Table of Contents

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 SeptemberJune 30, 20222023

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 CORPORATIONCORPORATION

(Exact name of registrant as specified in its charter)

Virginia

54-1598552

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1051 East Cary Street

Suite 1200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

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

Title of each class

    

Trading symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $1.33 per share

AUB

The NASDAQ Global Select MarketNew York Stock Exchange

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

AUBAPAUB.PRA

The NASDAQ Global Select MarketNew 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 27, 2022July 28, 2023 was 74,711,507.75,004,706.

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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 SeptemberJune 30, 20222023 (unaudited) and December 31, 20212022 (audited)

2

Consolidated Statements of Income (unaudited) for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022

3

Consolidated Statements of Comprehensive Income (Loss)Income (unaudited) for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022

4

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and ninesix months ended September June 30, 20222023 and 20212022

5

Consolidated Statements of Cash Flows (unaudited) for the ninesix months ended SeptemberJune 30, 20222023 and 20212022

76

Notes to Consolidated Financial Statements (unaudited)

98

Review Report of Independent Registered Public Accounting Firm

5352

Item 2.

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

5453

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

84

Item 4.

Controls and Procedures

86

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

87

Item 1A.

Risk Factors

87

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

8789

Item 5.

Other Information

89

Item 6.

Exhibits

8890

Signatures

8991

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Glossary of Acronyms and Defined Terms

In this 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.

20212022 Form 10-K

Annual Report on Form 10-K for the year ended December 31, 2021

2031 Notes

$250.0 million of 2.875% fixed-to-floating rate subordinate notes issued by the Company during the fourth quarter of 2021 with a maturity date of December 15, 2031

Access

Access National Corporation and its subsidiaries2022

ACL

Allowance for credit losses

AFS

Available for sale

ALCO

Asset Liability 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

ASC 820

ASC 820, Fair Value Measurements and Disclosures

ASU

Accounting Standards Update

ATM

Automated teller machine

AUB

Atlantic Union Bankshares Corporation

AUBAP

Atlantic Union Bankshares Corporation trading symbol

the Bank

Atlantic Union Bank (formerly, Union Bank & Trust)

BOLI

Bank ownedBank-owned life insurance

bps

Basis points

BVALBTFP

Bloomberg Valuation Service

CAA

Consolidated Appropriations Act, 2021

CARES Act

Coronavirus Aid, Relief, and Economic Security ActBank Term Funding Program

CECL

Current expected credit losses

CODMCFPB

Chief operating decision makerConsumer Financial Protection Bureau

the Company

Atlantic Union Bankshares Corporation (formerly, Union Bankshares Corporation) and its subsidiaries

COVID-19

COVID-19 global pandemic

CSP

Cary Street Partners Financial LLC

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

FCMs

Futures Commission Merchants

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FRB

Federal Reserve Bank of Richmond

FHLB

Federal Home Loan Bank of Atlanta

FHLMC

Federal Home Loan Mortgage Corporation

FNB

FNB Corporation

FNMA

Federal National Mortgage Association

FOMC

Federal Open MarketsMarket Committee

FTE

Fully taxable equivalent

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 or U.S. GAAP

Accounting principles generally accepted in the United States

GNMA

Government National Mortgage Association

HTM

Held to maturity

ICE

Intercontinental Exchange Data Services

Table of Contents

the Joint Guidance

The five federal bank regulatory agencies and the Conference of State Bank Supervisors guidance

Issued on March 22, 2020 (subsequently revised on April 7, 2020)

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.

merger

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

Table of Contents

MFC

Middleburg Financial Corporation

NASDAQ

National Association of Securities Dealers Automated Quotation exchange

NM

Not meaningful

NOW

Negotiable order of withdrawal

NPA

Nonperforming assets

NYSE

New York Stock Exchange

OCI

Other comprehensive (loss) income

OREO

Other real estate owned

OTC

Over-the-counter

PD/LGD

Probability of default/loss given default

PPP

Paycheck Protection Program

Quarterly Report

Quarterly Report on Form 10-Q for the quarter ended September 30, 2022

Repurchase Program

The share repurchase program, approved on December 10, 2021 by the Company’s Board of Directors, which authorizes the Company to purchase up to $100.0 million worth of the Company’s common stock

ROU asset

Right of Use Asset

RPAs

Risk Participation Agreements

RUC

Reserve for unfunded commitments

RVI

Residual value insurance

SBA

Small Business Administration

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

SSFATLM

Simplified supervisory formula approachTroubled loan modification

TDR

Troubled debt restructuring

Topic 606

ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”

Topic 848

ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

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 SEPTEMBERJUNE 30, 20222023 AND DECEMBER 31, 20212022

(Dollars in thousands, except share data)

September 30,

December 31,

June 30,

December 31,

2022

    

2021

2023

    

2022

ASSETS

(unaudited)

(audited)

(unaudited)

(audited)

Cash and cash equivalents:

Cash and due from banks

$

177,969

$

180,963

$

199,778

$

216,384

Interest-bearing deposits in other banks

211,785

618,714

227,015

102,107

Federal funds sold

1,188

2,824

1,474

1,457

Total cash and cash equivalents

390,942

802,501

428,267

319,948

Securities available for sale, at fair value

2,717,323

3,481,650

2,182,448

2,741,816

Securities held to maturity, at carrying value

841,349

628,000

849,610

847,732

Restricted stock, at cost

82,050

76,825

111,178

120,213

Loans held for sale, at fair value

12,889

20,861

Loans held for sale

10,327

3,936

Loans held for investment, net of deferred fees and costs

13,918,720

13,195,843

15,066,930

14,449,142

Less: allowance for loan and lease losses

108,009

99,787

120,683

110,768

Total loans held for investment, net

13,810,711

13,096,056

14,946,247

14,338,374

Premises and equipment, net

126,374

134,808

114,786

118,243

Goodwill

925,211

935,560

925,211

925,211

Amortizable intangibles, net

29,142

43,312

23,469

26,761

Bank owned life insurance

437,988

431,517

446,441

440,656

Other assets

576,252

413,706

564,348

578,248

Total assets

$

19,950,231

$

20,064,796

$

20,602,332

$

20,461,138

LIABILITIES

Noninterest-bearing demand deposits

$

5,290,938

$

5,207,324

$

4,310,306

$

4,883,239

Interest-bearing deposits

11,255,278

11,403,744

12,101,681

11,048,438

Total deposits

16,546,216

16,611,068

16,411,987

15,931,677

Securities sold under agreements to repurchase

146,182

117,870

130,461

142,837

Other short-term borrowings

133,800

799,400

1,176,000

Long-term borrowings

389,576

388,724

390,440

389,863

Other liabilities

453,307

237,063

445,574

448,024

Total liabilities

17,669,081

17,354,725

18,177,862

18,088,401

Commitments and contingencies (Note 7)

STOCKHOLDERS' EQUITY

Preferred stock, $10.00 par value

173

173

173

173

Common stock, $1.33 par value

98,845

100,101

99,088

98,873

Additional paid-in capital

1,769,858

1,807,368

1,776,494

1,772,440

Retained earnings

874,393

783,794

959,582

919,537

Accumulated other comprehensive (loss) income

(462,119)

18,635

Accumulated other comprehensive loss

(410,867)

(418,286)

Total stockholders' equity

2,281,150

2,710,071

2,424,470

2,372,737

Total liabilities and stockholders' equity

$

19,950,231

$

20,064,796

$

20,602,332

$

20,461,138

Common shares outstanding

74,703,774

75,663,648

74,998,075

74,712,622

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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20222023 AND 20212022

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

Three Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

September 30,

September 30,

September 30,

September 30,

June 30,

June 30,

June 30,

June 30,

2022

    

2021

    

2022

    

2021

2023

    

2022

    

2023

    

2022

Interest and dividend income:

Interest and fees on loans

$

144,673

$

124,999

$

382,139

$

383,575

$

205,172

$

123,266

$

395,165

$

237,466

Interest on deposits in other banks

941

291

1,229

454

1,014

157

2,507

288

Interest and dividends on securities:

Taxable

14,750

11,230

43,110

32,102

15,565

14,695

32,317

28,361

Nontaxable

10,792

9,859

31,889

28,773

8,496

10,637

17,804

21,097

Total interest and dividend income

171,156

146,379

458,367

444,904

230,247

148,755

447,793

287,212

Interest expense:

Interest on deposits

15,386

5,837

25,966

22,203

65,267

6,097

117,100

10,580

Interest on short-term borrowings

1,229

22

1,805

91

8,044

555

15,607

576

Interest on long-term borrowings

3,826

3,032

10,183

9,676

4,852

3,336

9,558

6,358

Total interest expense

20,441

8,891

37,954

31,970

78,163

9,988

142,265

17,514

Net interest income

150,715

137,488

420,413

412,934

152,084

138,767

305,528

269,698

Provision for credit losses

6,412

(18,850)

12,771

(59,888)

6,069

3,559

17,920

6,359

Net interest income after provision for credit losses

144,303

156,338

407,642

472,822

146,015

135,208

287,608

263,339

Noninterest income:

Service charges on deposit accounts

6,784

7,198

22,421

19,314

8,118

8,040

16,020

15,637

Other service charges, commissions and fees

1,770

1,534

5,134

4,970

1,693

1,709

3,439

3,364

Interchange fees

2,461

2,203

6,539

6,252

2,459

2,268

4,784

4,078

Fiduciary and asset management fees

4,134

7,029

18,329

20,323

4,359

6,939

8,620

14,194

Mortgage banking income

1,390

4,818

6,707

17,692

449

2,200

1,303

5,317

Gain (loss) on sale of securities

2

(2)

(13,398)

(2)

Bank owned life insurance income

3,445

2,727

8,858

8,202

2,870

2,716

5,698

5,413

Loan-related interest rate swap fees

2,050

1,102

8,510

4,176

2,316

2,600

3,755

6,460

Other operating income

3,550

3,327

17,525

8,459

1,931

11,816

3,603

13,978

Total noninterest income

25,584

29,938

94,023

89,388

24,197

38,286

33,824

68,439

Noninterest expenses:

Salaries and benefits

56,600

53,534

170,203

156,959

62,019

55,305

122,547

113,603

Occupancy expenses

6,408

7,251

19,685

21,705

6,094

6,395

12,450

13,278

Furniture and equipment expenses

3,673

4,040

10,860

11,919

3,565

3,590

7,317

7,187

Technology and data processing

8,273

7,534

23,930

21,657

8,566

7,862

16,708

15,658

Professional services

3,504

3,792

12,274

13,161

4,433

4,680

7,847

8,770

Marketing and advertising expense

2,343

2,548

7,008

7,330

2,817

2,502

5,168

4,665

FDIC assessment premiums and other insurance

3,094

2,172

8,344

6,798

4,074

2,765

7,973

5,250

Franchise and other taxes

4,507

4,432

13,506

13,303

4,499

4,500

8,997

8,999

Loan-related expenses

1,575

1,503

5,218

5,289

1,619

1,867

3,171

3,643

Amortization of intangible assets

2,480

3,381

8,434

10,679

2,216

2,915

4,494

5,954

Loss on debt extinguishment

14,695

Other expenses

7,466

5,156

24,550

15,756

5,759

6,387

17,262

17,082

Total noninterest expenses

99,923

95,343

304,012

299,251

105,661

98,768

213,934

204,089

Income from continuing operations before income taxes

69,964

90,933

197,653

262,959

Income before income taxes

64,551

74,726

107,498

127,689

Income tax expense

11,894

16,368

33,667

46,821

9,310

12,500

16,604

21,773

Net income

58,070

74,565

163,986

216,138

55,241

62,226

90,894

105,916

Dividends on preferred stock

2,967

2,967

8,901

8,901

2,967

2,967

5,934

5,934

Net income available to common shareholders

$

55,103

$

71,598

$

155,085

$

207,237

$

52,274

$

59,259

$

84,960

$

99,982

Basic earnings per common share

$

0.74

$

0.94

$

2.07

$

2.66

$

0.70

$

0.79

$

1.13

$

1.33

Diluted earnings per common share

$

0.74

$

0.94

$

2.07

$

2.66

$

0.70

$

0.79

$

1.13

$

1.33

Dividends declared per common share

$

0.30

$

0.28

$

0.86

$

0.81

$

0.30

$

0.28

$

0.60

$

0.56

Basic weighted average number of common shares outstanding

74,703,699

76,309,355

75,029,000

77,988,151

74,995,450

74,847,899

74,914,247

75,194,347

Diluted weighted average number of common shares outstanding

74,705,054

76,322,736

75,034,084

78,007,543

74,995,557

74,849,871

74,915,977

75,201,326

See accompanying notes to consolidated financial statements.

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME (UNAUDITED)

THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20222023 AND 20212022

(Dollars in thousands)

Three Months Ended

 

Nine Months Ended

Three Months Ended

 

Six Months Ended

September 30, 

 

September 30, 

June 30, 

 

June 30, 

    

2022

    

2021

 

2022

    

2021

    

2023

    

2022

 

2023

    

2022

Net income

$

58,070

$

74,565

$

163,986

$

216,138

$

55,241

$

62,226

$

90,894

$

105,916

Other comprehensive (loss) income:

 

 

 

  

 

 

 

 

  

 

Cash flow hedges:

 

 

 

  

 

 

 

 

  

 

Change in fair value of cash flow hedges (net of tax, $6,417 and $145 for the three months and $15,691 and $169 for the nine months ended September 30, 2022 and 2021, respectively)

 

(24,142)

 

(545)

 

(59,027)

 

634

Reclassification adjustment for (gains) included in net income (net of tax, $0 and $0 for the three months and $0 and $12 for the nine months ended September 30, 2022 and 2021, respectively) (1)

 

 

 

 

(47)

Change in fair value of cash flow hedges (net of tax, $4,340 and $3,076 for the three months and $694 and $9,273 for the six months ended June 30, 2023 and 2022, respectively)

 

(16,325)

 

(11,572)

 

(2,611)

 

(34,885)

AFS securities:

 

 

 

 

 

 

 

 

Unrealized holding (losses) arising during period (net of tax, $32,388 and $6,178 for the three months and $112,226 and $11,311 for the nine months ended September 30, 2022 and 2021, respectively)

 

(121,841)

 

(23,242)

 

(422,183)

 

(42,549)

Reclassification adjustment for (gains) losses included in net income (net of tax, $0 and $2 for the three months and $0 and $18 for the nine months ended September 30, 2022 and 2021, respectively) (2)

 

 

(7)

 

2

 

(69)

Unrealized holding losses arising during period (net of tax, $8,651 and $30,137 for the three months and $126 and $79,837 for the six months ended June 30, 2023 and 2022, respectively)

 

(32,544)

 

(113,374)

 

(476)

 

(300,341)

Reclassification adjustment for (gains) losses included in net income (net of tax, $0 and $0 for the three months and $2,814 and $0 for the six months ended June 30, 2023 and 2022, respectively) (1)

 

(2)

 

1

 

10,584

 

1

HTM securities:

 

 

 

 

 

 

 

 

Reclassification adjustment for accretion of unrealized (gain) on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $4 and $4 for the nine months ended September 30, 2022 and 2021, respectively) (3)

 

(4)

 

(5)

 

(14)

 

(15)

Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $2 and $3 for six months ended June 30, 2023 and 2022, respectively) (2)

 

(2)

 

(5)

 

(5)

 

(10)

Bank owned life insurance:

 

 

 

 

 

 

Unrealized holding gains arising during the period

10

Reclassification adjustment for losses included in net income (4)(3)

 

151

 

150

 

468

 

454

 

(61)

 

150

 

(83)

 

317

Other comprehensive (loss) income:

 

(145,836)

 

(23,649)

 

(480,754)

 

(41,592)

 

(48,934)

 

(124,800)

 

7,419

 

(334,918)

Comprehensive (loss) income

$

(87,766)

$

50,916

$

(316,768)

$

174,546

Comprehensive income (loss)

$

6,307

$

(62,574)

$

98,313

$

(229,002)

(1)The gross amounts are generally reported in the interest income and interest expense sections of the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.

(2) The gross amounts reclassified into earnings are reported as "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.

(3)(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.

(4)(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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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2023 AND 2022

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

  

  

  

  

  

Accumulated

  

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2022

$

98,873

$

173

$

1,772,440

$

919,537

$

(418,286)

$

2,372,737

Net Income

 

35,653

 

35,653

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)

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 (149,684 shares)

 

199

(1,654)

(1,455)

Stock-based compensation expense

 

2,332

 

2,332

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

  

  

  

  

  

Accumulated

  

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2021

$

100,101

$

173

$

1,807,368

$

783,794

$

18,635

$

2,710,071

Net Income

 

43,690

 

43,690

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)

Dividends on common stock ($0.30 per share)

 

(22,411)

 

(22,411)

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 (17,048 shares)

 

23

66

 

89

Stock-based compensation expense

2,729

2,729

Balance - September 30, 2022

$

98,845

$

173

$

1,769,858

$

874,393

$

(462,119)

$

2,281,150

Balance - December 31, 2021

$

100,101

$

173

$

1,807,368

$

783,794

$

18,635

$

2,710,071

Net Income

 

43,690

 

43,690

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

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY CASH FLOWS (UNAUDITED)

NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20212023 AND 2022

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

    

    

    

    

    

Accumulated

    

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2020

$

104,169

$

173

$

1,917,081

$

616,052

$

71,015

$

2,708,490

Net Income

 

56,189

 

56,189

Other comprehensive loss (net of taxes of $8,835)

 

  

(34,514)

 

(34,514)

Dividends on common stock ($0.25 per share)

 

  

(19,700)

 

(19,700)

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 (243,884 shares)

 

324

(289)

 

35

Stock-based compensation expense

 

  

2,199

 

2,199

Balance - March 31, 2021

$

104,493

$

173

$

1,918,991

$

649,574

$

36,501

$

2,709,732

Net Income

 

85,384

 

85,384

Other comprehensive income (net of taxes of $3,672)

16,571

16,571

Dividends on common stock ($0.28 per share)

(22,125)

(22,125)

Dividends on preferred stock ($171.88 per share)

(2,967)

(2,967)

Stock purchased under stock repurchase plan (1,090,169 shares)

(1,450)

(40,913)

(42,363)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (35,693 shares)

48

663

711

Stock-based compensation expense

2,654

2,654

Balance - June 30, 2021

$

103,091

$

173

$

1,881,395

$

709,866

$

53,072

$

2,747,597

Net Income

 

74,565

74,565

Other comprehensive loss (net of taxes of $6,181)

(23,649)

(23,649)

Dividends on common stock ($0.28 per share)

(21,300)

(21,300)

Dividends on preferred stock ($171.88 per share)

(2,967)

(2,967)

Stock purchased under stock repurchase plan (2,288,961 shares)

(3,045)

(79,592)

(82,637)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (11,953 shares)

16

175

191

Stock-based compensation expense

2,639

2,639

Balance - September 30, 2021

$

100,062

$

173

$

1,804,617

$

760,164

$

29,423

$

2,694,439

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Dollars in thousands)

    

2022

    

2021

    

2023

    

2022

Operating activities:

 

  

 

  

 

  

 

  

Net income

$

163,986

$

216,138

$

90,894

$

105,916

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

 

  

 

  

 

  

 

  

Depreciation of premises and equipment

 

10,652

 

11,992

 

6,696

 

7,119

Writedown of ROU assets, foreclosed properties, and equipment

 

4,768

 

1,119

Writedown of ROU assets, foreclosed properties and equipment

 

1,342

 

4,570

Amortization, net

 

23,838

 

24,397

 

12,718

 

16,093

Amortization (accretion) related to acquisitions, net

 

2,271

 

(1,792)

Amortization related to acquisitions, net

 

2,548

 

1,014

Provision for credit losses

 

12,771

 

(59,888)

 

17,920

 

6,359

Losses on securities transactions

 

13,398

 

2

Gain on sale of DHFB

 

(9,082)

 

 

 

(9,082)

BOLI income

(8,858)

(8,202)

(5,698)

(5,413)

Originations and purchases of LHFS

 

(263,162)

 

(491,895)

 

(73,849)

 

(191,470)

Proceeds from sales of LHFS

270,853

550,683

66,781

196,381

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

(507)

638

Losses on debt extinguishment

14,695

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

(595)

(631)

Stock-based compensation expenses

 

8,065

 

7,492

 

5,619

 

5,336

Issuance of common stock for services

 

611

 

372

 

374

 

409

Net (increase) decrease in other assets

 

(6,489)

 

108,590

 

(2,041)

 

25,875

Net increase (decrease) in other liabilities

 

117,188

 

(134,336)

Net (decrease) increase in other liabilities

 

(6,188)

 

36,751

Net cash provided by operating activities

 

326,905

 

240,003

 

129,919

 

199,229

Investing activities:

 

  

 

  

 

  

 

  

Purchases of AFS securities, restricted stock, and other investments

 

(97,518)

 

(1,142,304)

 

(125,356)

 

(88,244)

Purchases of HTM securities

 

(225,026)

 

 

(13,826)

 

(158,445)

Proceeds from sales of AFS securities and restricted stock

 

29,719

 

45,436

 

600,101

 

12,469

Proceeds from maturities, calls and paydowns of AFS securities

 

281,542

 

392,129

 

88,625

 

207,279

Proceeds from maturities, calls and paydowns of HTM securities

 

8,223

 

6,642

 

10,092

 

3,400

Net (increase) decrease in LHFI

(717,591)

891,240

Net increase in LHFI

(621,913)

(452,948)

Net increase in premises and equipment

 

(3,054)

 

(9,221)

 

(3,226)

 

(1,931)

Proceeds from BOLI settlements

2,876

4,843

353

2,068

Purchases of BOLI policies

(100,000)

Proceeds from sales of foreclosed properties and former bank premises

 

5,965

 

8,632

 

4,810

 

3,001

Net cash (used in) provided by investing activities

 

(714,864)

 

97,397

Net cash used in investing activities

 

(60,340)

 

(473,351)

Financing activities:

 

  

 

  

 

  

 

  

Net increase in noninterest-bearing deposits

 

83,614

 

960,135

Net decrease in interest-bearing deposits

 

(148,497)

 

(60,716)

Net increase (decrease) in short-term borrowings

 

162,112

 

(255,707)

Repayments of long-term debt

(214,695)

Net (decrease) increase in noninterest-bearing deposits

 

(572,933)

 

154,214

Net increase (decrease) in interest-bearing deposits

 

1,053,222

 

(636,667)

Net (decrease) increase in short-term borrowings

 

(388,976)

 

290,788

Cash dividends paid - common stock

 

(64,486)

 

(63,125)

 

(44,915)

 

(42,075)

Cash dividends paid - preferred stock

(8,901)

(8,901)

(5,934)

(5,934)

Repurchase of common stock

(48,231)

(125,000)

(48,231)

Issuance of common stock

 

3,849

 

2,955

 

474

 

3,813

Vesting of restricted stock, net of shares held for taxes

 

(3,060)

 

(2,390)

 

(2,198)

 

(2,911)

Net cash (used in) provided by financing activities

 

(23,600)

 

232,556

(Decrease) increase in cash and cash equivalents

 

(411,559)

569,956

Net cash provided by (used in) financing activities

 

38,740

 

(287,003)

Increase (decrease) in cash and cash equivalents

 

108,319

(561,125)

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

 

802,501

 

493,294

 

319,948

 

802,501

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

$

390,942

$

1,063,250

$

428,267

$

241,376

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20222023 AND 20212022

(Dollars in thousands)

    

2022

    

2021

    

2023

    

2022

Supplemental Disclosure of Cash Flow Information

 

  

 

  

 

  

 

  

Cash payments for:

 

  

 

  

 

  

 

  

Interest

$

34,099

$

30,749

$

135,422

$

16,511

Income taxes

 

1,224

 

1,260

 

853

 

935

Supplemental schedule of noncash investing and financing activities

 

  

 

  

 

  

 

  

Transfer from LHFS to LHFI

645

Transfers from loans to foreclosed properties

 

404

 

14

 

 

382

Transfers from bank premises to OREO

1,109

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 (Nasdaq:(NYSE: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 114had 109 branches and approximately 130125 ATMs located throughout Virginia and in portions of Maryland and North Carolina as of SeptemberJune 30, 2022.2023. 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.

Effective June 30, 2022, the Company completed the sale of DHFB, which was formerly a subsidiary of the Bank.

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 U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management all adjustments necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year 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 20212022 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Adoption 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 in 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 concluded that 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.

In March 2020, the FASB issued Topic 848.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. TopicASC 848 provides optional expedients and exceptions subject to meeting certain criteria, for applying current

GAAP to contract modifications and hedging relationships, for contractssubject to meeting certain criteria, that reference LIBOR or otheranother reference rates

rate expected to be discontinued. TopicASC 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, 20222024 and can be adopted at an

instrument level. As of March 31, 2021,The Company has elected the Company utilized the expedientpractical expedients provided in ASC 848 related to assert(1) accounting for contract modifications on its loans and securities tied to LIBOR and (2) asserting probability of the hedged interest,

item occurring, regardless of any expected modification in terms related to reference rate

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reform for the newly executed cash flow hedges.

The Company expects to incorporate other components of Topic 848 at a later date. This amendment doesdid not have a material

significant impact on the Company’s consolidated financial statements.

