsmonitor changes in the industry and market conditions that may impact the Company’sour liquidity and will use other borrowing means or other liquidity and funding strategies sources to fund itsour liquidity needs as needed. The Company isWe are also closely tracking the potential impacts on the Company’sour liquidity of declines in the fair value of the Company’sour securities portfolio due to risingchanging market interest rates and developments in the banking industry that may change the availability of traditional sources of liquidity or market expectations with respect to available sources and amounts of additional liquidity.

As of September 30, 2023,March 31, 2024, our liquid assets totaled $5.6 billion or 27.2%26.1% of total assets, and liquid earning assets totaled $5.4 billion or 29.2%28.1% of total earning assets. AssetWe also provide asset liquidity is also provided by managing loan and securities maturities and cash flows. As of September 30, 2023,March 31, 2024, loan payments of approximately $4.9$4.8 billion or 32.3%30.6% of total loans as of March 31, 2024 are expected within one year based on contractual terms, adjusted for expected prepayments, and approximately $291.4$319.0 million or 9.6%10.2% of total securitiesinvestments as of March 31, 2024 are scheduled to be paid down within one year based on contractual terms, adjusted for expected prepayments.

For additional information and the available balances on various lines of credit, please refer to Note 6 “Borrowings” in Part I, Item 1 of this Quarterly Report. In addition to lines of credit, the Bankwe may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. For additional information and outstanding balances on purchased certificates of deposits, please refer to “Deposits” within this Item 2. For additional information on cash requirements for known contractual and other obligations, please refer to “Capital Resources” within this Item 2.

Cash Requirements

The Company’sOur cash requirements, outside of lending transactions, consist primarily of borrowings, debt and capital instruments which are used as part of the Company’sour overall liquidity and capital management strategy. CashWe expect that the cash required to repay these obligations will be sourced from future debt and capital issuances and from other general liquidity sources as described above under “Liquidity” within this Item 2.

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The following table presents the Company’sour contractual obligations related to itsour major cash requirements and the scheduled payments due at the various intervals over the next year and beyond as of September 30, 2023March 31, 2024 (dollars in thousands):

Less than

More than

Total

1 year

1 year

Long-term debt (1)

$

250,000

$

$

250,000

Trust preferred capital notes (1)

155,159

155,159

Leases (2)

111,847

3,536

108,311

Repurchase agreements

134,936

134,936

Total contractual obligations

$

651,942

$

138,472

$

513,470

Less than

More than

Total

1 year

1 year

Long-term debt (1)

$

250,000

$

$

250,000

Trust preferred capital notes (1)

155,159

155,159

Leases (2)

113,548

10,009

103,539

Repurchase agreements

66,405

66,405

Total contractual obligations

$

585,112

$

76,414

$

508,698

(1) Excludes related unamortized premium/discount and interest payments.

(2) Represents lease payments due on non-cancellable operating leases at September 30, 2023.March 31, 2024. Excluded from these tables are variable lease payments or renewals.

For more information pertaining to the previous table, reference Note 5 “Leases” and Note 6 “Borrowings” in Part I, Item 1 of this Quarterly Report.

Off-Balance Sheet Obligations

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

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Our 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 is represented by the contractual amount of these instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Unless noted otherwise, we do not require collateral or other security to support off-balance sheet financial instruments with credit risk.

For a summary of our total commitments with off-balance sheet risk see Note 7 “Commitments and Contingencies” in Part I, Item I of this Quarterly Report.

We are also a lessor in sales-type and direct financing leases for equipment, as noted in Note 5 “Leases” in Part I, Item I of this Quarterly Report. Our future commitments related to the aforementioned leases totaled $530.6 million and $472.7 million, respectively, at March 31, 2024 and December 31, 2023.

Impact of Inflation and Changing Prices

Our financial statements included in Item I “Financial Statements” of this Quarterly Report have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historic dollars without considering the change in the relative purchasing power of money over time due to inflation. Inflation affects our results of operations mainly through increased operating costs, but since nearly all of our assets and liabilities are monetary in nature, changes in interest rates generally affect our financial condition to a greater degree than changes in the rate of inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Management reviews pricing of our products and services, in light of current and expected costs due to inflation, to seek to mitigate the inflationary impact on our financial performance.

Loan PortfolioLOAN PORTFOLIO

LHFI, net of deferred fees and costs, totaled $15.3$15.9 billion at September 30, 2023March 31, 2024 and $14.4$15.6 billion at December 31, 2022.2023. Commercial real estate and commercial and industrial loans represented the Company’sour largest loan categories at both September 30, 2023March 31, 2024 and December 31, 2022.2023.

The following table presents the remaining maturities, based on contractual maturity, by loan type, and by rate type (variable or fixed), net of deferred fees and costs, as of September 30, 2023March 31, 2024 (dollars in thousands):

Variable Rate

Fixed Rate

Variable Rate

Fixed Rate

    

Total

    

Less than 1

    

    

    

    

More than

    

    

    

    

More than

    

Total

    

Less than 1

    

    

    

    

More than

    

    

    

    

More than

Maturities

year

Total

1-5 years

5-15 years

15 years

Total

1-5 years

5-15 years

15 years

Maturities

year

Total

1-5 years

5-15 years

15 years

Total

1-5 years

5-15 years

15 years

Construction and Land Development

$

1,132,940

$

380,255

$

543,195

$

413,852

$

128,226

$

1,117

$

209,490

$

142,754

$

30,317

$

36,419

$

1,246,251

$

338,128

$

637,095

$

519,394

$

114,479

$

3,222

$

271,028

$

211,672

$

30,902

$

28,454

Commercial Real Estate - Owner Occupied

 

1,975,281

 

143,692

 

610,048

 

158,604

 

435,462

 

15,982

 

1,221,541

 

616,595

 

598,577

 

6,369

 

1,981,613

 

172,098

 

647,704

 

184,727

 

448,317

 

14,660

 

1,161,811

 

648,421

 

509,556

 

3,834

Commercial Real Estate - Non-Owner Occupied

 

4,148,218

 

424,186

 

2,318,445

 

1,212,499

 

1,105,946

 

 

1,405,587

 

1,074,775

 

324,460

 

6,352

 

4,225,018

 

481,938

 

2,329,285

 

1,251,898

 

1,077,387

 

 

1,413,795

 

1,181,282

 

226,315

 

6,198

Multifamily Real Estate

 

947,153

 

160,090

 

573,525

 

268,421

 

305,104

 

 

213,538

 

171,249

 

42,289

 

 

1,074,957

 

294,682

 

546,682

 

238,763

 

307,919

 

 

233,593

 

194,270

 

39,323

 

Commercial & Industrial

 

3,432,319

 

533,395

 

1,760,600

 

1,639,297

 

117,856

 

3,447

 

1,138,324

 

744,297

 

388,784

 

5,243

 

3,561,971

 

559,944

 

1,858,030

 

1,730,732

 

108,079

 

19,219

 

1,143,997

 

763,900

 

377,163

 

2,934

Residential 1-4 Family - Commercial

 

517,034

 

44,993

 

125,231

 

52,353

 

68,077

 

4,801

 

346,810

 

270,820

 

65,942

 

10,048

 

515,667

 