Cash and Cash Equivalents

For purposesLoan 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 reporting cash flows,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 defines cashno longer applies its TDR accounting policy and cash equivalents as cash, cash due from banks, interest-bearing depositsinstead accounts for modifications in other banks, short-term money market investments, other interest-bearing deposits, and federal funds sold.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.

Restricted cashEffective January 1, 2023, the Company refers to modifications to loans where the borrower is disclosedexperiencing 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 7 “Commitments3 “Loans and Contingencies” in Part I,Allowance for Loan and Lease Losses” within this Item I1 of this Quarterly Report and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other banks in the Company’s Consolidated Balance Sheets. In addition, the Company is requiredadditional disclosures related to maintain reserve balances with the FRB based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions. The reserve requirement is still at zero percent as of September 30, 2022.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 $48.1$62.9 million and $43.3$58.9 million on LHFI, $6.6$8.5 million and $7.0$8.6 million on HTM securities, and $13.3$9.9 million and $14.5$14.2 million on AFS securities at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. The

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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 SeptemberJune 30, 20222023 and SeptemberJune 30, 2021,2022, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

Segment Reporting

Operating segments are components of a business where separate financial information is available and evaluated regularly by the CODMs in deciding how to allocate resources and in assessing performance. ASC Topic 280, Segment Reporting, requires information to be reported about a company’s operating segments using a “management approach,” meaning it is based on the way management organizes segments internally to make operating decisions and assess performance. Based on this guidance, historically, the Company has had only one reportable operating segment, the Bank. However, effective for the third quarter of 2022, the Company completed system conversions that allow its CODMs to evaluate the business, establish the overall business strategy, allocate resources, and assess business performance within two reportable operating segments: Wholesale Banking and Consumer Banking, with corporate support functions such as corporate treasury and others included in Corporate Other. The application and development of management reporting methodologies is a dynamic process subject to periodic enhancements. As these enhancements are made, financial results presented by each reportable segment may be periodically revised.  Refer to Note 12 "Segment Reporting and Revenue" in Part I, Item I of this Quarterly Report for additional details on the Company’s reportable operating segments. 

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2. SECURITIES

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 SeptemberJune 30, 20222023 and December 31, 2021.2022.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of SeptemberJune 30, 20222023 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, 2022

 

  

 

  

 

  

  

June 30, 2023

 

  

 

  

 

  

  

U.S. government and agency securities

$

70,399

$

$

(8,763)

$

61,636

$

69,359

$

$

(8,012)

$

61,347

Obligations of states and political subdivisions

 

961,722

 

7

 

(197,186)

 

764,543

 

649,572

 

2

 

(136,548)

 

513,026

Corporate and other bonds (1)

 

246,411

 

 

(15,323)

 

231,088

 

169,995

 

 

(27,423)

 

142,572

Commercial MBS

 

 

 

 

Agency

247,854

 

84

 

(36,739)

211,199

229,165

 

59

 

(43,030)

186,194

Non-agency

101,460

 

 

(4,085)

97,375

78,384

 

 

(2,623)

75,761

Total commercial MBS

349,314

 

84

 

(40,824)

308,574

307,549

 

59

 

(45,653)

261,955

Residential MBS

Agency

1,520,401

 

68

 

(238,966)

1,281,503

1,363,949

 

4

 

(226,232)

1,137,721

Non-agency

75,130

 

 

(6,805)

68,325

70,427

 

 

(6,303)

64,124

Total residential MBS

1,595,531

 

68

 

(245,771)

1,349,828

1,434,376

 

4

 

(232,535)

1,201,845

Other securities

 

1,654

 

 

 

1,654

 

1,703

 

 

 

1,703

Total AFS securities

$

3,225,031

$

159

$

(507,867)

$

2,717,323

$

2,632,554

$

65

$

(450,172)

$

2,182,448

(1) Other bonds include asset-backed securitiessecurities.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, 20212022 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, 2021

December 31, 2022

U.S. government and agency securities

$

73,830

$

179

$

(160)

$

73,849

$

70,196

$

$

(8,253)

$

61,943

Obligations of states and political subdivisions

971,126

39,343

(2,073)

1,008,396

959,999

 

137

 

(152,701)

 

807,435

Corporate and other bonds (1)

 

150,201

 

3,353

 

(178)

 

153,376

 

243,979

 

 

(17,599)

 

226,380

Commercial MBS

 

 

 

 

Agency

361,806

6,761

(4,215)

364,352

250,186

 

75

 

(39,268)

210,993

Non-agency

107,087

139

(421)

106,805

99,412

 

 

(4,244)

95,168

Total commercial MBS

468,893

6,900

(4,636)

471,157

349,598

 

75

 

(43,512)

306,161

Residential MBS

Agency

1,691,651

15,180

(24,337)

1,682,494

1,510,110

 

81

 

(233,961)

1,276,230

Non-agency

91,443

243

(948)

90,738

68,815

 

 

(6,812)

62,003

Total residential MBS

1,783,094

15,423

(25,285)

1,773,232

1,578,925

 

81

 

(240,773)

1,338,233

Other securities

 

1,640

 

 

 

1,640

 

1,664

 

 

 

1,664

Total AFS securities

$

3,448,784

$

65,198

$

(32,332)

$

3,481,650

$

3,204,361

$

293

$

(462,838)

$

2,741,816

(1) Other bonds include asset-backed securitiessecurities.

-11--10-

Table of Contents

The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses for which an ACL has not been recorded at September 30, 2022 and December 31, 2021 and that are not deemed to be impaired as of those dates.losses. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (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, 2022

 

 

 

 

 

 

June 30, 2023

 

 

 

 

 

 

U.S. government and agency securities

$

58,670

$

(8,726)

$

2,896

$

(37)

$

61,566

$

(8,763)

$

$

$

61,311

$

(8,012)

$

61,311

$

(8,012)

Obligations of states and political subdivisions

601,039

(120,853)

159,773

(76,333)

760,812

(197,186)

16,301

(399)

493,512

(136,149)

509,813

(136,548)

Corporate and other bonds(1)

 

219,904

 

(14,111)

 

8,788

 

(1,212)

 

228,692

 

(15,323)

 

17,735

 

(1,801)

 

122,437

 

(25,622)

 

140,172

 

(27,423)

Commercial MBS

 

 

Agency

113,687

(15,734)

92,435

(21,005)

206,122

(36,739)

36,548

(3,970)

145,684

(39,061)

182,232

(43,031)

Non-agency

76,779

(2,877)

20,596

(1,208)

97,375

(4,085)

75,760

(2,623)

75,760

(2,623)

Total commercial MBS

190,466

(18,611)

113,031

(22,213)

303,497

(40,824)

36,548

(3,970)

221,444

(41,684)

257,992

(45,654)

Residential MBS

Agency

606,805

(88,065)

668,275

(150,901)

1,275,080

(238,966)

68,272

(3,433)

1,069,156

(222,799)

1,137,428

(226,232)

Non-agency

56,490

(5,356)

11,724

(1,449)

68,214

(6,805)

14,114

(104)

50,011

(6,199)

64,125

(6,303)

Total residential MBS

663,295

(93,421)

679,999

(152,350)

1,343,294

(245,771)

82,386

(3,537)

1,119,167

(228,998)

1,201,553

(232,535)

Total AFS securities

$

1,733,374

$

(255,722)

$

964,487

$

(252,145)

$

2,697,861

$

(507,867)

$

154,673

$

(9,707)

$

2,017,871

$

(440,465)

$

2,172,544

$

(450,172)

December 31, 2021

 

  

 

  

 

  

 

  

 

  

 

  

December 31, 2022

 

  

 

  

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

64,474

$

(115)

$

3,900

$

(45)

$

68,374

$

(160)

$

2,594

$

(166)

$

59,269

$

(8,087)

$

61,863

$

(8,253)

Obligations of states and political subdivisions

249,701

(2,020)

2,123

(53)

251,824

(2,073)

588,668

(86,895)

187,375

(65,806)

776,043

(152,701)

Corporate and other bonds(1)

 

21,134

 

(177)

 

703

 

(1)

 

21,837

 

(178)

 

206,861

 

(15,019)

 

17,121

 

(2,580)

 

223,982

 

(17,599)

Commercial MBS

 

 

 

 

 

 

 

Agency

175,588

(4,053)

3,172

(162)

178,760

(4,215)

73,362

(7,024)

127,193

(32,244)

200,555

(39,268)

Non-agency

33,759

(313)

11,029

(108)

44,788

(421)

66,618

(2,231)

28,550

(2,013)

95,168

(4,244)

Total commercial MBS

209,347

(4,366)

14,201

(270)

223,548

(4,636)

139,980

(9,255)

155,743

(34,257)

295,723

(43,512)

Residential MBS

Agency

1,140,701

(21,147)

106,104

(3,190)

1,246,805

(24,337)

328,590

(27,769)

929,581

(206,192)

1,258,171

(233,961)

Non-agency

48,392

(584)

12,716

(364)

61,108

(948)

18,939

(1,288)

43,064

(5,524)

62,003

(6,812)

Total residential MBS

1,189,093

(21,731)

118,820

(3,554)

1,307,913

(25,285)

347,529

(29,057)

972,645

(211,716)

1,320,174

(240,773)

Total AFS securities

$

1,733,749

$

(28,409)

$

139,747

$

(3,923)

$

1,873,496

$

(32,332)

$

1,285,632

$

(140,392)

$

1,392,153

$

(322,446)

$

2,677,785

$

(462,838)

(1) Other bonds include asset-backed securitiessecurities.

(2) Comprised of 302816 and 33363 individual securities as of SeptemberJune 30, 20222023 and December 31, 2021, respectively2022, respectively.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at SeptemberJune 30, 20222023 and December 31, 20212022 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% SSFAsimplified supervisory formula approach rating.

-12--11-

Table of Contents

The following table presents the amortized cost and estimated fair value of AFS securities as of SeptemberJune 30, 20222023 and December 31, 2021,2022, 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, 2022

December 31, 2021

    

Amortized

    

Estimated

    

Amortized

    

Estimated

Cost

Fair Value

Cost

Fair Value

Due in one year or less

$

31,089

$

30,799

$

18,247

$

18,317

Due after one year through five years

 

165,998

 

160,945

 

180,080

 

183,981

Due after five years through ten years

 

338,619

 

308,149

 

324,615

 

331,215

Due after ten years

 

2,689,325

 

2,217,430

 

2,925,842

 

2,948,137

Total AFS securities

$

3,225,031

$

2,717,323

$

3,448,784

$

3,481,650

June 30, 2023

December 31, 2022

    

Amortized

    

Estimated

    

Amortized

    

Estimated

Cost

Fair Value

Cost

Fair Value

Due in one year or less

$

61,773

$

61,041

$

42,447

$

41,735

Due after one year through five years

 

121,001

 

109,793

 

158,063

 

152,523

Due after five years through ten years

 

211,096

 

179,272

 

343,303

 

312,935

Due after ten years

 

2,238,684

 

1,832,342

 

2,660,548

 

2,234,623

Total AFS securities

$

2,632,554

$

2,182,448

$

3,204,361

$

2,741,816

Refer to Note 7 "Commitments and Contingencies" in Part I,within this Item I1 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 SeptemberJune 30, 20222023 and December 31, 2021.2022.

Held to Maturity

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities. The Company’s HTM securities were substantially all current, with no securities past due or on non-accrual at SeptemberJune 30, 20222023 and December 31, 2021.2022.

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. Investment securities transferred into the HTM category from the AFS category are recorded at fair value at the date of transfer. The unrealized holding gains or losses at the date of transfer are retained in AOCI and in the carrying value of the HTM securities. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of SeptemberJune 30, 20222023 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, 2022

 

  

 

  

 

  

  

June 30, 2023

 

  

 

  

 

  

  

U.S. government and agency securities

$

690

$

$

(39)

$

651

$

681

$

$

(55)

$

626

Obligations of states and political subdivisions

724,330

176

(64,366)

660,140

701,600

2,315

(30,794)

673,121

Commercial Agency MBS

29,096

(4,360)

24,736

Corporate and other bonds(1)

4,855

(130)

4,725

Commercial MBS

 

Agency

27,649

(5,568)

22,081

Non-agency

26,370

(570)

25,800

Total commercial MBS

54,019

(6,138)

47,881

Residential MBS

Agency

43,080

(6,732)

36,348

41,833

(6,151)

35,682

Non-agency

44,153

(548)

43,605

46,622

(860)

45,762

Total residential MBS

87,233

(7,280)

79,953

88,455

(7,011)

81,444

Total HTM securities

$

841,349

$

176

$

(76,045)

$

765,480

$

849,610

$

2,315

$

(44,128)

$

807,798

(1) Other bonds include asset-backed securities.

-12-

Table of Contents

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 20212022 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

December 31, 2021

 

  

 

  

 

  

 

  

December 31, 2022

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

2,604

$

$

(29)

$

2,575

$

687

$

$

(56)

$

631

Obligations of states and political subdivisions

620,873

65,982

(121)

686,734

705,990

2,218

(35,957)

672,251

Commercial Agency MBS

4,523

(58)

4,465

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

$

628,000

$

65,982

$

(208)

$

693,774

$

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 June 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.

-13-

Table of Contents

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 immaterial at September 30, 2022 and December 31, 2021. 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.

The following table presents the amortized cost of HTM securities as of SeptemberJune 30, 20222023 and December 31, 20212022 by security type and credit rating (dollars in thousands):

    

U.S. Government and Agency

    

Obligations of states and political

    

Mortgage-backed

    

Total HTM

    

U.S. Government and Agency

    

Obligations of states and political

    

Corporate and other

    

Mortgage-backed

    

Total HTM

securities

subdivisions

securities

securities

securities

subdivisions

bonds

securities

securities

September 30, 2022

June 30, 2023

Credit Rating:

 

 

 

 

 

AAA/AA/A

$

$

700,138

$

2,764

$

702,902

$

$

700,424

$

$

10,095

$

710,519

BBB/BB/B

1,192

1,192

1,176

1,176

Not Rated - Agency(1)

690

72,176

72,866

681

69,482

70,163

Not Rated - Non-Agency(2)

 

23,000

41,389

64,389

 

 

4,855

62,897

67,752

Total

$

690

$

724,330

$

116,329

$

841,349

$

681

$

701,600

$

4,855

$

142,474

$

849,610

December 31, 2021

December 31, 2022

Credit Rating:

 

 

 

 

 

AAA/AA/A

$

$

620,873

$

$

620,873

$

$

704,803

$

$

2,702

$

707,505

BBB/BB/B

1,187

1,187

Not Rated - Agency(1)

2,604

4,523

7,127

687

71,725

72,412

Not Rated - Non-Agency(2)

 

 

5,159

61,469

66,628

Total

$

2,604

$

620,873

$

4,523

$

628,000

$

687

$

705,990

$

5,159

$

135,896

$

847,732

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

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

The following table presents the amortized cost and estimated fair value of HTM securities as of SeptemberJune 30, 20222023 and December 31, 2021,2022, 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, 2022

December 31, 2021

June 30, 2023

December 31, 2022

    

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

$

25,025

$

25,016

$

3,034

$

3,027

$

2,037

$

2,025

$

2,010

$

2,006

Due after one year through five years

 

35,709

 

35,656

 

5,852

 

6,065

 

35,942

 

35,830

 

35,044

 

35,014

Due after five years through ten years

 

15,798

 

15,587

 

14,019

 

15,984

 

35,796

 

35,281

 

19,941

 

20,239

Due after ten years

 

764,817

 

689,221

 

605,095

 

668,698

 

775,835

 

734,662

 

790,737

 

744,628

Total HTM securities

$

841,349

$

765,480

$

628,000

$

693,774

$

849,610

$

807,798

$

847,732

$

801,887

Refer to Note 7 "Commitments and Contingencies" in Part I,within this Item I1 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 SeptemberJune 30, 20222023 and December 31, 2021.2022.

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the FRB and the FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. RestrictedAt June 30, 2023 and December 31, 2022, restricted stock consists of FRB stock in the amount of $67.0 million, for September 30, 2022 and December 31, 2021respectively, and FHLB stock in the amount of $15.0$44.1 million and $9.8$53.2 million, as of September 30, 2022 and December 31, 2021, respectively.

-14-

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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 (dollars in thousands):

    

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

    

Six Months Ended

September 30, 2022

September 30, 2022

June 30, 2023

June 30, 2023

Realized gains (losses)(1):

 

  

 

  

 

  

 

  

Gross realized gains

$

$

$

2

$

1,348

Gross realized losses

 

 

(2)

 

 

(14,746)

Net realized gains

$

$

(2)

Net realized gains (losses)

$

2

$

(13,398)

Proceeds from sales of securities

$

17,250

$

29,719

$

41,635

$

600,101

    

Three Months Ended

    

Nine Months Ended

    

Three Months Ended

    

Six Months Ended

September 30, 2021

September 30, 2021

June 30, 2022

June 30, 2022

Realized gains (losses)(1):

 

  

 

  

Realized losses(1):

 

  

 

  

Gross realized gains

$

9

$

147

$

$

Gross realized losses

 

 

(60)

 

(2)

 

(2)

Net realized gains

$

9

$

87

Net realized losses

$

(2)

$

(2)

Proceeds from sales of securities

$

$

45,436

$

12,469

$

12,469

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

-15-

Table of Contents

3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The information included below reflects the impact of the CARES Act, as amended by the CAA, and the Joint Guidance. 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 2021 Form 10-K for information about COVID-19 and related legislative and regulatory developments.

following tables exclude LHFS. The Company’s loansLHFI are stated at their face amount, net of deferred fees and costs, and consisted of the following at SeptemberJune 30, 20222023 and December 31, 20212022 (dollars in thousands):

September 30, 2022

    

December 31, 2021

June 30, 2023

    

December 31, 2022

Construction and Land Development

$

1,068,201

$

862,236

$

1,231,720

$

1,101,260

Commercial Real Estate - Owner Occupied

 

1,953,872

 

1,995,409

 

1,952,189

 

1,982,608

Commercial Real Estate - Non-Owner Occupied

 

3,900,325

 

3,789,377

 

4,113,318

 

3,996,130

Multifamily Real Estate

 

774,970

 

778,626

 

788,895

 

802,923

Commercial & Industrial(1)

 

2,709,047

 

2,542,243

 

3,373,148

 

2,983,349

Residential 1-4 Family - Commercial

 

542,612

 

607,337

 

518,317

 

538,063

Residential 1-4 Family - Consumer

 

891,353

 

816,524

 

1,017,698

 

940,275

Residential 1-4 Family - Revolving

 

588,452

 

560,796

 

600,339

 

585,184

Auto

 

561,277

 

461,052

 

585,756

 

592,976

Consumer

 

172,776

 

176,992

 

134,709

 

152,545

Other Commercial(2)

 

755,835

 

605,251

 

750,841

 

773,829

Total LHFI, net of deferred fees and costs(3)(1)

13,918,720

13,195,843

15,066,930

14,449,142

Allowance for loan and lease losses

(108,009)

(99,787)

(120,683)

(110,768)

Total LHFI, net

$

13,810,711

$

13,096,056

$

14,946,247

$

14,338,374

(1) Commercial & industrial loans included approximately $12.1 million and $145.3 million in loans from the PPP at September 30, 2022 and December 31, 2021, respectively.

(2)There are no loans from the PPP included in other commercial loans as of September 30, 2022. As of December 31, 2021 other commercial loans included approximately $5.1 million in loans from the PPP.

(3) Total loans includeincluded unamortized premiums and discounts, and unamortized deferred fees and costs totaling $45.751.1 million and $49.350.4 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.

The following table shows the aging of the Company’s LHFI portfolio, by class, at June 30, 2023 (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

$

1,231,117

$

295

$

$

24

$

284

$

1,231,720

Commercial Real Estate - Owner Occupied

 

1,945,136

 

602

 

10

 

2,463

 

3,978

 

1,952,189

Commercial Real Estate - Non-Owner Occupied

 

4,104,082

 

 

 

2,763

 

6,473

 

4,113,318

Multifamily Real Estate

 

788,895

 

 

 

 

 

788,895

Commercial & Industrial

 

3,368,946

 

254

 

400

 

810

 

2,738

 

3,373,148

Residential 1-4 Family - Commercial

 

514,515

 

1,076

 

189

 

693

 

1,844

 

518,317

Residential 1-4 Family - Consumer

 

1,001,632

 

1,504

 

2,813

 

1,716

 

10,033

 

1,017,698

Residential 1-4 Family - Revolving

 

592,776

 

1,729

 

1,114

 

1,259

 

3,461

 

600,339

Auto

 

581,781

 

2,877

 

564

 

243

 

291

 

585,756

Consumer

 

134,084

 

334

 

214

 

74

 

3

 

134,709

Other Commercial

750,752

23

66

750,841

Total LHFI, net of deferred fees and costs

$

15,013,716

$

8,694

$

5,304

$

10,111

$

29,105

$

15,066,930

% of total loans

99.64

%

0.06

%

0.04

%

0.07

%

0.19

%

100.00

%

-16-

Table of Contents

The following table shows the aging of the Company’s loanLHFI portfolio, by class, at September 30,December 31, 2022 (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

$

1,067,438

$

120

$

107

$

115

$

421

$

1,068,201

$

1,099,555

$

1,253

$

45

$

100

$

307

$

1,101,260

Commercial Real Estate - Owner Occupied

 

1,937,372

 

7,337

 

763

 

3,517

 

4,883

 

1,953,872

 

1,970,323

 

2,305

 

635

 

2,167

 

7,178

 

1,982,608

Commercial Real Estate - Non-Owner Occupied

 

3,897,324

 

 

457

 

621

 

1,923

 

3,900,325

 

3,993,091

 

1,121

 

48

 

607

 

1,263

 

3,996,130

Multifamily Real Estate

 

774,970

 

 

 

 

 

774,970

 

801,694

 

1,229

 

 

 

 

802,923

Commercial & Industrial

 

2,702,308

 

796

 

3,128

 

526

 

2,289

 

2,709,047

 

2,980,008

 

824

 

174

 

459

 

1,884

 

2,983,349

Residential 1-4 Family - Commercial

 

538,835

 

1,410

 

97

 

308

 

1,962

 

542,612

 

534,653

 

1,231

 

 

275

 

1,904

 

538,063

Residential 1-4 Family - Consumer

 

876,980

 

1,123

 

1,449

 

680

 

11,121

 

891,353

 

919,833

 

5,951

 

1,690

 

1,955

 

10,846

 

940,275

Residential 1-4 Family - Revolving

 

581,418

 

1,115

 

1,081

 

1,255

 

3,583

 

588,452

 

577,993

 

1,843

 

511

 

1,384

 

3,453

 

585,184

Auto

 

558,678

 

1,876

 

257

 

148

 

318

 

561,277

 

589,235

 

2,747

 

450

 

344

 

200

 

592,976

Consumer

 

172,180

 

409

 

101

 

86

 

 

172,776

 

151,958

 

351

 

125

 

108

 

3

 

152,545

Other Commercial

755,740

95

755,835

773,738

91

773,829

Total LHFI

$

13,863,243

$

14,186

$

7,440

$

7,351

$

26,500

$

13,918,720

Total LHFI, net of deferred fees and costs

$

14,392,081

$

18,855

$

3,678

$

7,490

$

27,038

$

14,449,142

% of total loans

99.61

%

0.10

%

0.05

%

0.05

%

0.19

%

100.00

%

99.60

%

0.13

%

0.03

%

0.05

%

0.19

%

100.00

%

The following table shows the agingCompany’s amortized cost basis of the Company’s loan portfolio, by class, atloans on nonaccrual status, including those on nonaccrual status with no related ALLL, as of June 30, 2023 and December 31, 20212022 (dollars in thousands):

    

    

    

    

Greater than

    

    

 

30-59 Days

60-89 Days

90 Days and

 

June 30, 2023

December 31, 2022

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

 

Nonaccrual

Nonaccrual With No ALLL

Nonaccrual

Nonaccrual With No ALLL

Construction and Land Development

$

857,883

$

1,357

$

$

299

$

2,697

$

862,236

$

284

$

$

307

$

Commercial Real Estate - Owner Occupied

 

1,987,133

 

1,230

 

152

 

1,257

 

5,637

 

1,995,409

3,978

7,178

908

Commercial Real Estate - Non-Owner Occupied

 

3,783,211

 

1,965

 

127

 

433

 

3,641

 

3,789,377

6,473

5,000

1,263

Multifamily Real Estate

 

778,429

 

84

 

 

 

113

 

778,626

Commercial & Industrial

 

2,536,100

 

1,161

 

1,438

 

1,897

 

1,647

 

2,542,243

2,738

1

1,884

1

Residential 1-4 Family - Commercial

 

601,946

 

1,844

 

272

 

990

 

2,285

 

607,337

1,844

1,904

Residential 1-4 Family - Consumer

 

795,821

 

3,368

 

2,925

 

3,013

 

11,397

 

816,524

10,033

10,846

Residential 1-4 Family - Revolving

 

554,652

 

1,493

 

363

 

882

 

3,406

 

560,796

3,461

3,453

Auto

 

458,473

 

1,866

 

249

 

241

 

223

 

461,052

291

200

Consumer

 

175,943

 

689

 

186

 

120

 

54

 

176,992

3

3

Other Commercial

605,214

37

605,251

Total LHFI

$

13,134,805

$

15,094

$

5,712

$

9,132

$

31,100

$

13,195,843

$

29,105

$

5,001

$

27,038

$

909

% of total loans

99.54

%

0.11

%

0.04

%

0.07

%

0.24

%

100.00

%

There was no interest income recognized on nonaccrual loans during the three and six months ended June 30, 2023 and 2022. 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 2022 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

-17-

Table of Contents

The following table shows the Company’s amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of September 30, 2022 (dollars in thousands):

September 30, 2022

Nonaccrual

Nonaccrual With No ALLL

90 Days Past due and still Accruing

Construction and Land Development

$

421

$

$

115

Commercial Real Estate - Owner Occupied

4,883

932

3,517

Commercial Real Estate - Non-Owner Occupied

1,923

621

Commercial & Industrial

2,289

1

526

Residential 1-4 Family - Commercial

1,962

308

Residential 1-4 Family - Consumer

11,121

680

Residential 1-4 Family - Revolving

3,583

1,255

Auto

318

148

Consumer

86

Other Commercial

95

Total LHFI

$

26,500

$

933

$

7,351

Troubled Loan Modifications

The following table shows the Company’s amortized cost basis of loansCompany adopted ASU 2022-02 effective January 1, 2023 on nonaccrual status and loans past due 90 days and still accruing as of December 31, 2021 (dollars in thousands):

December 31, 2021

Nonaccrual

Nonaccrual With No ALLL

90 Days Past due and still Accruing

Construction and Land Development

$

2,697

$

1,985

$

299

Commercial Real Estate - Owner Occupied

5,637

970

1,257

Commercial Real Estate - Non-Owner Occupied

3,641

1,089

433

Multifamily Real Estate

113

Commercial & Industrial

1,647

1

1,897

Residential 1-4 Family - Commercial

2,285

990

Residential 1-4 Family - Consumer

11,397

3,013

Residential 1-4 Family - Revolving

3,406

882

Auto

223

241

Consumer

54

120

Total LHFI

$

31,100

$

4,045

$

9,132

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2022 and 2021.a prospective basis. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained inwithin this Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K1 of this Quarterly Report for additional information on the Company’s policiesaccounting policy for nonaccrualloan modifications to borrowers experiencing financial difficulty and how the Company defines TLMs.