56,178

 

127,119

 

60,925

 

61,624

 

4,570

 

332,370

 

271,759

 

50,854

 

9,757

Residential 1-4 Family - Consumer

 

1,057,294

 

543

 

194,312

 

2,105

 

27,789

 

164,418

 

862,439

 

10,178

 

75,206

 

777,055

 

1,081,094

 

377

 

213,988

 

2,028

 

26,317

 

185,643

 

866,729

 

8,193

 

70,582

 

787,954

Residential 1-4 Family - Revolving

 

599,282

 

19,871

 

469,170

 

25,705

 

112,416

 

331,049

 

110,241

 

6,417

 

38,924

 

64,900

 

616,951

 

18,871

 

484,548

 

25,376

 

101,721

 

357,451

 

113,532

 

6,122

 

40,474

 

66,936

Auto

 

534,361

 

3,379

 

 

 

 

 

530,982

 

270,243

 

260,739

 

 

440,118

 

3,499

 

 

 

 

 

436,619

 

298,852

 

137,767

 

Consumer

 

126,151

 

11,218

 

15,864

 

13,348

 

2,232

 

284

 

99,069

 

48,733

 

34,689

 

15,647

 

113,414

 

13,572

 

14,530

 

11,996

 

2,208

 

326

 

85,312

 

42,088

 

30,562

 

12,662

Other Commercial

 

813,587

 

58,922

 

98,648

 

12,179

 

63,526

 

22,943

 

656,017

 

249,440

 

289,054

 

117,523

 

994,574

 

49,977

 

165,618

 

12,136

 

153,482

 

 

778,979

 

285,665

 

377,922

 

115,392

Total LHFI

$

15,283,620

$

1,780,544

$

6,709,038

$

3,798,363

$

2,366,634

$

544,041

$

6,794,038

$

3,605,501

$

2,148,981

$

1,039,556

$

15,851,628

$

1,989,264

$

7,024,599

$

4,037,975

$

2,401,533

$

585,091

$

6,837,765

$

3,912,224

$

1,891,420

$

1,034,121

The Company remainsWe remain committed to originating soundly underwritten loans to qualifying borrowers within itsour markets. The Company seeksWe seek to mitigate risks attributable to our most highly concentrated portfolios—commercial real estate and commercial and industrial—through our credit underwriting and monitoring processes, including oversight by a centralized credit administration function

-75--59-

Table of Contents

and industrial, and construction and land development—through its credit underwriting and monitoring processes, including oversight by a centralized credit administration function and credit policy and risk management committee, as well as through itsour seasoned bankers that focus on lending to borrowers with proven track records in markets withthat we are familiar with.

Our loan portfolio includes credit exposures in the commercial real estate market. Our non-owner occupied commercial real estate loans represented 26.7% of total LHFI at both March 31, 2024 and December 31, 2023, which includes office loans of $779.0 million or 4.9% of total LHFI and $775.0 million or 5.0% of total LHFI, respectively. We proactively monitor our non-owner occupied office exposure and we believe the Companyportfolio is familiar.geographically diverse and granular. We do not currently finance large, high-rise, or major metropolitan central business district office buildings.

Asset QualityASSET QUALITY

Overview

At September 30, 2023March 31, 2024 and December 31, 2022,2023, nonaccrual LHFI was $36.4 million and $36.9 million, respectively, while NPAs as a percentage of LHFI totaled 0.19%0.23% and included nonaccrual LHFI of $28.6 million and $27.1 million,0.24%, respectively. Net charge-offs were $6.4$4.9 million for the ninethree months ended September 30, 2023,March 31, 2024, compared to net charge offscharge-offs of $1.5$4.6 million for the same period in the prior year. TheOur ACL at September 30, 2023March 31, 2024 increased $16.5$3.3 million from December 31, 20222023 to $140.9$151.8 million, due toreflecting the impact of loan growth and continued uncertainty in the economic outlook and net loan growth.on certain portfolios.

The Company continuesWe continue to experience historically low levels of NPAs; however, the economic environment in the Company’sour footprint could be impacted by elevated inflation, even as persistent inflation higher interest rates begin to improve, and the threatpotential impact of a recession persists,interest rate changes as the Federal Reserve continues to evaluate monetary policy moves, which could increase NPAs in future periods. The Company continuesWe continue to refrain from originating or purchasing loans from foreign entities. The Companyentities, and we selectively originatesoriginate loans to higher risk borrowers. The Company’sOur loan portfolio generally does not include exposure to option adjustable rateadjustable-rate mortgage products, high loan-to-value ratio mortgages, interest only mortgage loans, subprime mortgage loans, or mortgage loans with initial teaser rates, which are all considered higher risk instruments.

Nonperforming Assets

At September 30,March 31, 2024 and December 31, 2023, NPAs totaled $28.8included nonaccrual LHFI of $36.4 million an increaseand $36.9 million, respectively, representing a decrease of $1.7 million or 6.1% from December 31, 2022.$471,000. Our NPAs as a percentage of total outstanding LHFI at September 30, 2023March 31, 2024 and December 31, 20222023 were 0.19%0.23% and 0.24%, respectively.

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

    

September 30, 

    

December 31,

    

    

March 31, 

    

December 31,

    

 

2023

 

2022

 

 

2024

 

2023

 

Nonaccrual LHFI

$

28,626

$

27,038

$

36,389

$

36,860

Foreclosed properties

 

149

 

76

 

29

 

29

Total NPAs

 

28,775

 

27,114

 

36,418

 

36,889

LHFI past due 90 days and accruing interest

 

11,871

 

7,490

 

11,445

 

13,863

Total NPAs and LHFI past due 90 days and accruing interest

$

40,646

$

34,604

$

47,863

$

50,752

Balances

 

  

 

  

 

  

 

  

Allowance for loan and lease losses

$

125,627

$

110,768

$

136,190

$

132,182

Allowance for credit losses

140,929

124,443

151,772

148,451

Average LHFI, net of deferred fees and costs

 

15,139,761

 

13,671,714

 

15,732,599

 

14,949,487

LHFI, net of deferred fees and costs

 

15,283,620

 

14,449,142

 

15,851,628

 

15,635,043

Ratios

 

  

 

  

 

  

 

  

Nonaccrual LHFI to total LHFI

0.19

%  

0.19

%  

0.23

%  

0.24

%  

NPAs to total LHFI

 

0.19

%  

 

0.19

%  

 

0.23

%  

 

0.24

%  

NPAs & LHFI 90 days past due and accruing interest to total LHFI

 

0.27

%  

 

0.24

%  

 

0.30

%  

 

0.32

%  

NPAs to total LHFI & foreclosed property

 

0.19

%  

 

0.19

%  

 

0.23

%  

 

0.24

%  

NPAs & LHFI 90 days past due and accruing interest to total LHFI & foreclosed property

 

0.27

%  

 

0.24

%  

 

0.30

%  

 

0.32

%  

ALLL to nonaccrual LHFI

 

438.86

%  

 

409.68

%  

 

374.26

%  

 

358.61

%  

ALLL to nonaccrual LHFI & LHFI 90 days past due and accruing interest

 

310.21

%  

 

320.81

%  

 

284.71

%  

 

260.60

%  

ACL to nonaccrual LHFI

492.31

%  

460.25

%  

417.08

%  

402.74

%  

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NPAs include nonaccrual LHFI, which totaled $28.6$36.4 million at September 30, 2023,March 31, 2024, a net increasedecrease of $1.6 million or 5.9%$471,000 from December 31, 2022.2023. The following table shows the activity in nonaccrual LHFI for the quarters ended (dollars in thousands):

    

September 30, 

    

December 31,

    

March 31, 

    

December 31,

2023

 

2022

2024

 

2023

Beginning Balance

$

29,105

$

26,500

$

36,860

$

27,038

Net customer payments

 

(1,947)

 

(1,805)

 

(1,583)

 

(11,850)

Additions

 

1,651

 

2,935

 

5,047

 

23,091

Charge-offs

 

(64)

 

(461)

 

(3,935)

 

(987)

Loans returning to accruing status

 

(119)

 

(131)

 

 

(432)

Ending Balance

$

28,626

$

27,038

$

36,389

$

36,860

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The following table presents the composition of nonaccrual LHFI and the coverage ratio, which is the ALLL expressed as a percentage of nonaccrual LHFI, as of the periods ended (dollars in thousands):

    

September 30, 

    

December 31,

 

    

March 31, 

    

December 31,

 

2023

 

2022

 

2024

 

2023

 

Construction and Land Development

$

355

$

307

$

342

$

348

Commercial Real Estate - Owner Occupied

 

3,882

 

7,178

 

2,888

 

3,001

Commercial Real Estate - Non-owner Occupied

 

5,999

 

1,263

 

10,335

 

12,616

Commercial & Industrial

 

2,256

 

1,884

 

6,480

 

4,556

Residential 1-4 Family - Commercial

 

1,833

 

1,904

 

1,790

 

1,804

Residential 1-4 Family - Consumer

 

10,368

 

10,846

 

10,990

 

11,098

Residential 1-4 Family - Revolving

 

3,572

 

3,453

 

3,135

 

3,087

Auto

 

361

 

200

 

429

 

350

Consumer

3

Total

$

28,626

$

27,038

$

36,389

$

36,860

Coverage Ratio(1)

438.86

%  

409.68

%  

374.26

%  

358.61

%  

(1) Represents the ALLL divided by nonaccrual LHFI.

Past Due Loans

At September 30, 2023,March 31, 2024, past due LHFI still accruing interest totaled $40.6$50.7 million or 0.27%0.32% of total LHFI, compared to $30.0$48.4 million or 0.21%0.31% of total LHFI at December 31, 2022.2023. Of the total past due LHFI still accruing interest, $11.9$11.4 million or 0.08%0.07% of total LHFI were loans past due 90 days or more at September 30, 2023,March 31, 2024, compared to $7.5$13.9 million or 0.05%0.09% of total LHFI at December 31, 2022.2023.

Troubled Loan Modifications

The Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, effective January 1, 2023 on a prospective basis. Refer to Note 1 “Summary of Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report for information on the Company’s accounting policy for loan modifications to borrowers experiencing financial difficulty and how the Company defines TLMs. As of September 30,March 31, 2024, TLMs were not significant at approximately $36,000. As of March 31, 2023, the Companywe had TLMs totaling $29.4with an amortized cost basis of $20.5 million.

Troubled Debt Restructurings

After the adoption There was no material allowance on TLMs for both March 31, 2024 and 2023. As of ASU 2022-02, the Company no longer has TDRs. The below information is presented for DecemberMarch 31, 2022, prior to adoption2024 and 2023, there was $1.1 million and $4.4 million, respectively, of ASU 2022-02.unfunded commitments on loans modified and designated as TLMs.

A modification of a loan’s terms constituted a TDR if the creditor granted a concession that it would not have otherwise considered to the borrower for economic or legal reasons related to the borrower’s financial difficulties. Management strove to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their

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loan reached nonaccrual status. These modified terms may have included rate reductions, extension of terms that were considered to be below market, conversion to interest only, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

The total recorded investment in TDRs at December 31, 2022 was $14.2 million of which $9.3 million or 65.3% were considered performing, while the remaining $4.9 million were considered nonperforming.

Net Charge-offs

For the thirdfirst quarter of 2023,2024, net charge-offs were $294,000$4.9 million or 0.01%0.13% of total average LHFI on an annualized basis, compared to net charge-offs of $587,000$4.6 million or 0.02%0.13% for the same quarter last year. For the nine months ended September 30, 2023,The net charge-offs were $6.4 million or 0.06% of total average LHFI on an annualized basis, compared to net charge-offs of $1.5 million or 0.02% for the same period last year. For the nine months ended September 30, 2023, the majority of the net charge-offs related to two commercial loans within the commercial and industrial and commercial real estate portfolios that took place duringin the first quarter of 2023.2024 were primarily related to two credit relationships, which were previously reserved for in the prior quarter’s ACL.

Provision for Credit Losses

The CompanyWe recorded a provision for credit losses of $5.0$8.2 million for the thirdfirst quarter of 2023,2024, a decrease of $1.4$3.7 million compared to the provision for credit losses of $6.4$11.9 million recorded during the same quarter of 2022.2023. The change in provision for credit losses forprimarily reflects the third quarterhigher impact of 2023 reflected a provision of $5.2 million for loan losses and a $246,000 release of the provision for unfunded commitments. The Company recorded a provision for credit losses of $22.9 million for the nine months ended September 30, 2023, an increase of $10.1 million compared to the provision for credit losses of $12.8 million recorded during the same period in 2022. The provision for credit losses for the nine months ended September 30, 2023 reflected a provision of $21.3 million for loan losses and a $1.6 million provision for unfunded commitments. The increased provision for credit losses is due to continuedeconomic uncertainty in the economic outlookprior quarter and loan growth throughout 2023.the same quarter last year.

Allowance for Credit Losses

At September 30, 2023,March 31, 2024, the ACL was $140.9$151.8 million and included an ALLL of $125.6$136.2 million and a reserve for unfunded commitments of $15.3$15.6 million. The ACL at September 30, 2023March 31, 2024 increased $16.5$3.3 million from December 31, 2022,2023, primarily due to loan growth in the first quarter of 2024 and the impact of continued uncertainty in the economic outlook and loan growth throughout 2023.

The ACL as a percentage of LHFI was 0.92% at September 30, 2023, compared to 0.86% at December 31, 2022.