As of June 30, 2023, the Company had TLMs with an amortized cost basis of $31.0 million with an estimated $1.8 million of allowance for those loans. As of June 30, 2023, there were no unfunded commitments on loans modified and designated as TLMs since January 1, 2023.

The following tables present the amortized cost basis as of June 30, 2023 of TLMs modified during the three and six months ended June 30, 2023 since January 1, 2023 (dollars in thousands):

Three Months Ended June 30, 2023

 

Six Months Ended June 30, 2023

 

    

Amortized Cost

% of Total Class of Financing Receivable

 

Amortized Cost

% of Total Class of Financing Receivable

 

Term Extension

 

 

Commercial and Industrial

$

5,549

0.16

%

$

5,549

0.16

%

Commercial Real Estate - Non-Owner Occupied

%

19,001

0.46

%

Residential 1-4 Family - Consumer

371

0.04

%

587

0.06

%

Total Term Extension

$

5,920

$

25,137

Combination - Term Extension and Interest Rate Reduction

Residential 1-4 Family - Consumer

$

604

0.06

%

$

838

0.08

%

Residential 1-4 Family - Revolving

 

15

NM

 

16

NM

Total Combination - Term Extension and Interest Rate Reduction

$

619

$

854

Principal Forgiveness

Commercial Real Estate - Non-Owner Occupied

5,000

0.12

%

5,000

0.12

%

Total Principal Forgiveness

$

5,000

$

5,000

Total

$

11,539

$

30,991

NM= Not Meaningful

-18-

Table of Contents

Troubled Debt Restructurings

As of September 30, 2022, the Company had TDRs totaling $15.6 million with an estimated $569,000 of allowance for those loans. As of December 31, 2021, the Company had TDRs totaling $18.0 million with an estimated $859,000 of allowance for those loans.

A TDR occurs when a lender, for economic or legal reasons, grants a concession to the borrower related to the borrower’s financial difficulties, that it would not otherwise consider. All loans that are considered to be TDRs are evaluated for credit losses in accordance with the Company’s ALLL methodology. For the three and nine months ended September 30, 2022 and September 30, 2021, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

The following table providesdescribes the financial effects of TLMs on a summary, by class, of TDRsweighted average basis for TLMs within that continue to accrue interest underloan type for the terms of the applicable restructuring agreement, which are considered to be performing,three and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of Septembersix months ended June 30, 2022 and December 31, 2021 (dollars in thousands):2023:

September 30, 2022

December 31, 2021

    

No. of

    

Recorded

    

Outstanding

    

No. of

    

Recorded

    

Outstanding

Loans

Investment

Commitment

Loans

Investment

Commitment

Performing

 

  

 

  

 

  

 

  

 

  

 

  

Construction and Land Development

 

3

$

159

$

 

4

$

201

$

Commercial Real Estate - Owner Occupied

 

2

 

1,000

 

 

3

 

572

 

Commercial & Industrial

 

1

 

100

 

 

 

 

Residential 1-4 Family - Commercial

 

1

 

1,334

 

 

 

 

Residential 1-4 Family - Consumer

 

81

 

7,470

 

 

75

 

9,021

 

Residential 1-4 Family - Revolving

 

3

 

257

 

5

 

3

 

265

 

4

Consumer

 

1

 

13

 

 

2

 

15

 

Other Commercial

1

239

Total performing

 

92

$

10,333

$

5

 

88

$

10,313

$

4

Nonperforming

 

  

 

  

 

  

 

  

 

  

 

  

Commercial Real Estate - Owner Occupied

 

1

$

16

$

 

2

$

830

$

Commercial Real Estate - Non-Owner Occupied

2

242

3

1,357

Commercial & Industrial

 

2

 

481

 

 

3

 

729

 

Residential 1-4 Family - Commercial

 

3

 

371

 

 

3

 

388

 

Residential 1-4 Family - Consumer

 

24

 

4,092

 

 

24

 

4,239

 

Residential 1-4 Family - Revolving

 

3

 

96

 

 

3

 

99

 

Total nonperforming

 

35

$

5,298

$

 

38

$

7,642

$

Total performing and nonperforming

 

127

$

15,631

$

5

 

126

$

17,955

$

4

Three Months Ended June 30, 2023

Term Extension

Loan Type

Financial Effect

Commercial and Industrial

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

Residential 1-4 Family - Consumer

Added a weighted-average 7.8 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 20.1 years to the life of loans and reduced the weighted average contractual interest rate from 8.4% to 7.6%.

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.

Six Months Ended June 30, 2023

Term Extension

Loan Type

Financial Effect

Commercial and Industrial

Added a weighted-average 0.2 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 10.7 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 20.3 years to the life of loans and reduced the weighted average contractual interest rate from 8.2% to 7.6%.

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.

The Company considers a default of a TDRTLM to occur when the borrower is 90 days past due following the restructuremodification or a foreclosure and repossession of the applicable collateral occurs. During the three and ninesix months ended SeptemberJune 30, 2022 and 2021,2023, the Company did not have any materialsignificant loans either individually or in the aggregate that went into default that hadhave been restructuredmodified and designated as TLMs.

The Company monitors the performance of TLMs in order to determine the twelve-month period prior toeffectiveness of the timemodifications. As of default.June 30, 2023, no loans that have been modified and designated as TLMs are past due.

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Table of Contents

The following table shows, by class and modification type, TDRs that occurred during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

    

    

Recorded

    

    

Recorded

    

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Modified to interest only, at a market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Commercial

$

1

$

1,334

Total interest only at market rate of interest

 

$

 

1

$

1,334

 

Term modification, at a market rate

 

  

 

  

 

  

 

  

 

Commercial Real Estate - Owner Occupied

 

$

 

1

$

766

 

Total loan term extended at a market rate

 

$

 

1

$

766

 

Term modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Consumer

 

7

$

665

 

17

$

1,166

 

Total loan term extended at a below market rate

 

7

$

665

 

17

$

1,166

 

Total

 

7

$

665

 

19

$

3,266

 

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

    

    

Recorded

    

    

Recorded

    

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Modified to interest only, at a market rate

 

  

 

  

 

  

 

  

 

Total interest only at market rate of interest

 

$

 

$

 

Term modification, at a market rate

 

  

 

  

 

  

 

  

 

Commercial Real Estate - Non-Owner Occupied

 

1

$

157

1

$

157

 

Residential 1-4 Family - Consumer

 

 

2

102

 

Total loan term extended at a market rate

 

1

$

157

 

3

$

259

 

Term modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Consumer

 

$

 

11

$

1,813

 

Consumer

1

15

Total loan term extended at a below market rate

 

$

 

12

$

1,828

 

Interest rate modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Commercial

 

$

 

1

$

45

 

Total interest only at below market rate of interest

 

$

 

1

$

45

 

Total

 

1

$

157

 

16

$

2,132

 

-20-

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:

CommercialCommercial:: 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
ConsumerConsumer:: 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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 (dollars in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Three Months Ended June 30, 2023

Six Months Ended June 30, 2023

Commercial

Consumer

Total

    

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

$

88,086

$

28,426

$

116,512

$

82,753

$

28,015

$

110,768

Loans charged-off

 

(1,086)

 

(715)

 

(1,801)

 

 

(2,852)

 

(2,415)

 

(5,267)

 

(1,794)

 

(808)

 

(2,602)

 

 

(6,801)

 

(1,527)

 

(8,328)

Recoveries credited to allowance

 

605

 

609

 

1,214

 

1,723

 

2,022

 

3,745

 

518

 

517

 

1,035

 

1,033

 

1,169

 

2,202

Provision charged to operations

 

6,969

 

(2,557)

 

4,412

 

 

7,128

 

2,616

 

9,744

 

6,160

 

(422)

 

5,738

 

 

15,985

 

56

 

16,041

Balance at end of period

$

83,901

$

24,108

$

108,009

 

$

83,901

$

24,108

$

108,009

$

92,970

$

27,713

$

120,683

 

$

92,970

$

27,713

$

120,683

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Balance at beginning of period

$

89,837

$

28,424

$

118,261

 

$

117,403

$

43,137

$

160,540

$

79,771

$

22,820

$

102,591

 

$

77,902

$

21,885

$

99,787

Loans charged-off

 

(967)

 

(1,299)

 

(2,266)

 

 

(3,832)

 

(4,020)

 

(7,852)

 

(1,007)

 

(950)

 

(1,957)

 

 

(1,766)

 

(1,700)

 

(3,466)

Recoveries credited to allowance

 

1,281

 

872

 

2,153

 

 

3,929

 

2,569

 

6,498

 

392

 

626

 

1,018

 

 

1,118

 

1,413

 

2,531

Provision charged to operations

 

(15,173)

 

(1,177)

 

(16,350)

 

 

(42,522)

 

(14,866)

 

(57,388)

 

(1,743)

 

4,275

 

2,532

 

 

159

 

5,173

 

5,332

Balance at end of period

$

74,978

$

26,820

$

101,798

$

74,978

$

26,820

$

101,798

$

77,413

$

26,771

$

104,184

$

77,413

$

26,771

$

104,184

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

-21--20-

Table of Contents

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer loan segments. For classes of loans within the Commercial segment, theThe Company’s primary credit quality indicator used for evaluating credit quality and estimating the ALLLCommercial segment is risk rating categories of Pass, Watch, Special Mention, Substandard, and Doubtful. For classes of loans within the Consumer segment, theThe primary credit quality indicator used for evaluating credit quality and estimating the ALLLConsumer segment is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. While other credit quality indicators are evaluatedSee Note 3 “Loans and analyzed as part ofAllowance for Loan and Lease Losses” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2022 Form 10-K for additional information on the Company’s policies and for further information on 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.quality indicators.

Commercial Loans

The Company uses a risk rating system astable below details the primary credit quality indicator foramortized cost and gross write-offs of the classes of loans within the Commercial segment. The risk rating system on a scale of 0 through 9 is used to determinesegment by risk level and year of origination as usedof June 30, 2023 (dollars in the calculation of the ACL. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:thousands):

Pass is determined by the following criteria:-21-

Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;
Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;
Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;
Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;
Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan.

Table of Contents

Watch is determined by the following criteria:

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay.

Special Mention is determined by the following criteria:

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position.

Substandard is determined by the following criteria:

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

Doubtful is determined by the following criteria:

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined;
Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

June 30, 2023

Term Loans Amortized Cost Basis by Origination Year

2023

2022

2021

2020

2019

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

106,908

$

433,099

$

475,499

$

46,595

$

16,276

$

52,670

$

36,809

$

1,167,856

Watch

107

3,369

16,679

1,170

21,325

Special Mention

4,583

31,266

1,109

36,958

Substandard

1,245

2,621

1,439

206

70

5,581

Total Construction and Land Development

$

107,015

$

437,713

$

499,382

$

79,300

$

16,482

$

55,019

$

36,809

$

1,231,720

Current period gross writeoff

$

$

$

$

$

$

(11)

$

$

(11)

Commercial Real Estate - Owner Occupied

Pass

$

60,745

$

247,960

$

205,286

$

249,787

$

275,029

$

800,742

$

23,613

$

1,863,162

Watch

1,041

615

2,848

3,681

32,050

850

41,085

Special Mention

253

996

9,381

375

11,005

Substandard

222

350

4,228

32,137

36,937

Total Commercial Real Estate - Owner Occupied

$

60,967

$

249,001

$

206,154

$

252,985

$

283,934

$

874,310

$

24,838

$

1,952,189

Current period gross writeoff

$

$

$

$

$

$

$

$

Commercial Real Estate - Non-Owner Occupied

Pass

$

252,924

$

522,120

$

676,747

$

354,465

$

510,448

$

1,580,848

$

24,458

$

3,922,010

Watch

793

6,400

74,289

4

81,486

Special Mention

11,366

19,150

24,803

13,806

69,125

Substandard

230

2,150

5,979

32,338

40,697

Total Commercial Real Estate - Non-Owner Occupied

$

252,924

$

522,350

$

678,897

$

366,624

$

541,977

$

1,712,278

$

38,268

$

4,113,318

Current period gross writeoff

$

$

$

$

$

$

(3,528)

$

$

(3,528)

Commercial & Industrial

Pass

$

496,434

$

807,294

$

501,433

$

222,963

$

139,938

$

169,546

$

900,004

$

3,237,612

Watch

183

523

677

11,139

18,653

3,487

11,341

46,003

Special Mention

1,921

9,632

202

6,285

997

655

44,863

64,555

Substandard

130

467

117

5,999

4,495

13,770

24,978

Total Commercial & Industrial

$

498,538

$

817,579

$

502,779

$

240,504

$

165,587

$

178,183

$

969,978

$

3,373,148

Current period gross writeoff

$

$

$

(6)

$

$

$

(1)

$

(1,810)

$

(1,817)

Multifamily Real Estate

Pass

$

10,127

$

116,684

$

106,311

$

201,859

$

47,056

$

273,461

$

28,996

$

784,494

Watch

553

553

Special Mention

3,764

84

3,848

Total Multifamily Real Estate

$

10,127

$

116,684

$

106,311

$

201,859

$

50,820

$

274,098

$

28,996

$

788,895

Current period gross writeoff

$

$

$

$

$

$

$

$

Residential 1-4 Family - Commercial

Pass

$

16,530

$

59,381

$

84,052

$

73,195

$

48,623

$

221,501

$

468

$

503,750

Watch

50

225

772

6,138

110

7,295

Special Mention

51

1,878

1,929

Substandard

622

184

606

3,678

253

5,343

Total Residential 1-4 Family - Commercial

$

16,631

$

59,381

$

84,674

$

73,604

$

50,001

$

233,195

$

831

$

518,317

Current period gross writeoff

$

$

$

$

$

$

$

$

Other Commercial

Pass

$

43,892

$

189,107

$

183,890

$

132,481

$

118,008

$

66,432

$

7,947

$

741,757

Watch

100

4,717

8

4,193

9,018

Substandard

66

66

Total Other Commercial

$

43,992

$

193,824

$

183,890

$

132,481

$

118,016

$

70,625

$

8,013

$

750,841

Current period gross writeoff

$

$

$

$

$

$

(1,445)

$

$

(1,445)

Total Commercial

Pass

$

987,560

$

2,375,645

$

2,233,218

$

1,281,345

$

1,155,378

$

3,165,200

$

1,022,295

$

12,220,641

Watch

440

9,650

17,971

15,005

29,514

121,880

12,305

206,765

Special Mention

1,972

9,632

5,038

48,917

24,907

37,910

59,044

187,420

Substandard

222

1,605

5,860

2,090

17,018

72,718

14,089

113,602

Total Commercial

$

990,194

$

2,396,532

$

2,262,087

$

1,347,357

$

1,226,817

$

3,397,708

$

1,107,733

$

12,728,428

Total current period gross writeoff

$

$

$

(6)

$

$

$

(4,985)

$

(1,810)

$

(6,801)

-22-

Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of September 30,December 31, 2022 (dollars in thousands):

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

278,751

$

522,332

$

139,003

$

16,527

$

35,327

$

36,153

$

22,434

$

1,050,527

Watch

855

3,842

120

2,736

7,553

Special Mention

921

1,491

338

174

2,924

Substandard

1,261

2,359

40

214

1,345

1,978

7,197

Total Construction and Land Development

$

280,933

$

527,037

$

139,381

$

20,583

$

36,792

$

41,041

$

22,434

$

1,068,201

Commercial Real Estate - Owner Occupied

Pass

$

193,743

$

204,645

$

256,490

$

290,697

$

233,459

$

663,420

$

15,089

$

1,857,543

Watch

1,069

178

2,463

8,293

12,375

26,383

1,149

51,910

Special Mention

641

1,479

914

18,816

42

21,892

Substandard

2,826

4,370

1,610

13,256

465

22,527

Total Commercial Real Estate - Owner Occupied

$

195,453

$

207,649

$

258,953

$

304,839

$

248,358

$

721,875

$

16,745

$

1,953,872

Commercial Real Estate - Non-Owner Occupied

Pass

$

339,274

$

671,073

$

397,814

$

508,462

$

375,951

$

1,392,787

$

31,971

$

3,717,332

Watch

2,151

818

26,793

40,466

27,259

97,487

Special Mention

234

6,084

2,609

18,771

27,698

Substandard

10,501

22,797

18,930

5,580

57,808

Total Commercial Real Estate - Non-Owner Occupied

$

339,508

$

673,224

$

409,133

$

564,136

$

437,956

$

1,444,397

$

31,971

$

3,900,325

Commercial & Industrial

Pass

$

529,915

$

576,070

$

321,669

$

191,789

$

86,424

$

144,362

$

746,107

$

2,596,336

Watch

1,401

794

17,955

5,204

12,546

2,283

22,057

62,240

Special Mention

182

416

2,500

373

2,031

20,174

25,676

Substandard

98

536

112

3,912

14,253

1,375

4,509

24,795

Total Commercial & Industrial

$

531,414

$

577,582

$

340,152

$

203,405

$

113,596

$

150,051

$

792,847

$

2,709,047

Multifamily Real Estate

Pass

$

84,683

$

79,629

$

216,676

$

62,386

$

76,761

$

247,444

$

2,225

$

769,804

Watch

4,209

446

423

5,078

Special Mention

88

88

Total Multifamily Real Estate

$

84,683

$

79,629

$

216,676

$

66,595

$

77,207

$

247,955

$

2,225

$

774,970

Residential 1-4 Family - Commercial

Pass

$

35,383

$

91,966

$

79,004

$

53,298

$

38,421

$

208,616

$

949

$

507,637

Watch

1,344

545

8,561

2,985

5,093

114

18,642

Special Mention

1,495

71

4,800

2,717

9,083

Substandard

2,464

478

4,009

299

7,250

Total Residential 1-4 Family - Commercial

$

35,383

$

93,310

$

81,044

$

64,394

$

46,684

$

220,435

$

1,362

$

542,612

Other Commercial

Pass

$

168,290

$

216,249

$

156,770

$

118,283

$

3,683

$

70,833

$

13,209

$

747,317

Watch

5,367

3,056

8,423

Substandard

95

95

Total Other Commercial

$

173,657

$

216,249

$

156,770

$

118,283

$

3,683

$

73,889

$

13,304

$

755,835

Total Commercial

Pass

$

1,630,039

$

2,361,964

$

1,567,426

$

1,241,442

$

850,026

$

2,763,615

$

831,984

$

11,246,496

Watch

7,837

5,322

21,781

56,902

68,938

67,233

23,320

251,333

Special Mention

1,796

1,673

2,249

10,134

8,696

42,597

20,216

87,361

Substandard

1,359

5,721

10,653

33,757

36,616

26,198

5,368

119,672

Total Commercial

$

1,641,031

$

2,374,680

$

1,602,109

$

1,342,235

$

964,276

$

2,899,643

$

880,888

$

11,704,862

December 31, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

357,688

$

499,738

$

107,559

$

17,191

$

33,801

$

36,335

$

34,345

$

1,086,657

Watch

242

1,637

115

1,669

3,663

Special Mention

2,843

411

93

3,347

Substandard

1,254

3,148

40

211

1,345

1,595

7,593

Total Construction and Land Development

$

362,027

$

504,934

$

107,599

$

17,402

$

35,261

$

39,692

$

34,345

$

1,101,260

Commercial Real Estate - Owner Occupied

Pass

$

258,953

$

215,414

$

257,740

$

282,110

$

228,410

$

624,238

$

17,190

$

1,884,055

Watch

1,060

176

2,437

9,567

9,736

31,331

916

55,223

Special Mention

256

93

1,332

18,766

132

20,579

Substandard

2,565

474

4,728

1,591

12,979

414

22,751

Total Commercial Real Estate - Owner Occupied

$

260,013

$

218,411

$

260,651

$

296,498

$

241,069

$

687,314

$

18,652

$

1,982,608

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

Watch

2,151

2,091

11,915

19,550

20,683

2

56,392

Special Mention

232

25,578

702

7,381

33,893

Substandard

10,460

3,083

29,012

4,879

47,434

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

Commercial & Industrial

Pass

$

849,547

$

536,982

$

262,093

$

182,263

$

67,648

$

120,326

$

846,059

$

2,864,918

Watch

1,399

1,305

18,682

5,039

12,843

1,984

41,836

83,088

Special Mention

222

393

2,145

354

1,773

12,380

17,267

Substandard

94

513

112

2,911

1,449

1,339

11,658

18,076

Total Commercial & Industrial

$

851,040

$

539,022

$

281,280

$

192,358

$

82,294

$

125,422

$

911,933

$

2,983,349

Multifamily Real Estate

Pass

$

111,798

$

90,952

$

204,159

$

47,240

$

59,883

$

231,745

$

52,025

$

797,802

Watch

350

442

416

1,208

Special Mention

3,826

87

3,913

Total Multifamily Real Estate

$

111,798

$

90,952

$

204,159

$

51,416

$

60,325

$

232,248

$

52,025

$

802,923

Residential 1-4 Family - Commercial

Pass

$

58,534

$

86,881

$

77,110

$

50,721

$

38,090

$

199,783

$

803

$

511,922

Watch

500

539

852

1,532

5,378

113

8,914

Special Mention

94

7,771

582

2,630

11,077

Substandard

632

1,400

463

473

2,883

299

6,150

Total Residential 1-4 Family - Commercial

$

59,034

$

87,513

$

79,143

$

59,807

$

40,677

$

210,674

$

1,215

$

538,063

Other Commercial

Pass

$

197,454

$

211,438

$

149,567

$

119,795

$

3,522

$

69,243

$

14,177

$

765,196

Watch

5,095

12

3,435

8,542

Substandard

91

91

Total Other Commercial

$

202,549

$

211,438

$

149,567

$

119,807

$

3,522

$

72,678

$

14,268

$

773,829

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

Watch

8,296

5,269

23,749

27,735

44,218

64,896

42,867

217,030

Special Mention

3,075

889

487

39,413

2,970

30,730

12,512

90,076

Substandard

1,348

6,858

12,486

11,396

33,870

23,675

12,462

102,095

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

-23-

Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 2021 (dollars in thousands):

December 31, 2021

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

430,764

$

218,672

$

39,937

$

40,128

$

11,299

$

50,908

$

22,996

$

814,704

Watch

395

185

12,923

129

349

4,026

18,007

Special Mention

735

735

Substandard

3,541

1

221

19,264

198

5,565

28,790

Total Construction and Land Development

$

434,700

$

218,858

$

53,081

$

59,521

$

11,846

$

61,234

$

22,996

$

862,236

Commercial Real Estate - Owner Occupied

Pass

$

222,079

$

279,165

$

321,503

$

263,422

$

179,994

$

555,540

$

19,705

$

1,841,408

Watch

185

18

7,959

10,875

14,648

57,466

702

91,853

Special Mention

932

11,826

610

1,052

19,480

507

34,407

Substandard

200

153

7,455

2,538

1,935

14,834

626

27,741

Total Commercial Real Estate - Owner Occupied

$

222,464

$

280,268

$

348,743

$

277,445

$

197,629

$

647,320

$

21,540

$

1,995,409

Commercial Real Estate - Non-Owner Occupied

Pass

$

642,386

$

421,063

$

520,035

$

377,176

$

374,949

$

1,102,193

$

36,568

$

3,474,370

Watch

2,152

841

35,721

39,356

18,242

101,797

14

198,123

Special Mention

10,609

25,691

20,119

12,741

4,775

73,935

Substandard

23,376

11,369

7,952

252

42,949

Total Commercial Real Estate - Non-Owner Occupied

$

644,538

$

432,513

$

604,823

$

448,020

$

405,932

$

1,216,717

$

36,834

$

3,789,377

Commercial & Industrial

Pass

$

770,662

$

450,478

$

287,926

$

110,710

$

38,395

$

170,857

$

619,583

$

2,448,611

Watch

1,233

9,641

2,766

31,635

1,370

4,405

17,220

68,270

Special Mention

206

935

8,477

1,023

564

561

3,249

15,015

Substandard

379

575

3,636

1,965

463

1,639

1,690

10,347

Total Commercial & Industrial

$

772,480

$

461,629

$

302,805

$

145,333

$

40,792

$

177,462

$

641,742

$

2,542,243

Multifamily Real Estate

Pass

$

63,431

$

187,616

$

108,402

$

114,077

$

66,562

$

228,013

$

1,548

$

769,649

Watch

359

459

522

1,340

Special Mention

44

2,248

624

4,517

91

7,524

Substandard

113

113

Total Multifamily Real Estate

$

63,475

$

189,864

$

109,385

$

119,053

$

66,562

$

228,739

$

1,548

$

778,626

Residential 1-4 Family - Commercial

Pass

$

108,259

$

94,184

$

65,682

$

46,267

$

55,995

$

196,052

$

550

$

566,989

Watch

2,041

4,887

7,483

2,415

7,573

311

24,710

Special Mention

96

436

391

4,126

5,049

Substandard

93

3,494

536

1,291

4,876

299

10,589

Total Residential 1-4 Family - Commercial

$

108,352

$

96,321

$

74,063

$

54,722

$

60,092

$

212,627

$

1,160

$

607,337

Other Commercial

Pass

$

226,595

$

167,497

$

98,848

$

5,620

$

25,723

$

44,114

$

30,445

$

598,842

Watch

581

1,246

4,341

6,168

Special Mention

2

2

Substandard

239

239

Total Other Commercial

$

226,595

$

167,497

$

98,848

$

6,201

$

26,971

$

48,694

$

30,445

$

605,251

Total Commercial

Pass

$

2,464,176

$

1,818,675

$

1,442,333

$

957,400

$

752,917

$

2,347,677

$

731,395

$

10,514,573

Watch

3,965

12,726

64,615

90,518

38,270

180,130

18,247

408,471

Special Mention

250

14,820

46,618

26,705

14,750

29,768

3,756

136,667

Substandard

4,213

729

38,182

35,672

3,887

35,218

2,867

120,768

Total Commercial

$

2,472,604

$

1,846,950

$

1,591,748

$

1,110,295

$

809,824

$

2,592,793

$

756,265

$

11,180,479

-24-

Table of Contents

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of SeptemberJune 30, 20222023 (dollars in thousands):

September 30, 2022

June 30, 2023

Term Loans Amortized Cost Basis by Origination Year

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

2023

2022

2021

2020

2019

Prior

Revolving Loans

Total

Residential 1-4 Family - Consumer

Current

$

163,110

$

250,861

$

161,913

$

38,668

$

23,633

$

238,782

$

13

$

876,980

$

70,851

$

238,125

$

268,215

$

158,576

$

33,807

$

232,045

$

13

$

1,001,632

30-59 Days Past Due

90

142

174

717

1,123

97

142

1,265

1,504

60-89 Days Past Due

104

1,345

1,449

271

1,727

62

753

2,813

90+ Days Past Due

45

635

680

1,716

1,716

Nonaccrual

429

268

957

9,467

11,121

191

574

106

9,162

10,033

Total Residential 1-4 Family - Consumer

$

163,110

$

251,290

$

162,003

$

39,227

$

24,764

$

250,946

$

13

$

891,353

$

70,851

$

238,684

$

270,516

$

158,576

$

34,117

$

244,941

$

13

$

1,017,698

Current period gross writeoff

$

$

(17)

$

$

$

(69)

$

(37)

$

$

(123)

Residential 1-4 Family - Revolving

Current

$

58,864

$

14,630

$

5,825

$

1,715

$

826

$

478

$

499,080

$

581,418

$

23,407

$

60,538

$

12,665

$

4,689

$

1,268

$

1,190

$

489,019

$

592,776

30-59 Days Past Due

1,115

1,115

136

1,593

1,729

60-89 Days Past Due

1,081

1,081

1,114

1,114

90+ Days Past Due

1,255

1,255

1,259

1,259

Nonaccrual

149

57

14

3,363

3,583

82

149

54

3,176

3,461

Total Residential 1-4 Family - Revolving

$

58,864

$

14,779

$

5,882

$

1,715

$

840

$

478

$

505,894

$

588,452

$

23,407

$

60,756

$

12,814

$

4,743

$

1,268

$

1,190

$

496,161

$

600,339

Current period gross writeoff

$

$

$

$

$

$

$

$

Auto

Current

$

221,446

$

168,008

$

89,869

$

49,923

$

19,147

$

10,285

$

$

558,678

$

90,090

$

247,683

$

130,410

$

66,151

$

33,588

$

13,859

$

$

581,781

30-59 Days Past Due

310

653

292

375

119

127

1,876

266

1,050

758

332

335

136

2,877

60-89 Days Past Due

3

79

78

55

42

257

21

219

218

35

42

29

564

90+ Days Past Due

108

13

6

12

9

148

179

22

32

3

7

243

Nonaccrual

90

107

89

8

24

318

122

81

41

42

5

291

Total Auto

$

221,759

$

168,938

$

90,359

$

50,448

$

19,286

$

10,487

$

$

561,277

$

90,377

$

249,253

$

131,489

$

66,591

$

34,010

$

14,036

$

$

585,756

Current period gross writeoff

$

$

(233)

$

(94)

$

(93)

$

(58)

$

(41)

$

$

(519)

Consumer

Current

$

36,208

$

17,683

$

12,001

$

26,271

$

19,195

$

21,475

$

39,347

$

172,180

$

8,134

$

29,521

$

12,791

$

9,376

$

19,153

$

28,768

$

26,340

$

134,083

30-59 Days Past Due

10

6

40

150

109

51

43

409

10

92

37

19

100

65

12

335

60-89 Days Past Due

1

19

39

39

2

1

101

5

98

32

3

67

5

4

214

90+ Days Past Due

13

28

9

14

1

21

86

25

20

8

12

6

3

74

Nonaccrual

3

-

3

Total Consumer

$

36,218

$

17,703

$

12,088

$

26,469

$

19,357

$

21,529

$

39,412

$

172,776

$

8,149

$

29,736

$

12,883

$

9,406

$

19,332

$

28,844

$

26,359

$

134,709

Current period gross writeoff

$

$

(25)

$

(70)

$

(404)

$

(14)

$

(325)

$

(47)

$

(885)

Total Consumer

Current

$

479,628

$

451,182

$

269,608

$

116,577

$

62,801

$

271,020

$

538,440

$

2,189,256

$

192,482

$

575,867

$

424,081

$

238,792

$

87,816

$

275,862

$

515,372

$

2,310,272

30-59 Days Past Due

320

659

422

667

402

895

1,158

4,523

276

1,375

795

351

577

1,466

1,605

6,445

60-89 Days Past Due

3

80

97

198

39

1,389

1,082

2,888

26

588

1,977

38

171

787

1,118

4,705

90+ Days Past Due

121

41

60

26

645

1,276

2,169

204

42

40

15

1,729

1,262

3,292

Nonaccrual

668

164

357

979

9,491

3,363

15,022

395

807

95

148

9,167

3,176

13,788

Total Consumer

$

479,951

$

452,710

$

270,332

$

117,859

$

64,247

$

283,440

$

545,319

$

2,213,858

$

192,784

$

578,429

$

427,702

$

239,316

$

88,727

$

289,011

$

522,533

$

2,338,502

Total current period gross writeoff

$

$

(275)

$

(164)

$

(497)

$

(141)

$

(403)

$

(47)

$

(1,527)

-25--24-

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, 20212022 (dollars in thousands):

December 31, 2021

December 31, 2022

Term Loans Amortized Cost Basis by Origination Year

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Residential 1-4 Family - Consumer

Current

$

248,904

$

174,459

$

47,905

$

33,809

$

44,179

$

246,554

$

11

$

795,821

$

212,697

$

263,734

$

162,826

$

36,197

$

22,629

$

221,738

$

12

$

919,833

30-59 Days Past Due

157

143

807

460

1,801

3,368

174

2,169

89

46

220

3,253

5,951

60-89 Days Past Due

624

107

2,194

2,925

413

1,277

1,690

90+ Days Past Due

46

20

304

2,643

3,013

64

1,891

1,955

Nonaccrual

444

117

884

1,330

8,622

11,397

423

307

940

9,176

10,846

Total Residential 1-4 Family - Consumer

$

249,348

$

174,616

$

48,211

$

36,144

$

46,380

$

261,814

$

11

$

816,524

$

212,871

$

266,326

$

162,915

$

36,614

$

24,202

$

237,335

$

12

$

940,275

Residential 1-4 Family - Revolving

Current

$

16,546

$

9,511

$

2,230

$

1,056

$

$

484

$

524,825

$

554,652

$

68,434

$

13,810

$

4,997

$

1,672

$

801

$

476

$

487,803

$

577,993

30-59 Days Past Due

1,493

1,493

90

1,753

1,843

60-89 Days Past Due

363

363

511

511

90+ Days Past Due

882

882

1,384

1,384

Nonaccrual

63

18

3,325

3,406

149

57

13

3,234

3,453

Total Residential 1-4 Family - Revolving

$

16,546

$

9,574

$

2,230

$

1,074

$

$

484

$

530,888

$

560,796

$

68,524

$

13,959

$

5,054

$

1,672

$

814

$

476

$

494,685

$

585,184

Auto

Current

$

207,229

$

123,848

$

72,427

$

31,745

$

16,020

$

7,204

$

$

458,473

$

285,036

$

154,904

$

81,710

$

44,086

$

15,974

$

7,525

$

$

589,235

30-59 Days Past Due

299

382

518

259

245

163

1,866

808

772

451

456

134

126

2,747

60-89 Days Past Due

45

29

95

33

36

11

249

65

129

146

76

30

4

450

90+ Days Past Due

55

101

42

20

23

241

169

111

32

12

20

344

Nonaccrual

81

55

27

27

33

223

113

18

62

2

5

200

Total Auto

$

207,628

$

124,441

$

73,137

$

32,084

$

16,351

$

7,411

$

$

461,052

$

286,078

$

155,918

$

82,436

$

44,712

$

16,152

$

7,680

$

$

592,976

Consumer

Current

$

25,084

$

16,059

$

38,594

$

30,890

$

12,853

$

16,929

$

35,534

$

175,943

$

36,513

$

15,897

$

11,019

$

23,838

$

16,084

$

19,070

$

29,537

$

151,958

30-59 Days Past Due

31

94

201

186

63

26

88

689

61

27

36

113

34

61

19

351

60-89 Days Past Due

11

13

62

60

34

6

186

43

17

10

11

14

21

9

125

90+ Days Past Due

1

4

33

72

8

2

120

22

9

12

32

33

108

Nonaccrual

54

54

3

3

Total Consumer

$

25,127

$

16,170

$

38,890

$

31,208

$

12,958

$

17,009

$

35,630

$

176,992

$

36,639

$

15,944

$

11,074

$

23,974

$

16,164

$

19,152

$

29,598

$

152,545

Total Consumer

Current

$

497,763

$

323,877

$

161,156

$

97,500

$

73,052

$

271,171

$

560,370

$

1,984,889

$

602,680

$

448,345

$

260,552

$

105,793

$

55,488

$

248,809

$

517,352

$

2,239,019

30-59 Days Past Due

330

633

862

1,252

768

1,990

1,581

7,416

1,133

2,968

576

615

388

3,440

1,772

10,892

60-89 Days Past Due

56

42

157

717

177

2,205

369

3,723

108

146

156

87

457

1,302

520

2,776

90+ Days Past Due

56

105

121

112

335

2,643

884

4,256

191

120

108

44

1,911

1,417

3,791

Nonaccrual

444

144

172

929

1,357

8,709

3,325

15,080

688

75

369

955

9,181

3,234

14,502

Total Consumer

$

498,649

$

324,801

$

162,468

$

100,510

$

75,689

$

286,718

$

566,529

$

2,015,364

$

604,112

$

452,147

$

261,479

$

106,972

$

57,332

$

264,643

$

524,295

$

2,270,980

The Company did not have any materialsignificant revolving loans convert to term during the ninesix months ended SeptemberJune 30, 20222023 or the year ended December 31, 2021.2022.

-25-

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 six months ended June 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 six months ended June 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 under the terms of the applicable restructuring agreement, which were considered to be performing, and TDRs that had been placed on nonaccrual status, which were considered to be nonperforming, as of December 31, 2022 (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

The Company considered a default of a TDR to occur when the borrower was 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurred. During the three and six months ended June 30, 2022, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

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Table of Contents

4. GOODWILL AND INTANGIBLE ASSETS

The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangibles are being amortized over the period of expected benefit, which ranges from 4four years to 10ten years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 4four years to 10ten years,, using various methods. The Company concluded 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. The Company concluded there was no impairment to the Company’s goodwill or intangible assets as of the balance sheet date.

Effective June 30, 2022,January 1, 2023, the Company made an organizational change to move certain lines of business in the Bank,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 CSP completed the sale$1.6 million of DHFB, which was formerly a subsidiary of the Bank, resulting in a reduction in both the Company’s goodwill of $10.3 million and intangible assets, of $5.7 million.

Inrespectively, from the third quarter of 2022,Consumer Banking segment to the Company moved from one reportable operating segment, the Bank, to two reportable operating segments, Wholesale Banking and Consumer Banking, which resulted in goodwill being allocated between the two reportable operating segments based on their relative fair values.segment. The Company determined that there was no impairment to the Bank’s goodwill prior to reallocatingor 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 SeptemberJune 30, 20222023 and December 31, 20212022 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

Wholesale Banking

Consumer Banking

Corporate Other

Total

As of September 30, 2022

June 30, 2023

 

  

 

  

 

  

  

Goodwill

$

642,256

$

282,955

$

$

925,211

$

639,180

$

286,031

$

$

925,211

Intangible assets

1,704

27,438

29,142

As of December 31, 2021

Intangible Assets

 

1,430

 

1,227

 

20,812

 

23,469

December 31, 2022

 

  

 

  

 

  

 

  

Goodwill

$

642,256

$

293,304

$

$

935,560

$

639,180

$

286,031

$

$

925,211

Intangible assets

8,327

34,985

43,312

Intangible Assets

 

1,558

 

75

 

25,128

 

26,761

Refer to Note 12 “Segment Reporting and Revenue” in Part I, Item 1 “Financial Statements” of this Quarterly Report for moreadditional information on the Company’s reportable operating segment changes.

Amortization expense of intangibles for the three and six months ended SeptemberJune 30, 2023 and 2022 and 2021 totaled $2.5$2.2 million and $3.4 million, respectively. Amortization expense of intangibles for the nine months ended September 30, 2022 and 2021 totaled $8.4$4.5 million, and $10.7$2.9 million and $6.0 million, respectively.

As of SeptemberJune 30, 2022,2023, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):

For the remaining three months of 2022

    

$

2,382

2023

8,518

For the remaining six months of 2023

$

4,287

2024

6,753

    

6,935

2025

5,154

5,290

2026

3,559

3,654

2027

2,068

Thereafter

2,776

1,235

Total estimated amortization expense

$

29,142

$

23,469

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5. LEASES

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

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixedequipment, including vehicles and are typically payable in monthly installmentsmachinery, with terms ranging from 14 months to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components.

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 RVIresidual value insurance to reduce its residual asset risk. At SeptemberJune 30, 20222023 and December 31, 2021,2022, the carrying value of residual assets covered by residual value guarantees and RVIresidual value insurance was $36.7$55.3 million and $23.0$44.3 million, respectively.

The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. The Company’s net investment in sales-type and direct financing leases are included in “Loans held for investment, net of deferred fees and costs” For more information on the Company’s Consolidated Balance Sheets. Lease income is recordedlessor arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in “Interest and fees on loans” on the Company’s Consolidated Statements of Income.2022 Form 10-K.

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

    

September 30, 2022

December 31, 2021

    

June 30, 2023

December 31, 2022

Sales-type and direct financing leases:

Lease receivables, net of unearned income and deferred selling profit

$

254,773

$

199,423

$

280,023

$

266,380

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

12,219

8,911

15,946

15,159

Total net investment in sales-type and direct financing leases

 

$

266,992

$

208,334

 

$

295,969

$

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. TheFor more information on the Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. The Company does not have any materiallessee arrangements, whererefer to Note 1 “Summary of Significant Accounting Policies” in the Company is in a sublease contract.Company’s 2022 Form 10-K.

Lessee arrangements with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The ROU assets and lease liabilities associated with operating and finance leases greater than 12 months are recorded intables below provide information about the Company’s Consolidated Balance Sheets; ROU assets within “Other assets”lessee lease portfolio and other supplemental lease liabilities within “Other liabilities.” ROU assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses aninformation (dollars in thousands):

    

June 30, 2023

December 31, 2022

Operating

Finance

Operating

Finance

ROU assets

$

32,725

$

5,128

$

35,729

$

5,588

Lease liabilities

40,507

7,676

47,696

8,288

Lease Term and Discount Rate of Operating leases:

 

Weighted-average remaining lease term (years)

 

6.26

5.58

6.80

6.08

Weighted-average discount rate (1)

 

2.96

%

1.17

%

2.91

%

1.17

%

(1) An incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments. ROU assets are recognizedor at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to renew and if the Company is reasonably certain to exercise those options, it would be included in the measurement of the operating ROU assets and lease liabilities.remeasurement date.

Six months ended June 30, 

 

2023

2022

Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$

46

$

53

Operating Cash Flows from Operating Leases

6,156

5,756

Financing Cash Flows from Finance Leases

612

589

ROU assets obtained in exchange for lease obligations:

Operating leases

$

(241)

$

424

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Table of Contents

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in “Occupancy expenses” on the Company’s Consolidated Statements of Income. Finance lease expenses consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU assets are recorded in “Occupancy expenses” on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in “Interest on long-term borrowings” on the Company’s Consolidated Statements of Income.

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

    

September 30, 2022

December 31, 2021

Operating

Finance

Operating

Finance

ROU assets

$

31,821

$

5,817

$

40,653

$

6,506

Lease liabilities

44,145

8,593

50,742

9,477

Lease Term and Discount Rate of Operating leases:

 

Weighted-average remaining lease term (years)

 

6.44

6.33

6.75

7.08

Weighted-average discount rate (1)

 

2.63

%

1.17

%

2.57

%

1.17

%

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

Nine months ended September 30, 

 

2022

2021

Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$

79

$

89

Operating Cash Flows from Operating Leases

 

8,514

8,961

Financing Cash Flows from Finance Leases

885

851

ROU assets obtained in exchange for lease obligations:

Operating leases

$

1,268

$

2,412

Three months ended September 30, 

Nine months ended September 30, 

Three months ended June 30, 

Six months ended June 30, 

2022

2021

2022

2021

2023

2022

2023

2022

Net Operating Lease Cost

$

2,117

$

2,535

 

$

6,658

$

7,615

$

2,358

$

2,230

 

$

4,910

$

5,081

Finance Lease Cost:

Amortization of right-of-use assets

230

230

689

689

230

230

459

459

Interest on lease liabilities

25

29

 

79

89

23

26

 

46

60

Total Lease Cost

$

2,372

$

2,794

$

7,426

$

8,393

$

2,611

$

2,486

$

5,415

$

5,600

The maturities of lessor and lessee arrangements outstanding at September 30, 2022 are presented in the table below (dollars in thousands):

September 30, 2022

June 30, 2023

Lessor

Lessee

Lessor

Lessee

Sales-type and Direct Financing

Operating

Finance

Sales-type and Direct Financing

Operating

Finance

For the remaining three months of 2022

    

$

16,842

$

2,806

$

329

2023

65,059

10,388

1,325

For the remaining six months of 2023

    

$

35,659

$

5,345

$

666

2024

 

62,282

9,441

1,358

72,115

10,154

1,358

2025

 

48,508

7,297

1,392

 

61,666

8,027

1,392

2026

 

36,606

4,826

1,427

 

50,022

5,517

1,427

2027

 

40,317

4,101

1,462

Thereafter

 

50,030

13,642

3,088

 

54,321

11,666

1,627

Total undiscounted cash flows

 

279,327

48,400

8,919

 

314,100

44,810

7,932

Less: Adjustments (1)

 

24,554

4,255

326

 

34,077

4,303

256

Total (2)

$

254,773

$

44,145

$

8,593

$

280,023

$

40,507

$

7,676

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

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

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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 SeptemberJune 30, 20222023 and December 31, 20212022 (dollars in thousands):

    

September 30, 

December 31, 

 

    

June 30,

December 31, 

 

2022

2021

 

2023

2022

 

Securities sold under agreements to repurchase

$

146,182

$

117,870

$

130,461

$

142,837

Federal Funds Purchased

160,000

FHLB Advances

 

133,800

 

 

799,400

 

1,016,000

Total short-term borrowings

$

279,982

$

117,870

$

929,861

$

1,318,837

Average outstanding balance during the period

$

262,782

$

113,030

$

698,391

$

302,060

Average interest rate during the period

 

0.92

%  

 

0.10

%

 

4.51

%  

 

1.79

%

Average interest rate at end of period

 

1.54

%  

 

0.07

%

 

4.96

%  

 

3.89

%

The Bank maintains federal funds lines with several correspondent banks,banks; the available balance was $907.0 million and $1.0 billion and $997.0 million at SeptemberJune 30, 20222023 and December 31, 20212022, respectively. The Company maintains an alternate line of credit at a correspondent bank; the available balance was $25.0 million at both SeptemberJune 30, 20222023 and December 31, 2021.2022. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is in compliance with these covenants as of SeptemberJune 30, 20222023 and December 31, 2021.2022. Additionally, the Company hadhas a collateral dependent line of credit with the FHLB of up to $5.9 billion and $6.06.0 billion at Septemberboth June 30, 20222023 and December 31, 20212022. The remaining credit availability on the collateral dependent line of credit with the FHLB was $5.2 billion and $4.9 billion at June 30, 2023

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Table of Contents

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 June 30, 2023, liquidity of $539.4 million was available based on the par-value of qualifying securities from BTFP. The Company had not utilized the BTFP facility as of June 30, 2023.

Long-term Borrowings

During the fourth quarter of 2021, the Company issued the 2031 Notes. The 2031 Notes were sold at par resulting in net proceeds, after underwriting discounts and offering expenses, of approximately $246.9 million. The Company used a portion of the net proceeds from the 2031 Notes issuance to repay its outstanding $150 million of 5.00% fixed-to-floating rate subordinated notes that were due in 2026.

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 $12.7$12.1 million and $13.3$12.5 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.

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Table of Contents

Total long-term borrowings consist of the following as of SeptemberJune 30, 20222023 (dollars in thousands):

Spread to

Spread to

Principal

3-Month LIBOR

Rate (1)

Maturity

Investment (2)

Principal

3-Month LIBOR (1)

Rate (2)

Maturity

Investment (3)

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$

22,500

 

2.75

%  

6.50

%  

6/17/2034

$

696

$

22,500

 

2.75

%  

8.30

%  

6/17/2034

$

696

Trust Preferred Capital Note - Statutory Trust II

 

36,000

 

1.40

%  

5.15

%  

6/15/2036

 

1,114

 

36,000

 

1.40

%  

6.95

%  

6/15/2036

 

1,114

VFG Limited Liability Trust I Indenture

 

20,000

 

2.73

%  

6.48

%  

3/18/2034

 

619

 

20,000

 

2.73

%  

8.28

%  

3/18/2034

 

619

FNB Statutory Trust II Indenture

 

12,000

 

3.10

%  

6.85

%  

6/26/2033

 

372

 

12,000

 

3.10

%  

8.65

%  

6/26/2033

 

372

Gateway Capital Statutory Trust I

 

8,000

 

3.10

%  

6.85

%  

9/17/2033

 

248

 

8,000

 

3.10

%  

8.65

%  

9/17/2033

 

248

Gateway Capital Statutory Trust II

 

7,000

 

2.65

%  

6.40

%  

6/17/2034

 

217

 

7,000

 

2.65

%  

8.20

%  

6/17/2034

 

217

Gateway Capital Statutory Trust III

 

15,000

 

1.50

%  

5.25

%  

5/30/2036

 

464

 

15,000

 

1.50

%  

7.05

%  

5/30/2036

 

464

Gateway Capital Statutory Trust IV

 

25,000

 

1.55

%  

5.30

%  

7/30/2037

 

774

 

25,000

 

1.55

%  

7.10

%  

7/30/2037

 

774

MFC Capital Trust II

 

5,000

 

2.85

%  

6.60

%  

1/23/2034

 

155

 

5,000

 

2.85

%  

8.40

%  

1/23/2034

 

155

Total Trust Preferred Capital Securities

$

150,500

 

  

 

  

 

  

$

4,659

$

150,500

 

  

 

  

 

  

$

4,659

Subordinated Debt(4)(5)

2031 Subordinated Debt

250,000

-

%

2.875

%

12/15/2031

250,000

%

2.875

%

12/15/2031

Total Subordinated Debt(5)(6)

$

250,000

$

250,000

Fair Value Discount(6)(7)

(15,583)

(14,719)

Investment in Trust Preferred Capital Securities

4,659

4,659

Total Long-term Borrowings

$

389,576

$

390,440

(1) The index rates will change to SOFR in the third quarter of 2023 due to LIBOR cessation. See note 1 for the Company’s adoption of ASC 848.