The following table summarizes the ACL during the quarters ended (dollars in thousands):on certain portfolios.

s

    

September 30, 

    

December 31,

    

2023

 

2022

 

Total ALLL

$

125,627

$

110,768

Total Reserve for Unfunded Commitments

15,302

13,675

Total ACL

$

140,929

$

124,443

ALLL to total LHFI

 

0.82

%  

 

0.77

%  

ACL to total LHFI

0.92

%  

0.86

%  

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The following table summarizes net-charge offthe ACL as of the periods ended (dollars in thousands):

    

March 31, 

    

December 31,

    

2024

 

2023

 

Total ALLL

$

136,190

$

132,182

Total Reserve for Unfunded Commitments

15,582

16,269

Total ACL

$

151,772

$

148,451

ALLL / total LHFI

 

0.86

%  

 

0.85

%  

ACL / total LHFI

0.96

%  

0.95

%  

The following table summarizes net charge-off activity by loan segment foras of the periods indicatedended (dollars in thousands):

Three months ended

Nine months ended

Three Months Ended

September 30, 2023

September 30, 2023

March 31, 2024

Commercial

    

Consumer

    

Total

    

Commercial

Consumer

    

Total

Commercial

    

Consumer

    

Total

Loans charged-off

$

(788)

$

(841)

$

(1,629)

$

(7,589)

$

(2,368)

$

(9,957)

$

(4,939)

$

(955)

$

(5,894)

Recoveries

878

457

1,335

1,911

1,626

3,537

533

444

977

Net charge-offs

$

90

$

(384)

$

(294)

$

(5,678)

$

(742)

$

(6,420)

$

(4,406)

$

(511)

$

(4,917)

Net charge-offs to average loans(1)

 

0.00

%  

0.07

%  

0.01

%  

0.06

%  

 

0.04

%  

 

0.06

%  

 

0.13

%  

0.09

%  

0.13

Three months ended

Nine months ended

Three Months Ended

September 30, 2022

September 30, 2022

March 31, 2023

Commercial

    

Consumer

    

Total

    

Commercial

Consumer

    

Total

Commercial

    

Consumer

    

Total

Loans charged-off

$

(1,086)

$

(715)

$

(1,801)

$

(2,852)

$

(2,415)

$

(5,267)

$

(5,007)

$

(719)

$

(5,726)

Recoveries

605

609

1,214

1,723

2,022

3,745

515

652

1,167

Net charge-offs

$

(481)

$

(106)

$

(587)

$

(1,129)

$

(393)

$

(1,522)

$

(4,492)

$

(67)

$

(4,559)

Net charge-offs to average loans(1)

 

0.02

%

0.02

%  

0.02

%  

0.01

%

 

0.04

%  

 

0.02

%  

 

0.15

%

0.01

%  

0.13

(1) Annualized

The following table summarizes the ACLALLL activity by loan segment and the percentage of the LHFIloans portfolio that the related ACLALLL covers as of the quarters ended (dollars in thousands):

March 31, 2024

December 31, 2023

September 30, 2023

December 31, 2022

Commercial

Consumer

    

Total

    

Commercial

Consumer

    

Total

Commercial

Consumer

    

Total

    

Commercial

Consumer

    

Total

ACL

$

113,237

$

27,692

$

140,929

$

95,527

$

28,916

$

124,443

ALLL

$

110,528

$

25,662

$

136,190

$

105,896

$

26,286

$

132,182

Loan %(1)

84.8

%  

15.2

%  

100.0

%  

84.3

%  

15.7

%  

100.0

%  

85.8

%  

14.2

%  

100.0

%  

85.3

%  

14.7

%  

100.0

%  

ACL to total LHFI

0.87

%  

1.20

%  

0.92

%  

0.78

%  

 

1.27

%  

 

0.86

%  

ALLL to total LHFI

0.81

%  

 

1.14

%  

 

0.86

%  

0.79

%  

 

1.14

%  

 

0.85

%  

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

The increase in the ACLALLL from the prior year for the commercial loanCommercial segment is primarily due to loan growth during 2024, and the impact of continued uncertainty in the macroeconomiceconomic outlook and the impact of loan growth throughout 2023.on certain portfolios.  The decrease in the consumer loanALLL from the prior year for the Consumer segment was primarily driven byreflects the continued run offimpact of the Company’srun-off in the third-party lending and auto portfolios.

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DepositsDEPOSITS

As of September 30, 2023,March 31, 2024, our total deposits were $16.8$17.3 billion, an increase of $854.8$460.3 million or 7.2% annualized11.0% (annualized) from December 31, 2022.2023. Total interest-bearing deposits consistconsisted of interest checking accounts, money market, savings, time deposit account balances,deposits, and brokered deposits. TotalOur total time deposit balances of $2.6with customers totaled $3.0 billion and accounted for 20.93%23.61% of total interest-bearing customer deposits at September 30, 2023,March 31, 2024, compared to $1.8$2.8 billion and 16.3%23.1% at December 31, 2022.2023. We expect to continue to use purchased brokered deposits as part of our overall liquidity management strategy, on an as needed basis, which are generally purchased through nationally recognized networks. At March 31, 2024, our brokered deposits totaled $665.3 million, a $116.9 million increase from December 31, 2023.

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

September 30, 2023

    

December 31, 2022

 

March 31, 2024

    

December 31, 2023

 

    

    

% of total

    

    

% of total

 

    

    

% of total

    

    

% of total

 

Deposits:

Amount

deposits

Amount

deposits

 

Amount

deposits

Amount

deposits

 

Interest checking accounts

$

5,055,464

 

30.1

%  

$

4,186,505

 

26.3

%

$

4,753,485

 

27.5

%  

$

4,697,819

 

27.9

%

Money market accounts

 

3,472,953

 

20.7

%  

 

3,922,533

 

24.6

%

 

4,104,282

 

23.7

%  

 

3,850,679

 

22.9

%

Savings accounts

 

950,363

 

5.6

%  

 

1,130,899

 

7.1

%

 

895,213

 

5.2

%  

 

909,223

 

5.4

%

Customer time deposits of $250,000 and over

 

634,950

 

3.8

%  

 

405,060

 

2.5

%

 

721,155

 

4.2

%  

 

674,939

 

4.0

%

Other customer time deposits

 

2,011,106

 

12.0

%  

 

1,396,011

 

8.8

%

 

2,293,800

 

13.3

%  

 

2,173,904

 

12.9

%

Time Deposits

2,646,056

 

15.8

%  

1,801,071

 

11.3

%

3,014,955

 

17.5

%  

2,848,843

 

16.9

%

Total interest-bearing customer deposits

12,124,836

72.2

%

11,041,008

69.3

%

12,767,935

73.9

%

12,306,564

73.1

%

Brokered deposits

516,720

3.1

%  

7,430

%

665,309

3.9

%  

548,384

3.3

%

Total interest-bearing deposits

$

12,641,556

75.3

%

$

11,048,438

69.3

%

$

13,433,244

77.8

%

$

12,854,948

76.4

%

Demand deposits

4,144,949

24.7

%

4,883,239

30.7

%

3,845,191

22.2

%

3,963,181

23.6

%

Total Deposits (1)

$

16,786,505

 

100.0

%  

$

15,931,677

 

100.0

%

$

17,278,435

 

100.0

%  

$

16,818,129

 

100.0

%

(1) Includes estimated uninsured deposits of $5.4$5.9 billion and $6.3$5.8 billion as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and collateralized deposits of $872.2$771.2 million and $951.9$861.6 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

The Company may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions, and the Company utilizes this funding source as part of its overall liquidity management strategy. As of September 30, 2023 and December 31, 2022, the Company’s certificates of deposits included $111.0 million and $7.5 million, respectively, in purchased certificates of deposits.