(2) Rate as of SeptemberJune 30, 2022.2023. Calculated using non-rounded numbers.

(2) (3)The total of Represents the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturitiesdebentures owned by the Company in trust and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other assets" on the Company’s Consolidated Balance Sheets.Sheets.

(3)(4) The remaining issuance discount as of SeptemberJune 30, 20222023 is $2.92.6 million.

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

(5)(6) 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)(7) Remaining discounts of $12.712.1 million and $2.92.6 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

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Table of Contents

Total long-term borrowings consist of the following as of December 31, 20212022 (dollars in thousands):

Spread to

Spread to

Principal

3-Month LIBOR

Rate (1)

Maturity

Investment (2)

Principal

3-Month LIBOR (1)

Rate (2)

Maturity

Investment (3)

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$

22,500

 

2.75

%  

2.96

%  

6/17/2034

$

696

$

22,500

 

2.75

%  

7.52

%  

6/17/2034

$

696

Trust Preferred Capital Note - Statutory Trust II

 

36,000

 

1.40

%  

1.61

%  

6/15/2036

 

1,114

 

36,000

 

1.40

%  

6.17

%  

6/15/2036

 

1,114

VFG Limited Liability Trust I Indenture

 

20,000

 

2.73

%  

2.94

%  

3/18/2034

 

619

 

20,000

 

2.73

%  

7.50

%  

3/18/2034

 

619

FNB Statutory Trust II Indenture

 

12,000

 

3.10

%  

3.31

%  

6/26/2033

 

372

 

12,000

 

3.10

%  

7.87

%  

6/26/2033

 

372

Gateway Capital Statutory Trust I

 

8,000

 

3.10

%  

3.31

%  

9/17/2033

 

248

 

8,000

 

3.10

%  

7.87

%  

9/17/2033

 

248

Gateway Capital Statutory Trust II

 

7,000

 

2.65

%  

2.86

%  

6/17/2034

 

217

 

7,000

 

2.65

%  

7.42

%  

6/17/2034

 

217

Gateway Capital Statutory Trust III

 

15,000

 

1.50

%  

1.71

%  

5/30/2036

 

464

 

15,000

 

1.50

%  

6.27

%  

5/30/2036

 

464

Gateway Capital Statutory Trust IV

 

25,000

 

1.55

%  

1.76

%  

7/30/2037

 

774

 

25,000

 

1.55

%  

6.32

%  

7/30/2037

 

774

MFC Capital Trust II

 

5,000

 

2.85

%  

3.06

%  

1/23/2034

 

155

 

5,000

 

2.85

%  

7.62

%  

1/23/2034

 

155

Total Trust Preferred Capital Securities

$

150,500

 

  

 

  

 

  

$

4,659

$

150,500

 

  

 

  

 

  

$

4,659

Subordinated Debt(4)(5)

2031 Subordinated Debt

250,000

-

%

2.875

%

12/15/2031

250,000

%

2.875

%

12/15/2031

Total Subordinated Debt(5)(6)

$

250,000

$

250,000

Fair Value Discount(6)(7)

(16,435)

(15,296)

Investment in Trust Preferred Capital Securities

4,659

4,659

Total Long-term Borrowings

$

388,724

$

389,863

(1) The index rates will change to SOFR in the third quarter of 2023 due to LIBOR cessation. See note 1 for the Company’s adoption of ASC 848.

(2) Rate as of December 31, 2021.2022. Calculated using non-rounded numbers.

(2)(3) The total ofRepresents the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturitiesdebentures owned by the Company in trust and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other assets" on the Company’s Consolidated Balance Sheets.

(3)(4) The remaining issuance discount as of December 31, 20212022 is $3.12.8 million.

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

(5)(6) 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)(7) Remaining discounts of $13.312.5 million and $3.12.8 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

As of SeptemberJune 30, 2022,2023, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):

  

Trust

  

  

  

  

Trust

  

  

  

  

Preferred

  

  

  

Total

  

Preferred

  

  

  

Total

  

Capital

  

Subordinated

  

Fair Value

  

 Long-term

  

Capital

  

Subordinated

  

Fair Value

  

 Long-term

  

Notes

  

Debt

  

Discount (1)

  

Borrowings

  

Notes

  

Debt

  

Discount (1)

  

Borrowings

For the remaining three months of 2022

$

$

$

(287)

$

(287)

2023

 

 

 

(1,162)

 

(1,162)

For the remaining six months of 2023

$

$

$

(585)

$

(585)

2024

 

 

 

(1,187)

 

(1,187)

 

 

 

(1,187)

 

(1,187)

2025

 

 

 

(1,211)

 

(1,211)

 

 

 

(1,211)

 

(1,211)

2026

 

 

 

(1,236)

 

(1,236)

 

 

 

(1,236)

 

(1,236)

2027

 

 

 

(1,263)

 

(1,263)

Thereafter

 

155,159

 

250,000

 

(10,500)

 

394,659

 

155,159

 

250,000

 

(9,237)

 

395,922

Total long-term borrowings

$

155,159

$

250,000

$

(15,583)

$

389,576

$

155,159

$

250,000

$

(14,719)

$

390,440

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

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7. COMMITMENTS AND CONTINGENCIES

Litigation and Regulatory Matters

In the ordinary course of its operations, the Company and its subsidiaries are involved in varioussubject 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 if any,is reasonably estimable. When it is practicable, the Company estimates possible loss contingencies, whether or not there is an accrued 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 ultimateamounts 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 is 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.

As of June 30, 2023, 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 such matters cannot be determined. Despite the uncertainties of such litigation and investigations, and based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings in the aggregate will not have a material adverse effect on the business, financial condition, or results of operations ofthis matter. If the Company subject toand the potential outcomes of disclosed matters. There have been no material changes with respect toCFPB do not reach a settlement, the Company’s previously disclosed proceedings.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 both SeptemberJune 30, 20222023 and December 31, 2021,2022, the Company’s RUCreserve for unfunded commitments and indemnification reserve totaled $11.4$15.9 million and $8.4$14.1 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

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payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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

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

    

September 30, 2022

    

December 31, 2021

    

June 30, 2023

    

December 31, 2022

Commitments with off-balance sheet risk:

 

  

 

  

 

  

 

  

Commitments to extend credit (1)

$

3,411,234

$

5,825,557

$

5,516,243

$

5,229,252

Letters of credit

 

150,649

 

152,506

 

148,908

 

156,459

Total commitments with off-balance sheet risk

$

3,561,883

$

5,978,063

$

5,665,151

$

5,385,711

(1) Includes unfunded overdraft protection.

(1) Includes unfunded overdraft protection.

As of SeptemberJune 30, 2022,2023, the Company had approximately $287.5$250.9 million in deposits in other financial institutions of which $237.5$187.9 million served as collateral for cash flow and loan swap derivatives. As of December 31, 2021,2022, the Company had approximately $187.4$273.5 million in deposits in other financial institutions of which $82.3$196.2 million served as collateral for the Company’s derivative interest rate contracts.cash flow and loan swap derivatives. The Company had approximately $46.4$59.6 million and $102.0$74.0 million in deposits in other financial institutions that were uninsured at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. 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 OTCover-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, it pledges collateral to secure various financing and other activities that occur during the normal course of business. The following tables present the types of collateral pledged at June 30, 2023 and December 31, 2022 (dollars in thousands):

Pledged Assets as of June 30, 2023

    

    

AFS

    

HTM

    

    

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Public deposits

$

$

749,791

$

614,269

$

$

1,364,060

Repurchase agreements

 

 

174,364

 

 

 

174,364

FHLB advances

 

 

55,309

 

 

3,181,541

 

3,236,850

Derivatives

 

187,873

 

57,345

 

 

 

245,218

Fed Funds (3)

423,257

17,696

432,704

873,657

Other purposes

 

22,404

22,404

Total pledged assets

$

187,873

$

1,482,470

$

631,965

$

3,614,245

$

5,916,553

(1) Balance represents market value.

(2) Balance represents carrying value.

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

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the variation margin is treated as a settlement of the related derivatives fair values. Refer to Note 8 “Derivatives” in Part I, Item I of this Quarterly Report for additional information.

The Company pledges collateral to secure various financing and other activities that occur during the normal course of business as part of the liquidity management strategy. The following tables present the types of collateral pledged at September 30, 2022 and December 31, 2021 (dollars in thousands):

Pledged Assets as of September 30, 2022

    

    

AFS

    

HTM

    

    

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Public deposits

$

$

576,066

$

483,284

$

$

1,059,350

Repurchase agreements

 

 

151,237

 

 

 

151,237

FHLB advances

 

 

37,188

 

 

2,545,915

 

2,583,103

Derivatives

 

237,546

 

56,593

 

 

 

294,139

Fed Funds

479,668

479,668

Other purposes

 

26,667

834

27,501

Total pledged assets

$

237,546

$

847,751

$

484,118

$

3,025,583

$

4,594,998

Pledged Assets as of December 31, 2021

Pledged Assets as of December 31, 2022

    

    

AFS

    

HTM

    

    

    

    

AFS

    

HTM

    

    

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Cash

Securities (1)

Securities (1)

Loans (2)

Total

Public deposits

$

$

703,489

$

472,243

$

$

1,175,732

$

$

713,761

$

579,550

$

$

1,293,311

Repurchase agreements

 

 

130,217

 

 

 

130,217

 

 

159,221

 

 

 

159,221

FHLB advances

 

 

43,722

 

 

4,263,259

 

4,306,981

 

 

36,039

 

 

2,679,316

 

2,715,355

Derivatives

 

82,299

 

65,053

 

 

 

147,352

 

196,180

 

57,114

 

 

 

253,294

Fed Funds

392,067

392,067

458,680

458,680

Other purposes

 

22,003

985

22,988

 

27,311

865

28,176

Total pledged assets

$

82,299

$

964,484

$

473,228

$

4,655,326

$

6,175,337

$

196,180

$

993,446

$

580,415

$

3,137,996

$

4,908,037

(1) Balance represents market value.

(2) Balance represents book value.

(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, and interest rate cap agreements, as well as interest rate lock commitments.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 OTCover-the-counter derivatives with central clearinghouses through FCMsfutures 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 OTCover-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 andin range inand 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 SeptemberJune 30, 20222023 and December 31, 2021,2022, 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 $800 million and $500$900 million, respectively.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 SeptemberJune 30, 20222023 and December 31, 2021,2022, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled $84.8$80.8 million and $88.6$83.6 million, respectively, and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $11.2$10.7 million and an unrealized loss of $620,000,$11.0 million, respectively.

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AFS Securities: The Company has entered into a swap agreement to hedge the interest rate risk on a portion of its fixed rate AFS securities. At SeptemberJune 30, 20222023 and December 31, 2021,2022, 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 $2.1$2.3 million and an unrealized loss of $4.1$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 ContractsContracts:

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 June 30, 2023 and December 31, 2022, the Company’s foreign exchange derivative contracts had an aggregate notional amount of $12.4 million and $10.4 million, respectively. Unrealized losses at both June 30, 2023 and December 31, 2022 were not significant. The Company had no foreign exchange derivative contracts at June 30, 2022.

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The following table summarizes key elements of the Company’s derivative instruments as of SeptemberJune 30, 20222023 and December 31, 2021,2022, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):

    

September 30, 2022

    

December 31, 2021

Derivative (2)

Derivative (2)

    

Notional or

    

    

    

Notional or

    

    

Contractual

Contractual

Amount (1)

Assets

Liabilities

Amount (1)

Assets

Liabilities

Derivatives designated as accounting hedges:

Interest rate contracts: (3)

 

 

  

 

  

 

  

 

  

Cash flow hedges

$

800,000

$

$

7,735

$

500,000

$

$

Fair value hedges

 

134,792

 

4,511

 

 

138,606

 

 

5,387

Derivatives not designated as accounting hedges:

Interest rate contracts (3)(4)

 

5,500,163

 

72,627

 

242,969

 

5,017,574

 

73,696

 

49,051

    

June 30, 2023

    

December 31, 2022

Derivative (2)

Derivative (2)

    

Notional or

    

    

    

Notional or

    

    

Contractual

Contractual

Amount (1)

Assets

Liabilities

Amount (1)

Assets

Liabilities

Derivatives designated as accounting hedges:

Interest rate contracts: (3)

 

 

  

 

  

 

  

 

  

Cash flow hedges

$

900,000

$

$

9,725

$

900,000

$

1,163

$

6,599

Fair value hedges

 

130,764

 

4,487

 

 

133,576

 

4,117

 

Derivatives not designated as accounting hedges:

Interest rate contracts (3)(4)

 

6,155,427

 

84,662

 

230,946

 

5,820,005

 

75,030

 

229,401

(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.

(4) Includes RPAs.

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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 SeptemberJune 30, 20222023 and December 31, 20212022 (dollars in thousands):

September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022

    

    

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)

$

94,494

$

(2,115)

$

112,562

$

4,051

$

86,583

$

(2,247)

$

91,388

$

(1,889)

Loans(3)

 

84,792

 

(11,179)

 

88,606

 

546

 

80,764

 

(10,512)

 

83,576

 

(10,832)

(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 SeptemberJune 30, 20222023 and December 31, 2021,2022, the amortized cost basis of this portfolio was $9486.6 million and $11391.4 million, respectively, and the cumulative basis adjustment associated with this hedge was $2.12.2 million and $4.11.9 million, respectively. The amount of the designated hedged item at SeptemberJune 30, 20222023 and December 31, 20212022 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 June 30, 2023 and December 31, 2022 was an unrealized gain of $10.7 million and $11.0 million, respectively.

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9. STOCKHOLDERS’ EQUITY

Repurchase Programs

On December 10, 2021,As of June 30, 2023, the Company does not have an active share repurchase program. The Company’s Board of Directors authorized aprior share Repurchase Program to purchase up to $100.0 million of the Company’s common stock throughrepurchase plan expired on December 9, 2022. During the six months ended June 30, 2022, in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and / or Rule 10b-18 under the Exchange Act. As partCompany repurchased an aggregate of the Repurchase Program, approximately 1.3 million shares (or $48.2 million), and of these shares approximately 649,000 shares (or $23.2 million) were repurchased during the nine months ended September 30, 2022. No shares were repurchased during the thirdsecond quarter of 2022. Approximately $51.8 million of share repurchases remain available under the Repurchase Program at September 30, 2022.

Accumulated Other Comprehensive Income (Loss)

The change in AOCI for the three and ninesix months ended SeptemberJune 30, 20222023 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 - June 30, 2022

$

(277,577)

$

25

$

(36,452)

$

(2,279)

$

(316,283)

AOCI (loss) - March 31, 2023

$

(321,265)

$

14

$

(40,896)

$

214

$

(361,933)

Other comprehensive (loss) income:

 

 

  

 

 

  

Other comprehensive loss before reclassification

 

(121,841)

(24,142)

 

(145,983)

 

(32,544)

(16,325)

 

(48,869)

Amounts reclassified from AOCI into earnings

 

(4)

151

 

147

 

(2)

(2)

(61)

 

(65)

Net current period other comprehensive (loss) income

 

(121,841)

 

(4)

 

(24,142)

 

151

 

(145,836)

 

(32,546)

 

(2)

 

(16,325)

 

(61)

 

(48,934)

AOCI - September 30, 2022

$

(399,418)

$

21

$

(60,594)

$

(2,128)

$

(462,119)

AOCI (loss) - June 30, 2023

$

(353,811)

$

12

$

(57,221)

$

153

$

(410,867)

    

    

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 - 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 - September 30, 2022

$

(399,418)

$

21

$

(60,594)

$

(2,128)

$

(462,119)

    

    

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

 

(476)

(2,611)

10

 

(3,077)

Amounts reclassified from AOCI into earnings

 

10,584

(5)

(83)

 

10,496

Net current period other comprehensive income (loss)

 

10,108

 

(5)

 

(2,611)

 

(73)

 

7,419

AOCI (loss) - June 30, 2023

$

(353,811)

$

12

$

(57,221)

$

153

$

(410,867)

-38--39-

Table of Contents

The change in AOCI for the three and ninesix months ended SeptemberJune 30, 20212022 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 - June 30, 2021

$

54,792

$

45

$

1,132

$

(2,897)

$

53,072

AOCI (loss) - March 31, 2022

$

(164,204)

$

30

$

(24,880)

$

(2,429)

$

(191,483)

Other comprehensive (loss) income:

 

 

Other comprehensive income before reclassification

 

(23,242)

(545)

(23,787)

Other comprehensive loss before reclassification

 

(113,374)

(11,572)

(124,946)

Amounts reclassified from AOCI into earnings

 

(7)

(5)

150

138

 

1

(5)

150

146

Net current period other comprehensive (loss) income

 

(23,249)

 

(5)

 

(545)

 

150

 

(23,649)

 

(113,373)

 

(5)

 

(11,572)

 

150

 

(124,800)

AOCI - September 30, 2021

$

31,543

$

40

$

587

$

(2,747)

$

29,423

AOCI (loss) - June 30, 2022

$

(277,577)

$

25

$

(36,452)

$

(2,279)

$

(316,283)

    

    

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

 

(300,341)

(34,885)

(335,226)

Amounts reclassified from AOCI into earnings

 

1

(10)

317

308

Net current period other comprehensive (loss) income

 

(300,340)

 

(10)

 

(34,885)

 

317

 

(334,918)

AOCI (loss) - June 30, 2022

$

(277,577)

$

25

$

(36,452)

$

(2,279)

$

(316,283)

    

    

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, 2020

$

74,161

$

55

$

$

(3,201)

$

71,015

Other comprehensive (loss) income:

 

Other comprehensive (loss) income before reclassification

 

(42,549)

634

(41,915)

Amounts reclassified from AOCI into earnings

 

(69)

(15)

(47)

454

323

Net current period other comprehensive (loss) income

 

(42,618)

 

(15)

 

587

 

454

 

(41,592)

AOCI - September 30, 2021

$

31,543

$

40

$

587

$

(2,747)

$

29,423

-39--40-

Table of Contents

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.

Derivative Instruments

As discussed in Note 8 “Derivatives” in Part I,within this Item I1 of this Quarterly Report, 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'sborrower’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 partyThird-party valuations are validated by the Company using BVALthe Bloomberg Valuation Service’s derivative pricing functions. No materialsignificant differences were identified during the validation as of SeptemberJune 30, 20222023 and December 31, 2021.2022. 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. Mortgage banking derivatives as of September 30, 2022 and December 31, 2021 did not have a material impact on the Company’s Consolidated Financial Statements.

AFS Securities

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

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is 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.

-40--41-

Table of Contents

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

The Company primarily uses BVAL,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 materialsignificant differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No materialsignificant differences were identified during the validation as of SeptemberJune 30, 20222023 and December 31, 2021.2022.

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 SeptemberJune 30, 20222023 and December 31, 20212022 (dollars in thousands):

    

Fair Value Measurements at September 30, 2022 using

    

Fair Value Measurements at June 30, 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

$

56,073

$

5,563

$

$

61,636

$

56,860

$

4,487

$

$

61,347

Obligations of states and political subdivisions

 

 

764,543

 

 

764,543

 

 

513,026

 

 

513,026

Corporate and other bonds(1)

 

 

231,088

 

 

231,088

 

 

142,572

 

 

142,572

MBS

 

 

1,658,402

 

 

1,658,402

 

 

1,463,800

 

 

1,463,800

Other securities

 

 

1,654

 

 

1,654

 

 

1,703

 

 

1,703

LHFS

 

 

12,889

 

 

12,889

 

 

10,327

 

 

10,327

Derivatives:

 

  

 

  

 

  

 

  

Interest rate contracts(2)

 

 

72,627

 

 

72,627

Fair value hedges

 

 

4,511

 

 

4,511

Financial Derivatives(2)

 

 

89,149

 

 

89,149

LIABILITIES

Derivatives:

 

  

 

  

 

  

 

  

Interest rate contracts(2)

$

$

242,969

$

$

242,969

Cash flow hedges

 

 

7,735

 

 

7,735

Financial Derivatives(2)

$

$

240,671

$

$

240,671

(1) Other bonds include asset-backed securities.

(2) Includes RPAs.hedged and non-hedged derivatives.

-41--42-

Table of Contents

    

Fair Value Measurements at December 31, 2021 using

    

Fair Value Measurements at December 31, 2022 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

$

64,474

$

9,375

$

$

73,849

$

56,606

$

5,337

$

$

61,943

Obligations of states and political subdivisions

1,008,396

1,008,396

807,435

807,435

Corporate and other bonds(1)

 

 

153,376

 

 

153,376

 

 

226,380

 

 

226,380

MBS

 

 

2,244,389

 

 

2,244,389

 

 

1,644,394

 

 

1,644,394

Other securities

 

 

1,640

 

 

1,640

 

 

1,664

 

 

1,664

LHFS

20,861

20,861

3,936

3,936

Derivatives:

 

  

 

  

 

  

 

  

Interest rate contracts

 

 

73,696

 

 

73,696

Financial Derivatives(2)

 

 

80,310

 

 

80,310

LIABILITIES

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Derivatives:

 

  

 

  

 

  

 

  

Interest rate contracts

$

$

49,051

$

$

49,051

Fair value hedges

 

 

5,387

 

 

5,387

Financial Derivatives(2)

$

$

236,000

$

$

236,000

(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 U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets after they are evaluated for impairment. The primary assets accounted for at fair value on a nonrecurring basis are related to foreclosed properties, former bank premises, and collateral-dependent loans that are individually assessed. When the asset is secured by real estate, the Company measures the fair value utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. Management may discount the value from the appraisal in determining the fair value if, based on its understanding of the market conditions, the collateral had been impaired below the appraised value (Level 3). The assets for which a nonrecurring fair value measurement was recorded were $6.2 million and $11.3 million during the periods ended September 30, 2022 and December 31, 2021 respectively. The nonrecurring valuation adjustments for these assets did not have a materialsignificant impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

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

Cash and Cash Equivalents

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

HTM Securities

The Company’s HTM investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted2, utilizes the same valuation approach as described above with a third-party portfolio accounting service vendor for valuation of itsthe AFS 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.

-42-

Table of Contents

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

The Company primarily uses BVAL, 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 materialsignificant differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No materialsignificant differences were identified during the validation as of SeptemberJune 30, 20222023 and December 31, 2021. 2022.

The Company’s Level 3 HTM securities are a result of the Accessa prior acquisition and are comprised of asset-backed securities and municipal bonds. Valuations of the asset-backed securities are provided by a third partythird-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 partythird-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 valuation of both security typesvaluations obtained for reasonableness in the context of market conditions and to similar bonds in the Company’s portfolio. Anyany material differences between valuation sources are researched by further analyzing the various inputs that areand results utilized by each pricing source. No materialsignificant differences were identified during the validation as of SeptemberJune 30, 20222023 and December 31, 2021.2022.

-43-

Table of Contents

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 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.

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

Fair Value Measurements at June 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

$

428,267

$

428,267

$

$

$

428,267

AFS securities

 

2,182,448

 

56,860

 

2,125,588

 

 

2,182,448

HTM securities

 

849,610

 

 

805,890

 

1,908

 

807,798

Restricted stock

 

111,178

 

 

111,178

 

 

111,178

LHFS

 

10,327

 

 

10,327

 

 

10,327

LHFI, net of deferred fees and costs

 

15,066,930

 

 

 

14,410,759

 

14,410,759

Financial Derivatives(1)

 

89,149

 

 

89,149

 

 

89,149

Accrued interest receivable

 

81,772

 

 

81,772

 

 

81,772

BOLI

 

446,441

 

 

446,441

 

 

446,441

LIABILITIES

 

  

 

  

 

  

 

  

 

  

Deposits

$

16,411,987

$

$

16,387,999

$

$

16,387,999

Borrowings

 

1,320,301

 

 

1,245,833

 

 

1,245,833

Accrued interest payable

 

11,513

 

 

11,513

 

 

11,513

Financial Derivatives(1)

 

240,671

 

 

240,671

 

 

240,671

(1) Includes hedged and non-hedged derivatives.