Maturities of time deposits in excess of FDIC insurance limits as of September 30, 2023 and December 31, 2022 were as follows for the quarters ended (dollars in thousands):

    

    

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

3 Months or Less

$

59,068

$

14,225

$

61,450

$

141,146

Over 3 Months through 6 Months

 

129,139

 

36,907

 

73,485

 

62,006

Over 6 Months through 12 Months

60,842

88,410

105,747

32,672

Over 12 Months

 

27,902

 

53,666

 

56,223

 

43,865

Total

$

276,950

$

193,208

$

296,905

$

279,689

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Capital ResourcesCAPITAL 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. TheOur management reviews our capital adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company’sour resources and consistency with regulatory requirements and industry standards. Management seeksWe seek 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 managementwhile allowing us to effectively leverage itsour capital to maximize return to shareholders.

Under the Basel III capital rules, the Company and the Bankwe must comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 7.0% of risk-weighted assets; (ii) a Tier 1 capital ratio of 8.5% of risk-weighted assets; (iii) a total capital ratio of 10.5% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. These ratios, with the exception of the leverage ratio, include a 2.5% capital conservation buffer, which is designed to absorb losses during periods of economic

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stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

On March 27,August 26, 2020, the bankingfederal bank regulatory agencies issued an interimadopted a final rule that allows the Companyallowed us to phase in the impact of adopting the CECL methodology up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay.  The Company is allowed to include the impact of the CECL transition, which is defined as the CECL Day 1 impact to capital plus 25% of the Company’s provision for credit losses during 2020, in regulatory capital through 2021.  The CompanyWe elected to phase in the regulatory capital impact as permitted under the aforementioned interimthis final rule. The CECL transition amount is being phased out of regulatory capital over a three-year period that began in 2022 and ends in 2024.

The table summarizes the Company’sour regulatory capital and related ratios foras of the periods presentedended (2) (dollars in thousands):

September 30, 

December 31, 

September 30, 

March 31, 

December 31, 

March 31, 

2023

2022

2022

2024

2023

2023

Common equity Tier 1 capital

$ 1,761,437

$ 1,684,088

$ 1,633,072

$ 1,816,076

$ 1,790,183

$ 1,690,040

Tier 1 capital

1,927,793

1,850,444

1,799,428

1,982,433

1,956,539

1,856,396

Tier 2 capital

500,454

468,716

463,175

525,138

508,278

489,827

Total risk-based capital

2,428,247

2,319,160

2,262,604

2,507,571

2,464,817

2,346,224

Risk-weighted assets

17,719,845

16,930,559

16,393,301

18,406,940

18,184,252

17,049,045

Capital ratios:

Common equity Tier 1 capital ratio

9.94%

9.95%

9.96%

9.87%

9.84%

9.91%

Tier 1 capital ratio

10.88%

10.93%

10.98%

10.77%

10.76%

10.89%

Total capital ratio

13.70%

13.70%

13.80%

13.62%

13.55%

13.76%

Leverage ratio (Tier 1 capital to average assets)

9.62%

9.42%

9.32%

9.62%

9.63%

9.38%

Capital conservation buffer ratio (1)

4.88%

4.93%

4.98%

4.77%

4.76%

4.89%

Common equity to total assets

10.72%

10.78%

10.60%

11.14%

11.29%

11.31%

Tangible common equity to tangible assets (+)

6.45%

6.43%

6.11%

7.05%

7.15%

6.91%

(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) All ratios and amounts at September 30, 2023March 31, 2024 are estimates and subject to change pending the Company’s filing of itsour FR Y9-C. All other periods are presented as filed.

(+) Refer to “Non-GAAP Financial Measures” 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.

For more information about our off-balance sheet obligations and cash requirements, refer to “Liquidity” within this Item 2.

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Table of Contents

NON-GAAP FINANCIAL MEASURES

In reporting the results as of and for the period ended September 30, 2023, the Company hasthis Quarterly Report, we have provided supplemental performance measures on a tax-equivalent, tangible, operating, adjusted or pre-tax pre-provision basis. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company’sour 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’sour non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company usesWe use the non-GAAP financial measures discussed herein in itsour analysis of the Company’sour performance. The Company’s managementManagement believes that these non-GAAP financial measures provide additional understanding of ongoing operations, enhance comparability of our results of operations with prior periods and show the effects of significant gains and charges in the periods presented without the impact of items or events that may obscure trends in the Company’sour underlying performance.

The Company believesWe believe net interest income (FTE) and total revenue (FTE), which are used in computing net interest margin (FTE), provide valuable additional insight into the net interest margin by adjusting for differences in the tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing the yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.

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

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30, 

 

September 30, 

 

March 31, 

 

    

2023

    

2022

 

    

2023

    

2022

 

    

2024

    

2023

 

Interest Income (FTE)

Interest and dividend income (GAAP)

$

247,159

$

171,156

$

694,952

$

458,367

$

262,915

$

217,546

FTE adjustment

 

3,744

 

3,842

 

11,198

 

10,755

 

3,721

 

3,788

Interest and dividend income (FTE) (non-GAAP)

$

250,903

$

174,998

$

706,150

$

469,122

$

266,636

$

221,334

Average earning assets

$

18,462,505

$

17,879,222

$

18,264,957

$

17,803,550

$

19,089,393

$

18,238,088

Yield on interest-earning assets (GAAP)

 

5.31

%  

 

3.80

%

 

5.09

%  

 

3.44

%

 

5.54

%  

 

4.84

%

Yield on interest-earning assets (FTE) (non-GAAP)

 

5.39

%  

 

3.88

%

 

5.17

%  

 

3.52

%

 

5.62

%  

 

4.92

%

Net Interest Income (FTE)

 

  

 

  

 

  

 

  

 

  

 

  

Net interest income (GAAP)

$

151,941

$

150,715

$

457,469

$

420,413

$

147,825

$

153,443

FTE adjustment

 

3,744

 

3,842

 

11,198

 

10,755

 

3,721

 

3,788

Net interest income (FTE) (non-GAAP)

$

155,685

$

154,557

$

468,667

$

431,168

$

151,546

$

157,231

Noninterest income (GAAP)

27,094

25,584

60,918

94,023

25,552

9,628

Total revenue (FTE) (non-GAAP)

$

182,779

$

180,141

$

529,585

$

525,191

$

177,098

$

166,859

Average earning assets

$

18,462,505

$

17,879,222

$

18,264,957

$

17,803,550

$

19,089,393

$

18,238,088

Net interest margin (GAAP)

 

3.27

%  

 

3.34

%

 

3.35

%  

 

3.16

%

 

3.11

%  

 

3.41

%

Net interest margin (FTE) (non-GAAP)

 

3.35

%  

 

3.43

%

 

3.43

%  

 

3.24

%

 

3.19

%  

 

3.50

%

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Table of Contents

Tangible assets and tangible common equity are used in the calculation of certain profitability, capital, and per share ratios. The Company believesWe believe tangible assets, tangible common equity and the 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 believeswe believe will assist investors in assessing theour capital of the Company and itsour ability to absorb potential losses. The Company believesWe believe tangible common equity is an important indication of itsour ability to grow organically and through business combinations as well as itsour ability to pay dividends and to engage in various capital management strategies.

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

Three Months Ended

Three Months Ended

September 30, 

December 31, 

September 30, 

March 31, 

December 31, 

March 31, 

    

2023

    

2022

    

2022

    

    

2024

    

2023

    

2023

    

Tangible Assets

 

  

 

  

 

  

 

  

 

  

 

  

Ending Assets (GAAP)

$

20,736,236

$

20,461,138

$

19,950,231

$

21,378,120

$

21,166,197

$

20,103,370

Less: Ending goodwill

 

925,211

 

925,211

 

925,211

 

925,211

 

925,211

 

925,211

Less: Ending amortizable intangibles

 

21,277

 

26,761

 

29,142

 

17,288

 

19,183

 

24,482

Ending tangible assets (non-GAAP)

$

19,789,748

$

19,509,166

$

18,995,878

$

20,435,621

$

20,221,803

$

19,153,677

Tangible Common Equity

���

 

  

 

  

 

  

 

  

 

  

 

  

Ending Equity (GAAP)

$

2,388,801

$

2,372,737

$

2,281,150

$

2,548,928

$

2,556,327

$

2,440,236

Less: Ending goodwill

 

925,211

 

925,211

 

925,211

 

925,211

 

925,211

 

925,211

Less: Ending amortizable intangibles

 

21,277

 

26,761

 

29,142

 

17,288

 

19,183

 

24,482

Less: Perpetual preferred stock

166,357

166,357

166,357

166,357

166,357

166,357

Ending tangible common equity (non-GAAP)

$

1,275,956

$

1,254,408

$

1,160,440

$

1,440,072

$

1,445,576

$

1,324,186

Average equity (GAAP)

$

2,446,902

$

2,321,208

$

2,436,999

$

2,568,243

$

2,430,711

$

2,423,600

Less: Average goodwill

 

925,211

 

925,211

 

925,211

 

925,211

 

925,211

 

925,211

Less: Average amortizable intangibles

 

22,342

 

27,909

 

30,347

 

18,198

 

20,192

 

25,588

Less: Average perpetual preferred stock

166,356

166,356

166,356

166,356

166,356

166,356

Average tangible common equity (non-GAAP)

$

1,332,993

$

1,201,732

$

1,315,085

$

1,458,478

$

1,318,952

$

1,306,445

Common equity to total assets (GAAP)

10.72

%  

10.78

%  

10.60

%  

11.14

%  

11.29

%  

11.31

%  

Tangible common equity to tangible assets (non-GAAP)

 

6.45

%

 

6.43

%

 

6.11

%

 

7.05

%

 

7.15

%

 

6.91

%

Book value per common share (GAAP)

$

29.82

$

29.68

$

28.46

$

31.88

$

32.06

$

30.53

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Adjusted operating measures exclude, as applicable, strategic cost saving initiatives (principally composed of severance charges related to headcount reductions,merger-related costs, related to modifying certain third party vendor contracts, and charges for exiting certain leases), merger-related costs,a FDIC special assessment, a legal reserve associated with an ongoing regulatory matterour previously disclosed strategic branch closingsettlement with the CFPB, and related facility consolidation costs (principally composed of real estate, leases and other assets write downs, as well as severance and expense reduction initiatives), lossgain (loss) on sale of securities, gain on sale-leaseback transaction, and gain on sale of DHFB. The Company believessecurities. We believe these non-GAAP adjusted measures provide investors with important information about the continuing economic results of the organization’sour operations. The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands, except per share amounts):

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Three Months Ended

 

Nine Months Ended

 

September 30, 

 

September 30, 

 

    

2023

    

2022

 

    

2023

    

2022

 

Adjusted Operating Earnings & EPS

Net income (GAAP)

$

54,017

$

58,070

$

144,911

$

163,986

Plus: Strategic cost saving initiatives, net of tax

6,851

9,959

Plus: Merger-related costs, net of tax

 

1,965

 

 

1,965

 

Plus: Legal reserve, net of tax

3,950

Plus: Strategic branch closing and facility consolidation costs, net of tax

4,351

Less: Loss on sale of securities, net of tax

(21,799)

(32,384)

(2)

Less: Gain on sale-leaseback transaction, net of tax

21,883

21,883

Less: Gain on sale of DHFB, net of tax

7,984

Adjusted operating earnings (non-GAAP)

$

62,749

$

58,070

$

171,286

$

160,355

Less: Dividends on preferred stock

2,967

2,967

8,901

8,901

Adjusted operating earnings available to common shareholders (non-GAAP)

$

59,782

$

55,103

$

162,385

$

151,454

Weighted average common shares outstanding, diluted

 

74,999,128

 

74,705,054

 

74,943,999

 

75,034,084

Earnings per common share, diluted (GAAP)

$

0.68

$

0.74

$

1.81

$

2.07

Adjusted operating earnings per common share, diluted (non-GAAP)

$

0.80

$

0.74

$

2.17

$

2.02

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Three Months Ended

 

March 31, 

 

    

2024

    

2023

 

Adjusted Operating Earnings & EPS

Net income (GAAP)

$

49,769

$

35,653

Plus: Merger-related costs, net of tax

 

1,563

 

Plus: FDIC special assessment, net of tax

664

Plus: Legal reserve, net of tax

3,950

Less: Gain (loss) on sale of securities, net of tax

2

(10,586)

Adjusted operating earnings (non-GAAP)

$

51,994

$

50,189

Less: Dividends on preferred stock

2,967

2,967

Adjusted operating earnings available to common shareholders (non-GAAP)

$

49,027

$

47,222

Weighted average common shares outstanding, diluted

 

75,197,376

 

74,835,514

Earnings per common share, diluted (GAAP)

$

0.62

$

0.44

Adjusted operating earnings per common share, diluted (non-GAAP)

$

0.65

$

0.63

Adjusted operating noninterest expense excludes, as applicable, expenses related to the amortization of intangible assets, strategic cost saving initiatives (principally composed of severance charges related to headcount reductions,merger-related costs, related to modifying certain third party vendor contracts,a FDIC special assessment, and charges for exiting certain leases), merger-related costs, a legal reserve associated with an ongoing regulatory matterour previously disclosed strategic branch closing and related facility consolidation costs (principally composed of real estate, leases and other assets write downs, as well as severance and expense reduction initiatives), and adjustedsettlement with the CFPB. Adjusted operating noninterest income excludes as applicable, lossgain (loss) on sale of securities, gain on sale-leaseback transaction, and gain on sale of DHFB.securities. These measures are similar to the measures used by the Companywe use when analyzing corporate performance and are also similar to the measure used for incentive compensation. We believe this adjusted measure provides investors with important information about the continuing economic results of our operations.