-43--44-

Table of Contents

The carrying values and estimated fair values of the Company’s financial instruments at September 30, 2022 and December 31, 2021 are as follows (dollars in thousands):

Fair Value Measurements at September 30, 2022 using

    

Fair Value Measurements at December 31, 2022 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

$

390,942

$

390,942

$

$

$

390,942

$

319,948

$

319,948

$

$

$

319,948

AFS securities

 

2,717,323

 

56,073

 

2,661,250

 

 

2,717,323

 

2,741,816

 

56,606

 

2,685,210

 

 

2,741,816

HTM securities

 

841,349

 

 

762,307

 

3,173

 

765,480

 

847,732

 

 

798,778

 

3,109

 

801,887

Restricted stock

 

82,050

 

 

82,050

 

 

82,050

 

120,213

 

 

120,213

 

 

120,213

LHFS

 

12,889

 

 

12,889

 

 

12,889

3,936

 

3,936

 

3,936

Net loans

 

13,810,711

 

 

 

13,330,986

 

13,330,986

Derivatives:

 

  

 

  

 

  

 

  

 

  

Interest rate contracts(1)

 

72,627

 

 

72,627

 

 

72,627

Fair value hedges

 

4,511

 

 

4,511

 

 

4,511

LHFI, net of deferred fees and costs

 

14,449,142

 

 

 

13,974,926

 

13,974,926

Financial Derivatives(1)

 

80,310

 

 

80,310

 

 

80,310

Accrued interest receivable

 

68,747

 

 

68,747

 

 

68,747

 

81,953

 

 

81,953

 

 

81,953

BOLI

 

437,988

 

 

437,988

 

 

437,988

 

440,656

 

 

440,656

 

 

440,656

LIABILITIES

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposits

$

16,546,216

$

$

16,560,956

$

$

16,560,956

$

15,931,677

$

$

15,927,361

$

$

15,927,361

Borrowings

 

669,558

 

 

605,018

 

 

605,018

 

1,708,700

 

 

1,645,095

 

 

1,645,095

Accrued interest payable

 

3,910

 

 

3,910

 

 

3,910

 

5,268

 

 

5,268

 

 

5,268

Derivatives:

 

  

 

  

 

  

 

  

 

  

Interest rate contracts(1)

 

242,969

 

 

242,969

 

 

242,969

Cash flow hedges

 

7,735

 

 

7,735

 

 

7,735

Financial Derivatives(1)

 

236,000

 

 

236,000

 

 

236,000

(1) Includes RPAs.hedged and non-hedged derivatives.

    

Fair Value Measurements at December 31, 2021 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

$

802,501

$

802,501

$

$

$

802,501

AFS securities

 

3,481,650

 

64,474

 

3,417,176

 

 

3,481,650

HTM securities

 

628,000

 

 

686,733

 

7,041

 

693,774

Restricted stock

 

76,825

 

 

76,825

 

 

76,825

LHFS

20,861

 

20,861

 

20,861

Net loans

 

13,096,056

 

 

 

12,861,274

 

12,861,274

Derivatives:

 

  

 

  

 

  

 

  

 

  

Interest rate contracts

 

73,696

 

 

73,696

 

 

73,696

Accrued interest receivable

 

65,015

 

 

65,015

 

 

65,015

BOLI

 

431,517

 

 

431,517

 

 

431,517

LIABILITIES

 

  

 

  

 

  

 

  

 

  

Deposits

$

16,611,068

$

$

16,630,087

$

$

16,630,087

Borrowings

 

506,594

 

 

488,796

 

 

488,796

Accrued interest payable

 

933

 

 

933

 

 

933

Derivatives:

 

  

 

  

 

  

 

  

 

  

Interest rate contracts

 

49,051

 

 

49,051

 

 

49,051

Fair value hedges

 

5,387

 

 

5,387

 

 

5,387

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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 market interest ratesrate levels change and that change may be either favorable or unfavorable to the Company. Management seeksattempts 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 seeksattempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that are intended to 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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 (dollars in thousands except per share data):

Three Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

September 30, 

September 30, 

June 30, 

June 30, 

2022

2021

2022

2021

2023

2022

2023

2022

Net Income:

Net Income

$

58,070

$

74,565

$

163,986

$

216,138

$

55,241

$

62,226

$

90,894

$

105,916

Less: Preferred Stock Dividends

2,967

2,967

8,901

8,901

2,967

2,967

5,934

5,934

Net income available to common shareholders

$

55,103

$

71,598

$

155,085

$

207,237

$

52,274

$

59,259

$

84,960

$

99,982

Weighted average shares outstanding, basic

 

74,704

 

76,309

 

75,029

 

77,989

 

74,995

 

74,848

 

74,914

 

75,194

Dilutive effect of stock awards

 

1

 

14

 

5

 

19

 

 

2

 

2

 

7

Weighted average shares outstanding, diluted

 

74,705

 

76,323

 

75,034

 

78,008

 

74,995

 

74,850

 

74,916

 

75,201

Earnings per common share, basic

$

0.74

$

0.94

$

2.07

$

2.66

$

0.70

$

0.79

$

1.13

$

1.33

Earnings per common share, diluted

$

0.74

$

0.94

$

2.07

$

2.66

$

0.70

$

0.79

$

1.13

$

1.33

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12. SEGMENT REPORTING AND REVENUE

Operating Segments

Historically, the Company has had only one reportable operating segment, the Bank. InPrior to the third quarter of 2022, the Company had one reportable operating segment, the Bank; however, in the third quarter of 2022, the Company completed system conversions that allow its CODMschief operating decision makers to evaluate the business, establish the overall business strategy, allocate resources, and assess business performance within two reportable operating segments—Wholesale Banking and Consumer Banking—while corporate support functions such as corporate treasury and others will be included in Corporate Other. As a result, the Company restated its segment information for the three and six months ended June 30, 2022 and under the new basis with two reportable operating segments.

TheEffective 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. 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.

As of June 30, 2023, the Company’s operating segments now 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 NorthSouth Carolina. These customers include commercial real estate and commercial and industrial customers. This segment also includes the Company’s public finance subsidiary and the 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 the wealth management division, which consists of private banking, trust, investment management and advisory services.services businesses.
Corporate Other: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.

Prior year information presented has been restated and is shown under the new basis with two reportable operating segments. Goodwill was evaluated for impairment prior to re-allocating to the new reportable operating segments based on relative fair value.

Segment Reporting Methodology

The Company’s segment reporting is based on a “management approach” as described in Note 1 “Summary of Significant Accounting Policies” in Part I, Item 1 “Financial Statements” of this Quarterly Report.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 eliminated in the consolidated totals.

The following is For additional information on the methodologies used in preparing the operating segment results:results, refer to Note 17 “Segment Reporting and Revenue” in the Company’s 2022 Form 10-K.

Net interest income: Interest income from loans held for investment and interest expense from deposits are reflected within respective operating segments. The Company uses a funds transfer pricing methodology which utilizes the matched funding approach to allocate a cost of funds used or credit for funds provided to all operating segment loans and deposits.
Provision for credit losses: Provision for credit losses is assigned to operating segments based on the Company’s allowance methodology, driven by loan pool level information.
Noninterest income: Noninterest fees and other revenue associated with loans or customers are included within each operating segment.
Noninterest expense: Certain noninterest expenses incurred by corporate support functions are allocated based on assumptions regarding the extent to which each operating segment actually uses the services.
Goodwill: Goodwill is assigned to reportable operating segments based on the relative fair value of each segment.

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Table of Contents

Segment Results

Segment Results

The following tables present the Company’s operating segment results for the three months and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

Three Months Ended September 30, 2022

Net interest income

$

76,109

$

60,265

$

14,341

$

150,715

Provision for credit losses

 

8,558

(2,146)

6,412

Net interest income after provision for credit losses

 

67,551

62,411

14,341

144,303

Noninterest income

 

5,483

14,909

5,192

25,584

Noninterest expenses

 

36,197

59,460

4,266

99,923

Income before income taxes

$

36,837

$

17,860

$

15,267

$

69,964

Three Months Ended September 30, 2021

Net interest income

$

74,121

$

56,536

$

6,831

$

137,488

Provision for credit losses

 

(16,086)

(2,764)

(18,850)

Net interest income after provision for credit losses

 

90,207

59,300

6,831

156,338

Noninterest income

 

3,206

21,454

5,278

29,938

Noninterest expenses

 

31,333

59,824

4,186

95,343

Income before income taxes

$

62,080

$

20,930

$

7,923

$

90,933

Wholesale Banking

Consumer Banking

Corporate Other

Total

Nine Months Ended September 30, 2022

Net interest income

$

217,600

$

162,297

$

40,516

$

420,413

Provision for credit losses

 

12,833

(89)

27

12,771

Net interest income after provision for credit losses

 

204,767

162,386

40,489

407,642

Noninterest income

 

16,438

54,664

22,921

94,023

Noninterest expenses

 

106,120

180,020

17,872

304,012

Income before income taxes

$

115,085

$

37,030

$

45,538

$

197,653

Nine Months Ended September 30, 2021

Net interest income

$

223,158

$

169,680

$

20,096

$

412,934

Provision for credit losses

 

(37,702)

(22,186)

(59,888)

Net interest income after provision for credit losses

 

260,860

191,866

20,096

472,822

Noninterest income

 

10,332

64,341

14,715

89,388

Noninterest expenses

 

94,393

175,697

29,161

299,251

Income before income taxes

$

176,799

$

80,510

$

5,650

$

262,959

Wholesale Banking

Consumer Banking

Corporate Other

Total

Three Months Ended June 30, 2023

Net interest income

$

66,133

$

63,749

$

22,202

$

152,084

Provision for credit losses

 

6,054

32

(17)

6,069

Net interest income after provision for credit losses

 

60,079

63,717

22,219

146,015

Noninterest income

 

8,861

12,287

3,049

24,197

Noninterest expenses

 

41,236

56,539

7,886

105,661

Income before income taxes

$

27,704

$

19,465

$

17,382

$

64,551

Three Months Ended June 30, 2022

Net interest income

$

72,930

$

51,037

$

14,800

$

138,767

Provision for credit losses

 

2,757

775

27

3,559

Net interest income after provision for credit losses

 

70,173

50,262

14,773

135,208

Noninterest income

 

8,327

16,577

13,382

38,286

Noninterest expenses

 

38,401

55,092

5,275

98,768

Income before income taxes

$

40,099

$

11,747

$

22,880

$

74,726

Wholesale Banking

Consumer Banking

Corporate Other

Total

Six Months Ended June 30, 2023

Net interest income

$

133,674

$

126,893

$

44,961

$

305,528

Provision for credit losses

 

16,543

1,371

6

17,920

Net interest income after provision for credit losses

 

117,131

125,522

44,955

287,608

Noninterest income

 

16,275

24,466

(6,917)

33,824

Noninterest expenses

 

83,550

113,594

16,790

213,934

Income before income taxes

$

49,856

$

36,394

$

21,248

$

107,498

Six Months Ended June 30, 2022

Net interest income

$

144,354

$

99,169

$

26,175

$

269,698

Provision for credit losses

 

4,374

1,958

27

6,359

Net interest income after provision for credit losses

 

139,980

97,211

26,148

263,339

Noninterest income

 

17,514

33,196

17,729

68,439

Noninterest expenses

 

78,410

110,426

15,253

204,089

Income before income taxes

$

79,084

$

19,981

$

28,624

$

127,689

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The following table presents the Company’s operating segment results for the the key balance sheet metrics as of SeptemberJune 30, 20222023 and December 31, 20212022 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

Wholesale Banking

Consumer Banking

Corporate Other

Total

As of September 30, 2022

As of June 30, 2023

LHFI, net of deferred fees and costs(1)

$

10,847,988

$

3,089,334

$

(18,602)

$

13,918,720

$

12,078,442

$

3,001,369

$

(12,881)

$

15,066,930

Goodwill

642,256

282,955

925,211

639,180

286,031

925,211

Deposits

6,173,703

10,270,508

102,005

16,546,216

6,190,224

9,580,892

640,871

16,411,987

As of December 31, 2021

LHFI, net of deferred fees and costs(1)

$

10,242,918

$

2,976,200

$

(23,275)

$

13,195,843

Goodwill

642,256

293,304

935,560

Deposits

6,114,078

10,366,792

130,198

16,611,068

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 adjustmentsadjustments.

(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 TopicASC 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 segment. Typically,and Wholesale Banking segments. Refer to Note 17 “Segment Reporting and Revenue” in the duration of a contract does not extend beyondCompany’s 2022 Form 10-K for additional information on the services performed; therefore, the Company concluded that discussion regardingCompany’s contract balances, is immaterial.performance obligations, and mortgage banking income.

The Company’s performance obligations on revenueNoninterest income disaggregated by major source for the three and six months ended June 30, 2023 and 2022, consisted of the following (dollars in thousands):

    

Three Months Ended

 

Six Months Ended

June 30, 

June 30, 

 

June 30, 

June 30, 

2023

2022

 

2023

2022

Noninterest income:

 

  

 

  

  

 

  

Deposit Service Charges (1):

 

  

 

  

  

 

  

Overdraft fees

$

4,839

$

5,305

$

9,662

$

10,299

Maintenance fees & other

 

3,279

 

2,735

 

6,358

 

5,338

Other service charges, commissions, and fees (1)

 

1,693

 

1,709

 

3,439

 

3,364

Interchange fees(1)

 

2,459

 

2,268

 

4,784

 

4,078

Fiduciary and asset management fees (1):

 

 

 

 

Trust asset management fees

 

3,103

 

3,299

 

6,209

 

6,690

Registered advisor management fees

 

 

2,438

 

 

5,088

Brokerage management fees

 

1,256

 

1,202

 

2,411

 

2,416

Mortgage banking income

 

449

 

2,200

 

1,303

 

5,317

Gain (loss) on sale of securities

2

(2)

(13,398)

(2)

Bank owned life insurance income

 

2,870

 

2,716

 

5,698

 

5,413

Loan-related interest rate swap fees

 

2,316

 

2,600

 

3,755

 

6,460

Other operating income (2)

 

1,931

 

11,816

 

3,603

 

13,978

Total noninterest income

$

24,197

$

38,286

$

33,824

$

68,439

(1)Income within scope of ASC 606, Revenue from deposit accounts and interchange fees from the Consumer and Wholesale Banking segments are generally satisfied immediately, when the transaction occurs, or by month-end. Performance obligations on revenue from fiduciary and asset management fees from the Consumer Banking segment are generally satisfied monthly or quarterly. ForContracts with Customers.

(2)Includes a majority of fee income on deposit accounts, the Company is a principal controlling the promised good or service before transferring it$9.1 million gain related to the customer. For income related to most wealth management income, however, the Company is an agent responsible for arrangingsale of DHFB for the provision of goodsthree and services by another party.six months ended June 30, 2022.

Mortgage banking income is earned from the Consumer Banking segment when the originated loans are sold to an investor on the secondary market. The loans are classified as LHFS before being sold. Additionally, the changes in fair value of the LHFS, loan commitments, and related derivatives are included in mortgage banking income.

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Table of Contents

Noninterest income disaggregated by major source for the three and nine months ended September 30, 2022 and 2021, consisted of the following (dollars in thousands):

    

Three Months Ended

 

Nine Months Ended

September 30, 

September 30, 

 

September 30, 

September 30, 

2022

2021

 

2022

2021

Noninterest income:

 

  

 

  

  

 

  

Deposit Service Charges (1):

 

  

 

  

  

 

  

Overdraft fees

$

3,831

$

4,648

$

14,130

$

11,864

Maintenance fees & other

 

2,953

 

2,550

 

8,291

 

7,450

Other service charges, commissions, and fees (1)

 

1,770

 

1,534

 

5,134

 

4,970

Interchange fees(1)

 

2,461

 

2,203

 

6,539

 

6,252

Fiduciary and asset management fees (1):

 

 

 

 

Trust asset management fees

 

3,035

 

3,233

 

9,726

 

9,127

Registered advisor management fees

 

 

2,510

 

5,088

 

7,299

Brokerage management fees

 

1,099

 

1,286

 

3,515

 

3,897

Mortgage banking income

 

1,390

 

4,818

 

6,707

 

17,692

Bank owned life insurance income

 

3,445

 

2,727

 

8,858

 

8,202

Loan-related interest rate swap fees

 

2,050

 

1,102

 

8,510

 

4,176

Other operating income (2)

 

3,550

 

3,327

 

17,525

 

8,459

Total noninterest income

$

25,584

$

29,938

$

94,023

$

89,388

(1)Income within scope of Topic 606.

(2)Includes a $9.1 million gain related to the sale of DHFB for the nine months ended September 30, 2022.

The following tables present noninterest income disaggregated by reportable operating segment for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other(1)

Total

Wholesale Banking

Consumer Banking

Corporate Other(1)(2)

Total

Three Months Ended September 30, 2022

Three Months Ended June 30, 2023

Noninterest income:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposit service charges

$

1,775

$

5,009

$

$

6,784

$

2,109

$

6,009

$

$

8,118

Other service charges and fees

511

1,259

1,770

296

1,397

1,693

Fiduciary and asset management fees

4,134

4,134

3,033

1,326

4,359

Mortgage banking income

1,390

1,390

449

449

Other income

3,197

3,117

5,192

11,506

3,423

3,106

3,049

9,578

Total noninterest income

$

5,483

$

14,909

$

5,192

$

25,584

$

8,861

$

12,287

$

3,049

$

24,197

Three Months Ended September 30, 2021

Three Months Ended June 30, 2022

Noninterest income:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposit service charges

$

1,532

$

5,666

$

$

7,198

$

1,641

$

6,399

$

$

8,040

Other service charges and fees

325

1,209

1,534

395

1,314

1,709

Fiduciary and asset management fees

7,029

7,029

3,224

3,715

6,939

Mortgage banking income

4,818

4,818

2,200

2,200

Other income

1,349

2,732

5,278

9,359

3,067

2,949

13,382

19,398

Total noninterest income

$

3,206

$

21,454

$

5,278

$

29,938

$

8,327

$

16,577

$

13,382

$

38,286

Wholesale Banking

Consumer Banking

Corporate Other(1)(2)

Total

Six Months Ended June 30, 2023

Noninterest income:

 

  

 

  

 

  

 

  

Deposit service charges

$

4,084

$

11,936

$

$

16,020

Other service charges and fees

741

2,698

3,439

Fiduciary and asset management fees

6,067

2,553

8,620

Mortgage banking income

1,303

1,303

Other income

5,383

5,976

(6,917)

4,442

Total noninterest income

$

16,275

$

24,466

$

(6,917)

$

33,824

Six Months Ended June 30, 2022

Noninterest income:

 

  

 

  

 

  

 

  

Deposit service charges

$

3,207

$

12,430

$

$

15,637

Other service charges and fees

830

2,534

3,364

Fiduciary and asset management fees

6,540

7,654

14,194

Mortgage banking income

5,317

5,317

Other income

6,937

5,261

17,729

29,927

Total noninterest income

$

17,514

$

33,196

$

17,729

$

68,439

(1) For the three months and six months ended June 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 months ended June 30, 2023, other income primarily consists of income from BOLI. For the six months ended June 30, 2023, other income primarily includes $13.4 million of losses incurred on the sale of AFS securities and income from BOLI.

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Table of Contents

Wholesale Banking

Consumer Banking

Corporate Other(1)(2)

Total

Nine Months Ended September 30, 2022

Noninterest income:

 

  

 

  

 

  

 

  

Deposit service charges

$

4,966

$

17,455

$

$

22,421

Other service charges and fees

1,338

3,796

5,134

Fiduciary and asset management fees

18,329

18,329

Mortgage banking income

6,707

6,707

Other income

10,134

8,377

22,921

41,432

Total noninterest income

$

16,438

$

54,664

$

22,921

$

94,023

Nine Months Ended September 30, 2021

Noninterest income:

 

  

 

  

 

  

 

  

Deposit service charges

$

4,493

$

14,821

$

$

19,314

Other service charges and fees

1,252

3,718

4,970

Fiduciary and asset management fees

20,323

20,323

Mortgage banking income

17,692

17,692

Other income

4,587

7,787

14,715

27,089

Total noninterest income

$

10,332

$

64,341

$

14,715

$

89,388

(1) Other income primarily consists of income from BOLI and equity investment income.

(2)Other income includes a $9.1 million gain related to the sale of DHFB for the nine months ended September 30, 2022.

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13. SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events through NovemberAugust 3, 2022,2023, the date the financial statements were issued.

On OctoberJuly 24, 2023, 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. Subject 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 commons 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 required regulatory approvals and American National shareholder approval. The proposed transaction is expected to close in the first quarter of 2024.

On July 27, 2022,2023, the Company’s Board of Directors declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400th 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 DecemberSeptember 1, 20222023 to preferred shareholders of record as of November 16, 2022.August 17, 2023.

The Company’s Board of Directors also declared a quarterly dividend of $0.30 per share of common stock. The common stock dividend is payable on NovemberAugust 25, 20222023 to common shareholders of record as of NovemberAugust 11, 2022.2023.

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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 SeptemberJune 30, 2022,2023, the related consolidated statements of income, comprehensive income (loss), and changes in stockholders’ equity for the three six, and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 2021,2022, the consolidated statements of changes in cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 2021,2022, 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, 2021,2022, 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 25, 2022,23, 2023, 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, 2021,2022, 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

NovemberAugust 3, 20222023

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

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations, financial condition, liquidity, and capital resources of the Company.Company and its subsidiaries. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s 20212022 Form 10-K, including theunder “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. 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’s discussion and analysis, the Company provides certain financial information determined by methods other than in accordance with U.S. GAAP. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company’s financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company’s performance. The Company’s management believes that these non-GAAP financial measures provide additional understanding of ongoing operations, enhance comparability of 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’s 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 in accordance with GAAP.measures.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include, without limitation, 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’s net interest margin, changes in economic conditions, management’s belief regarding liquidity and capital resources, estimates with respect to the earn back period related to our balance sheet restructuring in the first quarter of 2023, and the expected impact of our cost saving measures initiative in the second quarter of 2023, statements regarding the pending 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 itsour management about future events. Although the Company believeswe believe that itsour expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of itsour existing knowledge of itsour business and operations, there can be no assurance that actual future results, performance, or achievements of, or trends affecting, the Companyus 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 thetheir related impacts on macroeconomic conditions, customer and client behavior, the Company’sour funding costs and the Company’sour 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;

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the sufficiency of liquidity;
general economic and financial market conditions, in the United States generally and particularly in the markets in which the Company operateswe operate and which itsour loans are concentrated, including the effects of declines in real estate values, an increase in unemployment levels and slowdowns in economic growth;
the failure 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;
the possibility that the anticipated benefits of the proposed merger, 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, including as a result of 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;
the dilutive effect of shares of the Company’s common stock to be issued at the completion of the proposed merger;
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 the Company’sour loan or investment portfolios and changes therein;
demand for loan products and financial services in the Company’sour market areas;

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the Company’sour ability to manage itsour growth or implement itsour growth strategy;
the effectiveness of expense reduction plans;
the introduction of new lines of business or new products and services;
the Company’sour ability to recruit and retain key employees;
real estate values in the Company’sour lending area;
an insufficient ACL;
changes in accounting principles, standards, rules, and interpretations, and the related impact on the Company’sour financial statements;
an insufficient ACL or volatility in the ACL resulting from the CECL methodology, either alone or as that may be affected by conditions arising out of the COVID-19 pandemic, inflation, changing interest rates, or other factors;
the Company’sour liquidity and capital positions;
concentrations of loans secured by real estate, particularly commercial real estate;
the effectiveness of the Company’sour credit processes and management of the Company’sour credit risk;
the Company’sour 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 (such as the ongoing conflict between Russia and Ukraine) or public health events, (such as COVID-19), and of governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company'sour borrowers to satisfy their obligations to the Company,us, on the value of collateral securing loans, on the demand for the Company'sour loans or itsour other products and services, on supply chains and methods used to distribute products and services, on incidents of cyberattack and fraud, on the Company’sour liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company'sour business operations and on financial markets and economic growth;
the effect of steps the Company takes in response to the COVID-19 pandemic, the severity and duration of the pandemic, the uncertainty regarding new variants of COVID-19 that have emerged, the speed and efficacy of vaccine and treatment developments, the impact of loosening or tightening of government restrictions, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein;
the discontinuation of LIBOR and its impact on the financial markets, and the Company’sour 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 the Company’sour counterparties or vendors;
deposit flows;

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the availability of financing and the terms thereof;
the level of prepayments on loans and MBS;mortgage-backed securities;
legislative or regulatory changes and requirements;
actual or potential claims, damages, and fines related to litigation or government actions;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 the Companyus to conclude that there was an impairment of any asset, including intangible assets, such as goodwill; and
other factors, many of which are beyond the control of the Company.our control.

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” and Part II, Item 7,7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 20212022 Form 10-K, Part II, Item 1A, “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2023 and June 30, 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 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 itsour 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. Forward-looking statements speak only as of the date they are made. The Company doesWe 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.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s consolidated financial statements are prepared based on the application of accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, includingwhich require the use of estimates, assumptions, and judgments, madewhich may prove inaccurate or are subject to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Differentvariations. Changes in underlying factors, estimates, assumptions in the application of these policiesor judgements could result in material changes in the Company’s 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 has identified the allowance 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 evaluates itsthese accounting policies and related critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Management has discussed the Company’s criticalthese accounting policies and critical accounting estimates summarized below with the Audit Committee of the Board of Directors of the Company.Directors.

The Company provides additional information on its critical accounting estimates in Note 1 “Summary of Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report and reporting policies include the Company’s accounting for the ALLL, acquired loans,under “Management’s Discussion and goodwill.Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in its 2022 Form 10-K. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 "Financial Statements and Supplementary Data" of the Company’s 20212022 Form 10-K.

The Company provides additional information on its critical accounting policies and estimates under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in its 2021 Form 10-K and in Note 1 “Summary of Significant Accounting Policies” in Part I, Item 1 of this Quarterly Report.

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RECENT ACCOUNTING PRONOUNCEMENTS (ISSUED BUT NOT FULLY ADOPTED)

In March 2022,2023, the FASB issued ASU No. 2022-022023-02 “Financial Instruments-Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Losses (Topic 326): Troubled Debt RestructuringsStructures Using the Proportional Amortization Method. Prior 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 Vintage Disclosures.” This guidance eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancingsother income tax benefits received and restructurings by creditors whenpresents this net amount as a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments require disclosurecomponent of current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20.income tax expense (benefit). The amendments are effective for fiscal years beginning after December 15, 2022,2023, including interim periods within those fiscal years. Early adoption of the amendments is permitted if ASU 2016-13 has been adopted, including adoption in an interim period.permitted. The Company is evaluating the impact ASU No. 2022-022023-02 will have on its consolidated financial statements.

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 in 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. Early adoption of the amendments is permitted if the amendments in ASU 2017-12 have been adopted for the corresponding period. The Company is evaluating the impact ASU No. 2022-01 and concluded that it will not have material implications on its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” 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. Global capital markets are going to be required to move away from LIBOR and other interbank offered rates and toward rates that are more observable or transaction based and less susceptible to manipulation. Topic 848 provides optional expedients and exceptions, subject to meeting certain criteria, for applying current GAAP to contract modifications and hedging relationships, for contracts that reference LIBOR or another reference rate expected to be discontinued. Topic 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective as of March 12, 2020 through December 31, 2022 and can be adopted at an instrument level. As of March 31, 2021, the Company utilized the expedient to assert probability of hedged interest as detailed in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s 2021 Form 10-K. The Company may incorporate other components of Topic 848 at a later date as it continues to evaluate the remaining components of Topic 848 and its impact to the Company.

ABOUT ATLANTIC UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB)(NYSE: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 114109 branches and approximately 130125 ATMs located throughout Virginia and in portions of Maryland and North Carolina. 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.

Effective June 30, 2022, the Company transferred its ownership interest in DHFB, which was formerly a subsidiary of the Bank, to CSP in exchange for a minority ownership interest in CSP.

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

RECENT EVENTS

Proposed Merger with American National Bankshares Inc.

On July 24, 2023, 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. Subject 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 required regulatory approvals and American National shareholder approval. The proposed merger is expected to close in the first quarter of 2024.

RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Recent Industry Developments

In March and April 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 have reinforced the importance of maintaining access to diverse sources of funding and the benefits of a robust and stable deposit base, but the continuing impact of the volatility and turmoil in the banking industry on the Company, and its financial condition and results of operations for the remainder of 2023, is uncertain and cannot be predicted.

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 during 2023 or 2024, the Company continues to actively monitor balance sheet trends, deposit flows, and liquidity needs to ensure that the Company and the Bank are able to meet the needs of the Bank’s customers and maintain financial flexibility. During the first six months of 2023, the Company’s LHFI, net of

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deferred fees and costs, and total deposits increased from December 31, 2022 by $617.8 million and $480.3 million, respectively, and the Company’s short-term borrowings decreased by $389.0 million from December 31, 2022, largely driven by repayments funded by the Company’s sale of $505.7 million of AFS securities executed during the first quarter of 2023 as part of a balance sheet repositioning strategy. As of June 30, 2023, the Company estimates that approximately 73.5% of the Company’s deposits were insured or collateralized, and that the Company maintained available liquidity sources to cover approximately 133% of uninsured and uncollateralized deposits. In addition, to further bolster the Company’s funding position during the first six months of 2023, the Company augmented customer deposit growth by also increasing brokered deposits to $485.7 million at June 30, 2023.

RESULTS OF OPERATIONS

SIGNIFICANT ACTIVITIESDespite the negative developments within the broader banking industry during the first six 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.

Recent Events

The Company is continually monitoring the impact of other various global and national events on the Company’s results of operations and financial condition, including the impact of COVID-19, geopolitical conflicts (such as the ongoing conflict between Russia and Ukraine), inflation and rising interest rates. Inflation has risen as a result of growth in economic activity and demand for goods and services, as well as labor shortages and global supply chain issues. As a result, market interest rates began to rise during 2022 after an extended period at historical lows. On March 16, 2022,lows, and the FOMC began to increase itsincreased the Federal Funds target rates to a range of 0.25% to 0.50%, which was the first increase since December 2018. The FOMC further increased the target rates throughout 2022 and 2023 to its current range of 3.00%5.25% to 3.25%5.50%. The FOMC also foreshadowed potential further increaseshas 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, throughout the yearFOMC will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. The FOMC also 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 experienced during the first six months of 2023 and continues to experience during July 2023. The Company anticipates that the net impact of these FOMC actionsfactors will result in an expansion ona continued contraction of its net interest margin due to the Company’s asset-sensitive position at September 30, 2022, as well as an increase in unrealized losses in AFS investments and a decline in purchases of mortgages.margin. The timing and impact of inflation, and risingmarket 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 Company will continue to deploy various asset liability management strategies to seek to manage the Company's risk related to interest rate fluctuations. Refer to “Liquidity” within this Item 2 for additional information about the Company’s liquidity and “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 3 of this Quarterly Report for additional information about the Company’s interest rate sensitivity.

Strategic Initiatives

Effective June 30,The Company executed a series of 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 $3.9 million in pre-tax expenses during the second quarter of 2023, principally composed of severance charges related to headcount reductions and charges for exiting leases. The Company expects to recognize additional pre-tax expenses of $7.5 million associated with these actions during 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. The Company estimates the loss will be earned back in approximately two years.

During the second quarter of 2022, the Company transferred its ownership interest in DHFB, which was formerly a subsidiary of the Bank to CSP in exchange for a minority ownership interest in CSP, resulting in a $9.1 million pre-tax gain for the quarter ended June 30, 2022.

During the fourth quarter-57-

Table of 2021, the Company took certain actions to reduce expenses in light of the period's prevailing and expected operating environment, including the closure of the Company’s operations center and consolidation of 16 branches, all of which were completed in March 2022. These actions resulted in restructuring expenses in the first quarter of 2022 of approximately $5.5 million, primarily related to lease and other asset write downs, as well as severance costs. There were no significant branch closing and facility consolidation costs throughout the remainder of 2022.Contents

SUMMARY OF FINANCIAL RESULTS

ThirdSecond Quarter Net Income and& Performance Metrics

Net income available to common shareholders was $55.1$52.3 million and basic and diluted EPS was $0.70 for the second quarter of 2023, compared to $59.3 million and $0.79 for the second quarter of 2022.
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 related to headcount reductions and charges for exiting leases ($3.1 million in 2023), gains and losses on the sale of securities (gain of $2,000 in 2023 and loss of $2,000 in 2022), and the gain on sale of DHFB ($8.0 million in 2022), was $55.4 million and adjusted diluted operating EPS (+) was $0.74 for the thirdquarter ended June 30, 2023, compared to adjusted operating earnings available to common shareholders(+) of $51.3 million and diluted adjusted operating EPS(+) of $0.69 for the second quarter of 2022, compared to $71.6 million and $0.94 for2022.
The Company did not incur significant expenses during the thirdsecond quarter of 2021.2023 related to the pending merger with American National previously discussed.

NineSix Month Net Income and& Performance Metrics

Net income available to common shareholders was $155.1$85.0 million and basic and diluted EPS was $2.07$1.13 for the first ninesix months of 2022,2023, compared to $207.2$100.0 million and $2.66$1.33 for the first ninesix months of 2021.2022.
Adjusted operating earnings available to common shareholders(+) totaled $151.5, which excludes (net of taxes) expenses incurred associated with our strategic cost saving initiatives principally composed of severance charges related to headcount reductions and charges for exiting leases ($3.1 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 ($10.6 million in 2023 and $2,000 in 2022), and the gain on sale of DHFB ($8.0 million in 2022), was $102.6 million and adjusted diluted adjusted operating EPS(+) was $2.02$1.37 for the first ninesix months of 2022,ended June 30, 2023, compared to adjusted operating earnings available to common shareholders(+) of $219.5$96.4 million and diluted adjusted operating EPS(+) of $2.81$1.28 for the first ninesix months of 2021.2022.

Balance Sheet

At September 30, 2022, totalTotal assets were $20.0$20.6 billion a decreaseat June 30, 2023, an increase of $114.6$141.2 million or approximately 0.8%1.4% (annualized) from December 31, 2021. The decrease2022. Total assets increased during the first six months of 2023 primarily due to an increase in total assets wasLHFI, net of deferred fees and costs, of $617.8 million, driven primarily by increases in the commercial and industrial and commercial real estate non-owner occupied portfolios, partially offset by a $545.8$566.5 million decrease in the net investment securities portfolio, mainlyprimarily due to the sale of AFS securities as part of the Company’s balance sheet repositioning strategy executed during the first quarter of 2023, as well as a decline in the market value of the AFS portfolio’s fair value, reflectingsecurities portfolio, due to the impact of market interest rate fluctuations.
Total LHFI, net of deferred fees and costs, were $15.1 billion at June 30, 2023, an increase of $617.8 million or 8.6% (annualized) from December 31, 2022.
Total investments were $3.1 billion at June 30, 2023, a decrease of $566.5 million from December 31, 2022. AFS securities totaled $2.2 billion at June 30, 2023, compared to $2.7 billion at December 31, 2022. At June 30, 2023, total net unrealized losses on the AFS securities portfolio were $450.1 million, an improvement of $12.5 million from $462.6 million at December 31, 2022. HTM securities are carried at cost and totaled $849.6 million at June 30, 2023, compared to $847.7 million at December 31, 2022 and had net unrealized losses of $41.8 million at June 30, 2023, an improvement of $4.0 million from $45.8 million at December 31, 2022, due primarily to changes in interest rates and market conditions during the first six months of 2023.
At June 30, 2023, total deposits were $16.4 billion, an increase of $480.3 million or approximately 6.1% (annualized) from December 31, 2022, due to a $1.1 billion increase in interest-bearing deposits, which included approximately $485.7 million in brokered deposits, partially offset by a $572.9 million decrease in demand deposits, as customers moved funds from lower to higher yielding deposit products.

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market interest rate increases, which were offset by HTM portfolio growth of $213.3 million, and a $411.6 million decrease in cash and cash equivalents, which was deployed primarily to fund loans, which increased by $722.9 million from December 31, 2021.
LHFI (net of deferred fees and costs) were $13.9 billion, including $12.1 million in PPP loans at September 30, 2022, an increase of $722.9 million or 7.3% (annualized) from December 31, 2021. Excluding the impact of the PPP(+), LHFI (net of deferred fees and costs) increased $861.1 million or 8.8% (annualized) during this period.
Total deposits were $16.5 billion at September 30, 2022, a decrease of $64.9 million or 0.5% (annualized) from December 31, 2021.

Net Interest Income

For the Three Months Ended

September 30, 

    

2022

    

2021

    

Change

    

(Dollars in thousands)

Average interest-earning assets

$

17,879,222

$

17,910,389

$

(31,167)

 

  

Interest and dividend income

$

171,156

$

146,379

$

24,777

 

  

Interest and dividend income (FTE) (+)

$

174,998

$

149,543

$

25,455

  

Yield on interest-earning assets

 

3.80

%  

 

3.24

%  

 

56

 

bps

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

 

3.88

%  

 

3.31

%  

 

57

 

bps

Average interest-bearing liabilities

$

11,867,217

$

11,908,809

$

(41,592)

 

  

Interest expense

$

20,441

$

8,891

$

11,550

 

  

Cost of interest-bearing liabilities

 

0.68

%  

 

0.30

%  

 

38

 

bps

Cost of funds

 

0.45

%  

 

0.19

%  

 

26

 

bps

Net interest income

$

150,715

$

137,488

$

13,227

 

  

Net interest income (FTE) (+)

$

154,557

$

140,652

$

13,905

 

  

Net interest margin

 

3.34

%  

 

3.05

%  

 

29

 

bps

Net interest margin (FTE) (+)

 

3.43

%  

 

3.12

%  

 

31

 

bps

Net interest income, which represents the principal source of revenue for the Company, is the amount by which interest income exceeds interest expense. The net interest margin is 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 of 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:

For the Three Months Ended

June 30, 

    

2023

    

2022

    

Change

    

(Dollars in thousands)

Average interest-earning assets

$

18,091,809

$

17,646,470

$

445,339

 

  

Interest and dividend income

$

230,247

$

148,755

$

81,492

 

  

Interest and dividend income (FTE) (+)

$

233,913

$

152,332

$

81,581

  

Yield on interest-earning assets

 

5.10

%  

 

3.38

%  

 

172

bps

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

 

5.19

%  

 

3.46

%  

 

173

 

bps

Average interest-bearing liabilities

$

12,974,175

$

11,590,351

$

1,383,824

 

  

Interest expense

$

78,163

$

9,988

$

68,175

 

  

Cost of interest-bearing liabilities

 

2.42

%  

 

0.35

%  

 

207

 

bps

Cost of funds

 

1.74

%  

 

0.22

%  

 

152

 

bps

Net interest income

$

152,084

$

138,767

$

13,317

 

  

Net interest income (FTE) (+)

$

155,750

$

142,344

$

13,406

 

  

Net interest margin

 

3.37

%  

 

3.15

%  

 

22

 

bps

Net interest margin (FTE) (+)

 

3.45

%  

 

3.24

%  

 

21

 

bps

For the thirdsecond quarter of 2022,2023, net interest income was $150.7$152.1 million, an increase of $13.2$13.3 million from the thirdsecond quarter of 2021.2022. For the thirdsecond quarter of 2022,2023, net interest income (FTE)(+) was $154.6$155.8 million, an increase of $13.9$13.4 million from the thirdsecond quarter of 2021.2022. In the thirdsecond quarter of 2022,2023, net interest margin increased 2922 bps to 3.34%3.37% from 3.05%3.15% in the thirdsecond quarter of 2021,2022, and net interest margin (FTE)(+) increased 3121 bps to 3.43%3.45% in the second quarter of 2023 from 3.12% compared to3.24% for the same period of 2021.2022. The increases in net interest income and net interest income (FTE)(+) were primarily the result ofdriven by higher interest income on loansloan yields due to an increase in average loans held for investment and an increase in loan yields on the Company’sincreased short-term interest rates impacting variable rate loans, due to higher market interest rates. The increase wasas well as net loan growth. These increases were partially offset by an increase in deposit and borrowing costsinterest 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, 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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Table of Contents

For the Nine Months Ended

September 30, 

    

2022

    

2021

    

Change

    

(Dollars in thousands)

Average interest-earning assets

$

17,803,550

$

17,824,607

$

(21,057)

 

  

Interest and dividend income

$

458,367

$

444,904

$

13,463

 

  

Interest and dividend income (FTE) (+)

$

469,122

$

454,265

$

14,857

 

  

Yield on interest-earning assets

 

3.44

%  

 

3.34

%  

 

10

 

bps

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

 

3.52

%  

 

3.41

%  

 

11

 

bps

Average interest-bearing liabilities

$

11,752,110

$

11,939,838

$

(187,728)

 

  

Interest expense

$

37,954

$

31,970

$

5,984

 

  

Cost of interest-bearing liabilities

 

0.43

%  

 

0.36

%  

 

7

 

bps

Cost of funds

 

0.28

%  

 

0.24

%  

 

4

 

bps

Net interest income

$

420,413

$

412,934

$

7,479

 

  

Net interest income (FTE) (+)

$

431,168

$

422,295

$

8,873

 

  

Net interest margin

 

3.16

%  

 

3.10

%  

 

6

 

bps

Net interest margin (FTE) (+)

 

3.24

%  

 

3.17

%  

 

7

 

bps

For the Six Months Ended

June 30, 

    

2023

    

2022

    

Change

    

(Dollars in thousands)

Average interest-earning assets

$

18,164,545

$

17,765,085

$

399,460

 

  

Interest and dividend income

$

447,793

$

287,212

$

160,581

 

  

Interest and dividend income (FTE) (+)

$

455,248

$

294,124

$

161,124

 

  

Yield on interest-earning assets

 

4.97

%  

 

3.26

%  

 

171

 

bps

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

 

5.05

%  

 

3.34

%  

 

171

 

bps

Average interest-bearing liabilities

$

12,910,496

$

11,693,601

$

1,216,895

 

  

Interest expense

$

142,265

$

17,514

$

124,751

 

  

Cost of interest-bearing liabilities

 

2.22

%  

 

0.30

%  

 

192

 

bps

Cost of funds

 

1.58

%  

 

0.20

%  

 

138

 

bps

Net interest income

$

305,528

$

269,698

$

35,830

 

  

Net interest income (FTE) (+)

$

312,983

$

276,610

$

36,373

 

  

Net interest margin

 

3.39

%  

 

3.06

%  

 

33

 

bps

Net interest margin (FTE) (+)

 

3.47

%  

 

3.14

%  

 

33

 

bps

For the first ninesix months of 2022,2023, net interest income was $420.4$305.5 million, an increase of $7.5$35.8 million from the same period of 2021.2022. For the first ninesix months of 2022,2023, net interest income (FTE)(+) was $431.2$313.0 million, an increase of $8.9$36.4 million from the same period of 2021.2022. In the first ninesix months of 2022,2023, net interest margin increased 633 bps to 3.16%3.39% from 3.10% for3.06% in the first ninesix months of 2021,2022, and net interest margin (FTE)(+) increased 733 bps to 3.24%3.47% in the first six months of 2023 from 3.17% for3.14% in the same period in 2021.first six months of 2022. The increases in net interest margin and net interest margin (FTE)(+) were primarily the result ofdriven by higher interest income on investmentsloan yields due to an increase in balances in taxable and tax-exempt securities and an increase in yields on the Company’s securities due to higher marketincreased 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, as well as higher borrowing costs due to increases inincreased short-term borrowings and funding costs associated with increased market rates and additional borrowings related to the 2031 Notes and increased FHLB advances.

interest rates.

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Table of Contents

The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated:indicated (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 June 30, 

 

2022

2021

 

2023

2022

 

    

    

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)

 

Balance

Expense (1)

Rate (1)(2)

Balance

Expense (1)

Rate (1)(2)

 

 

(Dollars in thousands)

(Dollars in thousands)

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Securities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Taxable

$

2,193,279

$

14,750

 

2.67

%  

$

2,248,478

$

11,230

 

1.98

%

$

1,865,193

$

15,565

 

3.35

%  

$

2,322,024

$

14,695

 

2.54

%

Tax-exempt

 

1,625,328

 

13,661

 

3.33

%  

 

1,431,499

 

12,480

 

3.46

%

 

1,311,469

 

10,755

 

3.29

%  

 

1,608,888

 

13,465

 

3.36

%

Total securities

 

3,818,607

 

28,411

 

2.95

%  

 

3,679,977

 

23,710

 

2.56

%

 

3,176,662

 

26,320

 

3.32

%  

 

3,930,912

 

28,160

 

2.87

%

Loans, net (3)

 

13,733,447

 

145,433

 

4.20

%  

 

13,451,674

 

125,290

 

3.70

%

LHFI, net of deferred fees and costs(3)

 

14,746,218

 

206,452

 

5.62

%  

 

13,525,529

 

123,764

 

3.67

%

Other earning assets

 

327,168

 

1,154

 

1.40

%  

 

778,738

 

543

 

0.28

%

 

168,929

 

1,141

 

2.71

%  

 

190,029

 

408

 

0.86

%

Total earning assets

 

17,879,222

$

174,998

 

3.88

%  

 

17,910,389

$

149,543

 

3.31

%

 

18,091,809

$

233,913

 

5.19

%  

 

17,646,470

$

152,332

 

3.46

%

Allowance for credit losses

 

(104,746)

 

  

 

(117,414)

 

  

 

  

Allowance for loan and lease losses

 

(117,643)

 

  

 

(103,211)

 

  

 

  

Total non-earning assets

 

2,206,024

 

  

 

2,263,595

 

  

 

  

 

2,235,521

 

  

 

2,176,143

 

  

 

  

Total assets

$

19,980,500

 

  

$

20,056,570

 

  

 

  

$

20,209,687

 

  

$

19,719,402

 

  

 

  

Liabilities and Stockholders' Equity:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

8,247,650

$

11,342

 

0.55

%  

$

8,345,410

$

1,501

 

0.07

%

$

8,387,473

$

46,953

 

2.25

%  

$

7,987,888

$

3,082

 

0.15

%

Regular savings

 

1,171,071

 

64

 

0.02

%  

 

1,058,284

 

55

 

0.02

%

 

1,014,565

 

430

 

0.17

%  

 

1,169,199

 

55

 

0.02

%

Time deposits

 

1,745,224

 

3,980

 

0.90

%  

 

2,109,131

 

4,281

 

0.81

%

 

2,500,966

 

17,884

 

2.87

%  

 

1,667,378

 

2,960

 

0.71

%

Total interest-bearing deposits

 

11,163,945

 

15,386

 

0.55

%  

 

11,512,825

 

5,837

 

0.20

%

 

11,903,004

 

65,267

 

2.20

%  

 

10,824,465

 

6,097

 

0.23

%

Other borrowings

 

703,272

 

5,055

 

2.85

%  

 

395,984

 

3,054

 

3.06

%

 

1,071,171

 

12,896

 

4.83

%  

 

765,886

 

3,891

 

2.04

%

Total interest-bearing liabilities

 

11,867,217

$

20,441

 

0.68

%  

 

11,908,809

$

8,891

 

0.30

%

 

12,974,175

$

78,163

 

2.42

%  

 

11,590,351

$

9,988

 

0.35

%

Noninterest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Demand deposits

 

5,324,279

 

  

 

5,205,319

 

  

 

  

 

4,377,150

 

  

 

5,366,591

 

  

 

  

Other liabilities

 

352,005

 

  

 

224,410

 

  

 

  

 

397,621

 

  

 

317,415

 

  

 

  

Total liabilities

 

17,543,501

 

  

 

17,338,538

 

  

 

  

 

17,748,946

 

  

 

17,274,357

 

  

 

  

Stockholders' equity

 

2,436,999

 

  

 

2,718,032

 

  

 

  

 

2,460,741

 

  

 

2,445,045

 

  

 

  

Total liabilities and stockholders' equity

$

19,980,500

 

  

$

20,056,570

 

  

 

  

$

20,209,687

 

  

$

19,719,402

 

  

 

  

Net interest income

$

154,557

 

  

 

  

$

140,652

 

  

$

155,750

 

  

 

  

$

142,344

 

  

Interest rate spread

 

3.20

%  

 

  

 

  

 

3.01

%  

 

2.77

%  

 

  

 

  

 

3.11

%  

Cost of funds

 

0.45

%  

 

  

 

  

 

0.19

%  

 

1.74

%  

 

  

 

  

 

0.22

%  

Net interest margin

 

3.43

%  

 

  

 

  

 

3.12

%  

Net interest margin (FTE)(+)

 

3.45

%  

 

  

 

  

 

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.