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

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

September 30, 

 

September 30, 

 

March 31, 

 

    

2023

    

2022

 

    

2023

    

2022

 

    

2024

    

2023

 

Adjusted Operating Noninterest Expense & Noninterest Income

Noninterest expense (GAAP)

$

108,508

$

99,923

$

322,442

$

304,012

$

105,273

$

108,274

Less: Amortization of intangible assets

 

2,193

 

2,480

 

6,687

 

8,434

 

1,895

 

2,279

Less: Strategic cost saving initiatives

8,672

12,607

Less: Merger-related costs

 

1,993

 

 

1,993

 

 

1,874

 

Less: FDIC special assessment

840

Less: Legal reserve

5,000

5,000

Less: Strategic branch closing and facility consolidation costs

5,508

Adjusted operating noninterest expense (non-GAAP)

$

95,650

$

97,443

$

296,155

$

290,070

$

100,664

$

100,995

Noninterest income (GAAP)

$

27,094

$

25,584

$

60,918

$

94,023

$

25,552

$

9,628

Less: Loss on sale of securities

(27,594)

(40,992)

(2)

Less: Gain on sale-leaseback transaction

27,700

27,700

Less: Gain on sale of DHFB

9,082

Less: Gain (loss) on sale of securities

3

(13,400)

Adjusted operating noninterest income (non-GAAP)

$

26,988

$

25,584

$

74,210

$

84,943

$

25,549

$

23,028

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Sensitivity

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’sOur market risk is composed primarily of interest rate risk. The Company’sOur ALCO is responsible for reviewing theour interest rate sensitivity position and establishing policies to monitor and limit exposure to this risk. The Company’sOur Board of Directors reviews and approves the policies established by our ALCO.

The Company monitorsWe monitor interest rate risk through the use ofusing 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 the Company’sour interest rate risk, 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. The Company’sWe use the static gap analysis, which measures aggregate re-pricing values, is utilized less often because it does not effectively take into accountconsider the optionality embedded into many assets and liabilities and, therefore, the Company doeswe do not address it here. The Company usesWe use earnings simulation and economic value simulation models on a regular basis, which more effectively measure the cash flow and optionality impacts, and these models are discussed below.

The Company determinesWe determine the overall magnitude of interest sensitivity risk and then formulateswe create policies and practices governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisionspolicies and practices 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 usesWe use simulation modeling to measure and monitor the effect of various interest rate scenarios and business strategies on our 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 Modeling

Management uses earnings simulation modeling to measure the sensitivity of our 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 the Company believeswe believe it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis noted above.

The Company derivesWe derive the assumptions used in the model from historical trends and management’s outlook, including expected loan growth, loan prepayment rates, projected loan origination spreads, deposit growth rates, changes to deposit product betas and non-maturity deposit decay rates, and projected yields and rates. These assumptions may not be realized and unanticipated events and circumstances may also occur that cause the assumptions to be inaccurate. The model also does not take into account any future actions of management to mitigate the impact of interest rate changes. The Company’sOur ALCO monitors the assumptions at least quarterly and periodically adjusts them as deemedit deems appropriate. In the modeling, the Company assumedwe assume that all maturities, calls, and prepayments in the securities portfolio are reinvested in like instruments, and the Company basedwe base the MBS prepayment assumptions on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. The CompanyWe also useduse different interest rate scenarios and yield curves to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the short-term market rate changes and these differences are reflected in the different rate scenarios. DepositWe adjust deposit betas, decay rates and loan prepayment speeds are adjusted periodically in the Company’sour models for non-maturity deposits and loans.

The Company uses itsWe use our earnings 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 time horizonperiod after an immediate increase or “shock” in rates, of 100 bps up to 300 bps. 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 our net interest income for the Company across the rate paths modeled for balances as of September 30, 2023, December 31, 2022, and September 30, 2022:the quarterly periods ended:

Change In Net Interest Income

Change In Net Interest Income

September 30, 

December 31, 

September 30, 

March 31, 

December 31, 

March 31, 

2023

2022

2022

2024

2023

2023

    

%

    

%

    

%

    

%

    

%

    

%

Change in Yield Curve:

 

  

 

  

  

 

  

 

  

  

+300 basis points

 

7.26

 

11.73

16.70

 

5.68

 

4.41

7.91

+200 basis points

 

4.97

 

8.25

11.05

 

3.97

 

3.20

5.01

+100 basis points

 

2.66

 

4.65

5.54

 

2.12

 

1.79

2.06

Most likely rate scenario

 

 

 

 

-100 basis points

 

(1.64)

 

(3.18)

(4.99)

 

(2.85)

 

(1.68)

(4.75)

-200 basis points

 

(5.48)

 

(7.40)

(10.10)

 

(6.28)

 

(3.92)

(8.94)

-300 basis points

(9.72)

(12.21)

(17.24)

(9.85)

(7.62)

(11.46)


If an institution is asset sensitive its assets reprice more quickly than its liabilities and net interest income would be expected to increase in a rising interest rate environment and decrease in a falling interest rate environment. If an institution is liability sensitive its liabilities reprice more quickly than its assets and net interest income would be expected to decrease in a rising interest rate environment and increase in a falling interest rate environment.

From a net interest income perspective, the Company was lesswe were more asset sensitive as of September 30, 2023,March 31, 2024 compared to itsour position as of September 30, 2022.December 31, 2023. This shift is due, in part, due to the changing market characteristics of certain loan and deposit products and, in part, due to various other balance sheet strategies. The Company wouldWe were less asset sensitive as of March 31, 2024 compared to our position as of March 31, 2023. This shift is due, in part, to the changing market characteristics of certain loan and deposit products and, in part, due to various other balance sheet strategies. We expect net interest income to increase with an immediate increase or shock in market rates. In thea decreasing interest rate environments, the Companyenvironment, we would expect a decline in net interest income as interest-earning assets re-price more quickly than interest-bearing deposits.

Economic Value Simulation Modeling

EconomicWe use economic value simulation modeling is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. The Company calculatesWe calculate the economic values 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 Company usesWe use the same assumptions in the economic value simulation model as in the earnings simulation model. The economic value simulation model uses instantaneous rate shocks to the balance sheet.

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The following charttable reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances atas of the quarterly periods ended September 30, 2023, December 31, 2022, and September 30, 2022:ended:

Change In Economic Value of Equity

Change In Economic Value of Equity

September 30, 

December 31, 

September 30, 

March 31, 

December 31, 

March 31, 

2023

2022

2022

2024

2023

2023

    

%

    

%

    

%

    

%

    

%

    

%

Change in Yield Curve:

 

  

  

  

 

  

  

  

+300 basis points

 

(8.54)

(12.32)

(6.21)

 

(9.46)

(8.11)

(11.44)

+200 basis points

 

(5.89)

(8.41)

(4.44)

 

(6.58)

(5.36)

(7.91)

+100 basis points

 

(3.06)

(4.25)

(2.49)

 

(3.38)

(2.53)

(4.05)

Most likely rate scenario

 

 

-100 basis points

 

2.94

3.55

1.29

 

2.23

2.34

3.01

-200 basis points

 

3.38

6.41

1.95

 

3.18

3.07

5.30

-300 basis points

2.25

5.71

(0.75)

2.21

0.76

5.90

As of September 30, 2023, the Company’sMarch 31, 2024, our economic value of equity is generally less asset sensitive in a rising interest rate environment compared to its positionour positions as of September 30, 2022December 31, 2023 and March 31, 2023, primarily due to the composition of theour Consolidated Balance Sheets and also due in part to the pricing characteristics and assumptions of certain deposits. A decrease in interest rates may have an adverse impact if our asset yields reprice faster than our deposits or if we are not able to reduce our deposit rates in a declining rate scenario.

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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, 2023.March 31, 2024. 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 ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023,March 31, 2024, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control Over Financial Reporting

Management has taken measures to maintainThere was no change in the Company’s internal control over financial reporting (as such term is defined in RulesRule 13a-15(f) and 15d-15(f) underof the Exchange Act) that occurred during the quarter ended September 30, 2023. There have been no changes during the quarter ended September 30, 2023March 31, 2024 that have materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the ordinary course of our operations, we are party 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 theour business or the financial condition or results of operations of the Company, subject to the potential outcomes of the matter discussed below.operations.

As previously disclosed, on February 9, 2022, pursuant to the CFPB’s Notice and Opportunity to Respond and Advise process, the CFPB Office of Enforcement notified usthe Bank that it iswas considering recommending that the CFPB take legal action against usthe Bank in connection with alleged violations of Regulation E, 12 C.F.R. § 1005.17, and the Consumer Financial Protection Act, 12 U.S.C. §§ 5531 and 5536, in connection with ourthe Bank’s overdraft practices and policies. In March 2023, the CFPB commenced settlement discussions with us, and on December 7, 2023, the Bank entered into a Consent Order with the CFPB to resolve the matter,matter. A copy of the Consent Order is available on the CFPB’s website. The terms of the Consent Order require, among other things, that the Bank submit a redress plan to the CFPB pursuant to which are ongoing. We cannot provide assurance whether a settlementthe Bank will be reached, the final terms or timing of any such settlement, or the finalpay restitution in an amount of loss (potentially including both restitutionat least $5.0 million to certain current and former customers of the Bank who opted-in to the Bank’s discretionary overdraft service during a specified time period and pay a $1.2 million civil money penalty) with respect to this matter. Any final loss could be materially different from our current estimate and accrued amount. If the Company and the CFPB do not reach a settlement, the CFPB may commence litigation against the Company.monetary penalty. See Note 7, “Commitments and Contingencies” in the “Notes to the Consolidated Financial Statements” in Part I, Item I of this Form 10-QQuarterly Report for additional information.

ITEM 1A – RISK FACTORS

Except as set forth in Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q forDuring the quartersquarter ended March 31, 2023 and June 30, 2023, filed with the SEC on May 4, 2023 and August 3, 2023, respectively, and incorporated herein by reference,2024, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in our 20222023 Form 10-K.

An investment in our securities involves risks. In addition to the other information set forth in this Quarterly Report, including the information addressed under “Forward-Looking Statements,” investors in our securities should carefully consider the risk factors discussed in our 20222023 Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and June 30, 2023.10-K. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations, and capital position and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of our securities could decline.

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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Sales of Unregistered Securities – None

(b) Use of Proceeds – Not Applicable

(c) Issuer Purchases of Securities 

Stock Repurchase Program; Other Repurchases

As of September 30, 2023, the Company doesMarch 31, 2024, we did not have an authorized share repurchase program.program in effect.

The following information describes the Company’sour common stock repurchases for the three months ended September 30, 2023:March 31, 2024:

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 dollar value of shares that may yet be purchased under the plans or programs ($)

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 dollar value of shares that may yet be purchased under the plans or programs ($)

July 1 - July 31, 2023

5,006

30.65

August 1 - August 31, 2023

630

29.93

September 1 - September 30, 2023

438

30.06

January 1 - January 31, 2024

20,868

35.26

February 1 - February 29, 2024

55,820

33.40

March 1 - March 31, 2024

2,427

34.82

Total

6,074

30.53

79,115

33.93

_________________________________________

(1) For the three months ended September 30, 2023, 6,074March 31, 2024, 79,115 shares were withheld upon vesting of restricted shares granted to our employees of the Company in order to satisfy tax withholding obligations.

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ITEM 5 – OTHER INFORMATION

Other Information

Given the timing of the following event, the following information is included in this Quarterly Report pursuant to Item 5.02 of Form 8-K, “Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensation Arrangements of Certain Officers” in lieu of filing a Form 8-K.

As discussed in our proxy statement for our 2024 annual meeting of shareholders, as part of our executive compensation program, we provide annual cash incentive awards under our Management Incentive Plan (the “MIP”). On April 26, 2024, the Compensation Committee of our Board of Directors reviewed and approved an amendment to Appendix A of the MIP that adds a relative return on tangible common equity (“ROTCE”) performance modifier to the MIP that will be set by the Compensation Committee each year. The relative ROTCE performance modifier will measure performance relative to the proxy peer group we use to annually assess the competitiveness of our compensation arrangements. For 2024, the relative ROTCE performance modifier will be applied against the calculated absolute performance of the four corporate performance measures under the MIP as follows:

Threshold

Target

Superior

Modifier

0.5x

1.0x

1.5x

Relative Rank

<=25th

50th

>=75th

Actual performance between threshold, target and superior performance levels will be calculated using straight line interpolation, and cashpayments under the MIP will continue to be capped at 200% of each executive’s target incentive award. 

The preceding description of the MIP does not purport to be complete and is qualified in its entirety by the MIP, which is attached hereto as Exhibit 10.12 and incorporated herein by reference.

Trading Arrangements

During the three months ended September 30, 2023,March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) informed us of the adoption or termination of any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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ITEM 6 – EXHIBITS

The following exhibits are filed as part of this Quarterly Report and this list includes the Exhibit Index:

Exhibit No.

    

Description

2.1

Agreement and Plan of Merger by and between Atlantic Union Bankshares Corporation and American National Bankshares Inc. dated July 24, 2023 (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on July 25, 2023).*

3.1

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

3.1.1

Articles of Amendment designating the 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, effective June 9, 2020 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 9, 2020).

3.2

Amended and Restated Bylaws of Atlantic Union Bankshares Corporation, effective as of December 5, 20196, 2023 (incorporated by reference to Exhibit 3.33.2 to AnnualCurrent Report on Form 10-K8-K filed on February 25, 2020)December 8, 2023).

10.110.12

Agreement for Purchase and Sale of Real Property, dated September 20, 2023, by and between Atlantic Union Bank and Blue Owl AUB Owner LLC (incorporated by referenceManagement Incentive Plan (re-filed to Exhibit 10.1 to Current Report on Form 8-K filed on September 21, 2023)*update Appendix A thereto).

10.210.25

ScheduleForm of Performance Share Unit Agreement under Atlantic Union Bankshares Corporation Non-Employee Director CompensationStock and Incentive Plan (for awards with a relative TSR performance measure granted on or after February 22, 2024) (incorporated by reference to Exhibit 10.25 to Annual Report on Form 10-K filed on February 22, 2024).

15.1

Letter regarding unaudited interim financial information.

31.1

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

31.2

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

32.1

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

101

Interactive data files formatted in Inline eXtensible Business Reporting Language for the quarter ended SeptemberMarch 30, 202331, 2024 pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (unaudited), (iii) the Consolidated Statements of Comprehensive Income (Loss) (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

The cover page from the Company’sour Quarterly Report on Form 10-Q for the quarter ended SeptemberMarch 31 30, 2023, 2024, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).

*  Certain schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of Regulation S-K, as applicable. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request. 

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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: NovemberMay 2, 20232024

By:

/s/ John C. Asbury

John C. Asbury,

President and Chief Executive Officer

(principal executive officer)

Date: NovemberMay 2, 20232024

By:

/s/ Robert M. Gorman

Robert M. Gorman,

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

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