-61-

Table of Contents

For the Nine Months Ended September 30, 

 

2022

2021

 

    

    

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

$

2,375,933

$

43,110

 

2.43

%  

$

2,062,486

$

32,102

 

2.08

%

Tax-exempt

 

1,605,375

 

40,366

 

3.36

%  

 

1,375,799

 

36,421

 

3.54

%

Total securities

 

3,981,308

 

83,476

 

2.80

%  

 

3,438,285

 

68,523

 

2.66

%

Loans, net (3)

 

13,521,507

 

383,799

 

3.79

%  

 

13,827,002

 

384,252

 

3.72

%

Other earning assets

 

300,735

 

1,847

 

0.82

%  

 

559,320

 

1,490

 

0.36

%

Total earning assets

 

17,803,550

$

469,122

 

3.52

%  

 

17,824,607

$

454,265

 

3.41

%

Allowance for credit losses

 

(102,783)

 

  

 

(137,589)

 

  

 

  

Total non-earning assets

 

2,172,877

 

  

 

2,203,137

 

  

 

  

Total assets

$

19,873,644

 

  

$

19,890,155

 

  

 

  

Liabilities and Stockholders' Equity:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

8,203,629

$

15,748

 

0.26

%  

$

8,189,587

$

5,462

 

0.09

%

Regular savings

 

1,161,145

 

175

 

0.02

%  

 

1,005,537

 

169

 

0.02

%

Time deposits

 

1,726,341

 

10,043

 

0.78

%  

 

2,288,530

 

16,572

 

0.97

%

Total interest-bearing deposits

 

11,091,115

 

25,966

 

0.31

%  

 

11,483,654

 

22,203

 

0.26

%

Other borrowings

 

660,995

 

11,988

 

2.42

%  

 

456,184

 

9,767

 

2.86

%

Total interest-bearing liabilities

 

11,752,110

$

37,954

 

0.43

%  

 

11,939,838

$

31,970

 

0.36

%

Noninterest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Demand deposits

 

5,306,675

 

  

 

4,949,816

 

  

 

  

Other liabilities

 

301,337

 

  

 

271,896

 

  

 

  

Total liabilities

 

17,360,122

 

  

 

17,161,550

 

  

 

  

Stockholders' equity

 

2,513,522

 

  

 

2,728,605

 

  

 

  

Total liabilities and stockholders' equity

$

19,873,644

 

  

$

19,890,155

 

  

 

  

Net interest income

$

431,168

 

  

 

  

$

422,295

 

  

Interest rate spread

 

3.09

%  

 

  

 

  

 

3.05

%  

Cost of funds

 

0.28

%  

 

  

 

  

 

0.24

%  

Net interest margin

 

3.24

%  

 

  

 

  

 

3.17

%  

For the Six Months Ended June 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

$

1,951,226

$

32,317

 

3.34

%  

$

2,468,775

$

28,361

 

2.32

%

Tax-exempt

 

1,370,082

 

22,537

 

3.32

%  

 

1,595,232

 

26,704

 

3.38

%

Total securities

 

3,321,308

 

54,854

 

3.33

%  

 

4,064,007

 

55,065

 

2.73

%

LHFI, net of deferred fees and costs(3)

 

14,626,579

 

397,630

 

5.48

%  

 

13,413,780

 

238,365

 

3.58

%

Other earning assets

 

216,658

 

2,764

 

2.57

%  

 

287,298

 

694

 

0.49

%

Total earning assets

 

18,164,545

$

455,248

 

5.05

%  

 

17,765,085

$

294,124

 

3.34

%

Allowance for loan and lease losses

 

(114,923)

 

  

 

(101,784)

 

  

 

  

Total non-earning assets

 

2,246,914

 

  

 

2,156,029

 

  

 

  

Total assets

$

20,296,536

 

  

$

19,819,330

 

  

 

  

Liabilities and Stockholders' Equity:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

8,366,304

$

85,267

 

2.06

%  

$

8,181,253

$

4,406

 

0.11

%

Regular savings

 

1,050,798

 

795

 

0.15

%  

 

1,156,099

 

111

 

0.02

%

Time deposits

 

2,396,827

 

31,038

 

2.61

%  

 

1,716,743

 

6,063

 

0.71

%

Total interest-bearing deposits

 

11,813,929

 

117,100

 

2.00

%  

 

11,054,095

 

10,580

 

0.19

%

Other borrowings

 

1,096,567

 

25,165

 

4.63

%  

 

639,506

 

6,934

 

2.19

%

Total interest-bearing liabilities

 

12,910,496

$

142,265

 

2.22

%  

 

11,693,601

$

17,514

 

0.30

%

Noninterest-bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Demand deposits

 

4,534,375

 

  

 

5,297,727

 

  

 

  

Other liabilities

 

409,392

 

  

 

275,584

 

  

 

  

Total liabilities

 

17,854,263

 

  

 

17,266,912

 

  

 

  

Stockholders' equity

 

2,442,273

 

  

 

2,552,418

 

  

 

  

Total liabilities and stockholders' equity

$

20,296,536

 

  

$

19,819,330

 

  

 

  

Net interest income

$

312,983

 

  

 

  

$

276,610

 

  

Interest rate spread

 

2.83

%  

 

  

 

  

 

3.04

%  

Cost of funds

 

1.58

%  

 

  

 

  

 

0.20

%  

Net interest margin (FTE)(+)

 

3.47

%  

 

  

 

  

 

3.14

%  

(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

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 six months ended June 30, 2023 and 2022 (dollars in thousands):

Three Months Ended

 

Nine Months Ended

Three Months Ended

 

Six Months Ended

September 30, 2022 vs. September 30, 2021

 

September 30, 2022 vs. September 30, 2021

June 30, 2023 vs. June 30, 2022

 

June 30, 2023 vs. June 30, 2022

Increase (Decrease) Due to Change in:

 

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

 

Volume

    

Rate

    

Total

Earning Assets:

Securities:

Taxable

$

(282)

$

3,802

$

3,520

$

5,266

$

5,742

$

11,008

$

(3,243)

$

4,113

$

870

$

(6,792)

$

10,747

$

3,955

Tax-exempt

 

1,641

 

(460)

 

1,181

 

5,843

 

(1,898)

 

3,945

 

(2,444)

 

(266)

 

(2,710)

 

(3,711)

 

(457)

 

(4,168)

Total securities

 

1,359

 

3,342

 

4,701

 

11,109

 

3,844

 

14,953

 

(5,687)

 

3,847

 

(1,840)

 

(10,503)

 

10,290

 

(213)

Loans, net(1)

 

2,672

 

17,471

 

20,143

 

(8,582)

 

8,129

 

(453)

 

12,031

 

70,657

 

82,688

 

23,216

 

136,048

 

159,264

Other earning assets

 

(475)

 

1,086

 

611

 

(924)

 

1,281

 

357

 

(50)

 

785

 

735

 

(210)

 

2,280

 

2,070

Total earning assets

$

3,556

$

21,899

$

25,455

$

1,603

$

13,254

$

14,857

$

6,294

$

75,289

$

81,583

$

12,503

$

148,618

$

161,121

Interest-Bearing Liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing deposits:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Transaction and money market accounts

$

(18)

$

9,859

$

9,841

$

9

$

10,277

$

10,286

$

162

$

43,709

$

43,871

$

102

$

80,759

$

80,861

Regular savings

 

6

 

3

 

9

 

25

 

(19)

 

6

 

(8)

 

383

 

375

 

(11)

 

695

 

684

Time Deposits

 

(791)

 

490

 

(301)

 

(3,626)

 

(2,903)

 

(6,529)

Time deposits(1)

 

2,114

 

12,811

 

14,925

 

3,230

 

21,745

 

24,975

Total interest-bearing deposits

 

(803)

 

10,352

 

9,549

 

(3,592)

 

7,355

 

3,763

 

2,268

 

56,903

 

59,171

 

3,321

 

103,199

 

106,520

Other borrowings(1)

 

2,222

 

(221)

 

2,001

 

3,885

 

(1,664)

 

2,221

 

2,030

 

6,975

 

9,005

 

7,115

 

11,117

 

18,232

Total interest-bearing liabilities

 

1,419

 

10,131

 

11,550

 

293

 

5,691

 

5,984

 

4,298

 

63,878

 

68,176

 

10,436

 

114,316

 

124,752

Change in net interest income (FTE)(+)

$

2,137

$

11,768

$

13,905

$

1,310

$

7,563

$

8,873

$

1,996

$

11,411

$

13,407

$

2,067

$

34,302

$

36,369

(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 Company’s net interest margin (FTE)(+) includes the impact of acquisition accounting fair value adjustments. The impact of net accretion related to acquisition accounting fair value adjustments for the first second, and thirdsecond quarters of 20212022 and 20222023 are reflected in the following table (dollars in thousands):

    

    

Deposit

    

    

    

    

    

    

Loan

Accretion

Borrowings

Loan

Deposit

Borrowings

Accretion

(Amortization)

Amortization

Total

Accretion

Amortization

Amortization

Total

For the quarter ended March 31, 2021

$

4,287

$

20

$

(198)

$

4,109

For the quarter ended June 30, 2021

4,132

12

(202)

3,942

For the quarter ended September 30, 2021

4,176

(8)

(203)

3,965

For the quarter ended March 31, 2022

2,253

(10)

(203)

2,040

$

2,253

$

(10)

(203)

$

2,040

For the quarter ended June 30, 2022

2,879

(11)

(207)

2,661

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

For the quarter ended June 30, 2023

1,073

(7)

(213)

853

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Table of Contents

Noninterest Income

For the Three Months Ended

 

For the Three Months Ended

 

September 30, 

Change

 

June 30, 

Change

 

    

2022

    

2021

    

$

%

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Noninterest income:

Service charges on deposit accounts

$

6,784

$

7,198

$

(414)

(5.8)

%

$

8,118

$

8,040

$

78

1.0

%

Other service charges, commissions, and fees

 

1,770

 

1,534

 

236

15.4

%

 

1,693

 

1,709

 

(16)

(0.9)

%

Interchange fees

 

2,461

 

2,203

 

258

11.7

%

 

2,459

 

2,268

 

191

8.4

%

Fiduciary and asset management fees

 

4,134

 

7,029

 

(2,895)

(41.2)

%

 

4,359

 

6,939

 

(2,580)

(37.2)

%

Mortgage banking income

 

1,390

 

4,818

 

(3,428)

(71.1)

%

 

449

 

2,200

 

(1,751)

(79.6)

%

Gain (loss) on sale of securities

2

(2)

4

NM

Bank owned life insurance income

 

3,445

 

2,727

 

718

26.3

%

 

2,870

 

2,716

 

154

5.7

%

Loan-related interest rate swap fees

 

2,050

 

1,102

 

948

86.0

%

 

2,316

 

2,600

 

(284)

(10.9)

%

Other operating income

 

3,550

 

3,327

 

223

6.7

%

 

1,931

 

11,816

 

(9,885)

(83.7)

%

Total noninterest income

$

25,584

$

29,938

$

(4,354)

(14.5)

%

$

24,197

$

38,286

$

(14,089)

(36.8)

%

Noninterest income decreased $4.4$14.1 million or 14.5%36.8% to $25.6$24.2 million for the quarter ended SeptemberJune 30, 2022,2023, compared to $29.9$38.3 million for the quarter ended SeptemberJune 30, 2021.2022, primarily driven by the $9.1 million gain on sale of DHFB in the second quarter of 2022, included in other operating income. Adjusted operating noninterest income,(+) which excludes gains and losses on sale of securities and the gain on sale of DHFB, decreased $5.0 million or 17.2% to $24.2 million for the quarter ended June 30, 2023, compared to $29.2 million for the quarter ended June 30, 2022. The decrease in adjusted operating noninterest income(+) was primarily driven by a $3.4$2.6 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 $1.8 million decrease in mortgage banking income due to a decline in mortgage loan origination volumes and lowera decrease in gain on sale margins due primarily to risingincreases in market interest rates, and a $2.9$803,000 decrease in other operating income primarily due to the impact from recoveries recognized in the prior year on several fully charged off acquired loans and a decline in equity method investment income, partially offset by increases in capital market transaction-related fees.

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Table of Contents

For the Six Months Ended

 

June 30, 

Change

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

Noninterest income:

Service charges on deposit accounts

$

16,020

$

15,637

$

383

2.4

%

Other service charges, commissions, and fees

 

3,439

 

3,364

 

75

2.2

%

Interchange fees

 

4,784

 

4,078

 

706

17.3

%

Fiduciary and asset management fees

 

8,620

 

14,194

 

(5,574)

(39.3)

%

Mortgage banking income

 

1,303

 

5,317

 

(4,014)

(75.5)

%

Loss on sale of securities

(13,398)

(2)

(13,396)

NM

Bank owned life insurance income

 

5,698

 

5,413

 

285

5.3

%

Loan-related interest rate swap fees

 

3,755

6,460

(2,705)

(41.9)

%

Other operating income

 

3,603

13,978

(10,375)

(74.2)

%

Total noninterest income

$

33,824

$

68,439

$

(34,615)

(50.6)

%

Noninterest income decreased $34.6 million or 50.6% to $33.8 million for the six months ended June 30, 2023, compared to $68.4 million for the six months ended June 30, 2022, primarily driven by the losses on sale of securities of $13.4 million resulting from our balance sheet repositioning strategy executed in the first quarter of 2023 and the $9.1 million gain on sale of DHFB in the second quarter of 2022, included in other operating income. Adjusted operating noninterest income,(+) which excludes losses on sale of securities and the gain on sale of DHFB, decreased $12.1 million or 20.4% for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The decrease in adjusted operating noninterest income(+) was primarily driven by a $5.6 million decrease in fiduciary and asset management fees due to a decrease in assets under management primarilymainly driven by the DHFB sale executed in the second quarter of 2022, and a $414,000$4.0 million decrease in service charges on deposit accounts, reflective of changes to the Company’s overdraft policy. These decreases in noninterest income were partially offset by a $948,000 increase in loan-related interest rate swap fee income due to higher transaction volumes, a $718,000 increase in BOLI income due to mortality benefits, and a $258,000 increase in interchange fees.

For the Nine Months Ended

 

September 30, 

Change

 

    

2022

    

2021

    

$

%

 

(Dollars in thousands)

 

Noninterest income:

Service charges on deposit accounts

$

22,421

$

19,314

$

3,107

16.1

%

Other service charges, commissions, and fees

 

5,134

 

4,970

 

164

3.3

%

Interchange fees

 

6,539

 

6,252

 

287

4.6

%

Fiduciary and asset management fees

 

18,329

 

20,323

 

(1,994)

(9.8)

%

Mortgage banking income

 

6,707

 

17,692

 

(10,985)

(62.1)

%

Bank owned life insurance income

 

8,858

 

8,202

 

656

8.0

%

Loan-related interest rate swap fees

 

8,510

4,176

4,334

103.8

%

Other operating income

 

17,525

8,459

9,066

107.2

%

Total noninterest income

$

94,023

$

89,388

$

4,635

5.2

%

Noninterest income increased $4.6 million or 5.2% to $94.0 million for the nine months ended September 30, 2022, compared to $89.4 million for the nine months ended September 30, 2021. Excluding the losses and gains on sale of securities and the gain on sale of DHFB, included within other operating income, adjusted operating noninterest income(+) for the nine months ended September 30, 2022 decreased $4.4 million or 4.9% compared to the nine months ended September 30, 2021. The decrease from the prior year was mainly due to a decrease of $11.0 million in mortgage banking income due to a decline in mortgage loan origination volumes and a declinedecrease in gain on sale margins as 2022 saw a steep increasedue to increases in market interest rates, a $2.7 million decrease in loan-related interest rate swap fees primarily due to lower transaction volumes, and a $1.3 million decrease of $2.0 million in fiduciary and asset management feesother operating income primarily due to a decreasedecline in assets under management primarily drivenequity method investment income and the impact from recoveries recognized in the prior year on several fully charged off acquired loans, partially offset by the DHFB sale.increases in capital market transaction-related fees. These decreases in adjusted operating noninterest income(+) were partially offset by a $4.3 million increase in loan-related interest rate swap fee income due to higher transaction volumes, a $3.1 million increase in service charges on deposit accounts, a $656,000 increase in BOLI income due to mortality benefits, and a $287,000$706,000 increase in interchange fees.

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Table of Contents

Noninterest Expense

For the Three Months Ended

 

September 30, 

Change

 

    

2022

    

2021

    

$

%

 

(Dollars in thousands)

 

Noninterest expense:

Salaries and benefits

$

56,600

$

53,534

$

3,066

5.7

%

Occupancy expenses

 

6,408

 

7,251

 

(843)

(11.6)

%

Furniture and equipment expenses

 

3,673

 

4,040

 

(367)

(9.1)

%

Technology and data processing

 

8,273

 

7,534

 

739

9.8

%

Professional services

 

3,504

 

3,792

 

(288)

(7.6)

%

Marketing and advertising expense

 

2,343

 

2,548

 

(205)

(8.0)

%

FDIC assessment premiums and other insurance

 

3,094

 

2,172

 

922

42.4

%

Franchise and other taxes

 

4,507

 

4,432

 

75

1.7

%

Loan-related expenses

 

1,575

 

1,503

 

72

4.8

%

Amortization of intangible assets

 

2,480

 

3,381

 

(901)

(26.6)

%

Other expenses

 

7,466

 

5,156

 

2,310

44.8

%

Total noninterest expense

$

99,923

$

95,343

$

4,580

4.8

%

Noninterest expense increased $4.6 million or 4.8% to $99.9 million for the quarter ended September 30, 2022, compared to $95.3 million for the quarter ended September 30, 2021. Excluding amortization of intangible assets, adjusted operating noninterest expense(+) for the quarter ended September 30, 2022 increased $5.5 million or 6.0% compared to the quarter ended September 30, 2021. The increase from the prior year quarter was mainly due to a $3.1 million increase in salaries and benefits driven by increases in salaries, wages, and variable incentive compensation, a $2.3 million increase in other expenses, primarily comprised of $1.1 million in non-credit related losses on customer transactions and $440,000 in teammate training and travel costs, a $922,000 increase in FDIC assessment premiums, and a $739,000 increase in technology and data processing expenses driven primarily by an increase in software licensing and maintenance expenses. These increases were partially offset by decreases of $843,000 in occupancy expenses and $367,000 in furniture and equipment expenses, partially reflecting the impact of the Company’s consolidation of 16 branches that was completed in March 2022.

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Table of Contents

Noninterest Expense

For the Nine Months Ended

 

For the Three Months Ended

 

September 30, 

Change

 

June 30, 

Change

 

    

2022

    

2021

    

$

%

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Noninterest expense:

Salaries and benefits

$

170,203

$

156,959

$

13,244

8.4

%

$

62,019

$

55,305

$

6,714

12.1

%

Occupancy expenses

 

19,685

 

21,705

 

(2,020)

(9.3)

%

 

6,094

 

6,395

 

(301)

(4.7)

%

Furniture and equipment expenses

 

10,860

 

11,919

 

(1,059)

(8.9)

%

 

3,565

 

3,590

 

(25)

(0.7)

%

Technology and data processing

 

23,930

 

21,657

 

2,273

10.5

%

 

8,566

 

7,862

 

704

9.0

%

Professional services

 

12,274

 

13,161

 

(887)

(6.7)

%

 

4,433

 

4,680

 

(247)

(5.3)

%

Marketing and advertising expense

 

7,008

 

7,330

 

(322)

(4.4)

%

 

2,817

 

2,502

 

315

12.6

%

FDIC assessment premiums and other insurance

 

8,344

 

6,798

 

1,546

22.7

%

 

4,074

 

2,765

 

1,309

47.3

%

Franchise and other taxes

 

13,506

 

13,303

 

203

1.5

%

 

4,499

 

4,500

 

(1)

(0.0)

%

Loan-related expenses

 

5,218

 

5,289

 

(71)

(1.3)

%

 

1,619

 

1,867

 

(248)

(13.3)

%

Amortization of intangible assets

 

8,434

 

10,679

 

(2,245)

(21.0)

%

 

2,216

 

2,915

 

(699)

(24.0)

%

Loss on debt extinguishment

14,695

(14,695)

(100.0)

%

Other expenses

 

24,550

 

15,756

 

8,794

55.8

%

 

5,759

 

6,387

 

(628)

(9.8)

%

Total noninterest expense

$

304,012

$

299,251

$

4,761

1.6

%

$

105,661

$

98,768

$

6,893

7.0

%

Noninterest expense increased $6.9 million or 7.0% to $105.7 million for the nine monthsquarter ended SeptemberJune 30, 2023, compared to $98.8 million for the quarter ended June 30, 2022, increased $4.8primarily driven by a $6.7 million or 1.6% to $304.0 million, compared to the nine months ended September 30, 2021. Excludingincrease in salaries and benefits discussed below. Adjusted operating noninterest expense,(+) which excludes amortization of intangible assets losses($2.2 million in 2023 and $2.9 million in 2022) and the expenses incurred with our strategic cost saving initiatives principally composed of severance charges related to balance sheet repositioning,headcount reductions and charges for exiting leases ($3.9 million in 2023), increased $3.7 million or 3.8% to $99.5 million for the quarter ended June 30, 2023, compared to $95.9 million for the quarter ended June 30, 2022. The increase in adjusted operating non-interest expense(+) was primarily driven by a $3.8 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, driven by increases in salaries and wages, a $1.3 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 $704,000 increase in technology and data processing expense. These increases in adjusted operating non-interest expense(+) were partially offset by a $1.7 million decrease in other expenses primarily driven by a decrease of non-credit related losses on customer transactions.

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For the Six Months Ended

 

June 30, 

Change

 

    

2023

    

2022

    

$

%

 

(Dollars in thousands)

 

Noninterest expense:

Salaries and benefits

$

122,547

$

113,603

$

8,944

7.9

%

Occupancy expenses

 

12,450

 

13,278

 

(828)

(6.2)

%

Furniture and equipment expenses

 

7,317

 

7,187

 

130

1.8

%

Technology and data processing

 

16,708

 

15,658

 

1,050

6.7

%

Professional services

 

7,847

 

8,770

 

(923)

(10.5)

%

Marketing and advertising expense

 

5,168

 

4,665

 

503

10.8

%

FDIC assessment premiums and other insurance

 

7,973

 

5,250

 

2,723

51.9

%

Franchise and other taxes

 

8,997

 

8,999

 

(2)

(0.0)

%

Loan-related expenses

 

3,171

 

3,643

 

(472)

(13.0)

%

Amortization of intangible assets

 

4,494

 

5,954

 

(1,460)

(24.5)

%

Other expenses

 

17,262

 

17,082

 

180

1.1

%

Total noninterest expense

$

213,934

$

204,089

$

9,845

4.8

%

Noninterest expense increased $9.8 million or 4.8% to $213.9 million for the six months ended June 30, 2023, compared to $204.1 million for the six months ended June 30, 2022, primarily driven by an $8.9 million increase in salaries and benefits discussed below. Adjusted operating noninterest expense,(+) which excludes amortization of intangible assets ($4.5 million in 2023 and $6.0 million in 2022) the expenses incurred with our strategic cost saving initiatives principally composed of severance charges related to headcount reductions and charges for exiting leases ($3.9 million in 2023), the legal reserve associated with an ongoing regulatory matter as previously disclosed, included within other expenses ($5.0 million in 2023), and strategic branch closing and facility consolidation costs, included within other expenses ($5.5 million in 2022), increased $7.9 million or 4.1% to $200.5 million for the six months ended June 30, 2023, compared to $192.6 million for the six months ended June 30, 2022. The increase in adjusted operating noninterestnon-interest expense(+) for the nine months ended September 30, 2022 increasedwas primarily driven by $17.1 million or 6.3% compared to the nine months ended September 30, 2021. The increase from the prior year period was mainly due to a $13.2$6.0 million increase in salaries and benefits primarilyexpense, outside of severance charges related to headcount reductions in the second quarter of 2023, driven by anincreases in salaries and wages, a $2.7 million increase in salaries, wages,FDIC assessment premiums and variable incentive compensation,other insurance primarily due to the increase in the FDIC assessment rates, effective January 1, 2023, and a $2.3$1.1 million increase in technology and data processing expense driven by an increaseexpense. These increases in software licensing and maintenance expenses, a $1.5 million increase in FDIC assessment premiums, and increases within other expenses, including a $1.5 million increase in non-credit related losses on customer transactions, a $1.2 million increase in teammate training and travel costs, and a $1.1 million increase in OREO and credit-related expenses. Partially offsetting theseadjusted operating non-interest expense increases (+) were partially offset by decreases of $2.0 million in occupancy expenses and $1.1 million in furniture and equipment expenses, reflecting the impact of the Company’s consolidation of 16 branches that was completed in March 2022, and a $887,000 decrease$923,000 in professional services related to strategic projects that occurred in the prior year and $828,000 in occupancy expenses.

Segment Results

As discussed in Note 12, “Segment Reporting and Revenue,” in Part I, Item 1 of this Quarterly Report, effective foras of the third quarter of 2022, the Company now segmentsbegan segmenting its business into two primary reportable operating segments—Wholesale Banking and Consumer Banking — as these segments reflect how the CODMschief operating decision makers are now evaluating the business, establishing the overall business strategy, allocating resources, and assessing business performance. Included below are the key metrics used by the CODMschief operating decision makers in evaluating the Company’s reportable 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 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. 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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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 NorthSouth Carolina. These customers include commercial real estate and commercial and industrial customers. This segment also includes the Company’s public finance subsidiary and the equipment finance subsidiary, which has nationwide exposure.

The following tables present operating results for the threeprivate banking and nine months ended September 30, 2022 and 2021 fortrust businesses also reside in the Wholesale Banking segment (dollars in thousands):

    

Three Months Ended September 30, 

2022

2021

Net interest income

$

76,109

$

74,121

Provision for credit losses

8,558

(16,086)

Net interest income after provision for credit losses

67,551

90,207

Noninterest income

5,483

3,206

Noninterest expense

��

 

36,197

 

31,333

Income before income taxes

$

36,837

$

62,080

Wholesale Banking income before income taxes decreased $25.3 million to $36.8 million for the three months ended September 30, 2022, compared to $62.1 million for the three months ended September 30, 2021. The decrease was predominantly driven by an increase in the provision for credit losses of $24.6 million, reflecting the increased provision for credit losses in the current quarter due to the changes in the economic outlook and loan growth. In addition, noninterest expense increased by $4.9 million primarily due to an increase in salaries, benefits, and variable incentive compensation. These increases in provision and noninterest expense were partially offset by an increase in noninterest income of $2.3 million reflecting the impact of increases in loan swap fees and other operating income related to syndication, foreign exchange, and other capital market transaction fees. In addition, net interest income increased by $2.0 million compared to the third quarter of 2021, as increases in loan balances and higher market rates were partially offset by higher deposit costs and a decrease in PPP related interest and fee income of $4.6 million.

    

Nine Months Ended September 30, 

2022

2021

Net interest income

$

217,600

$

223,158

Provision for credit losses

12,833

(37,702)

Net interest income after provision for credit losses

204,767

260,860

Noninterest income

16,438

10,332

Noninterest expense

 

106,120

 

94,393

Income before income taxes

$

115,085

$

176,799

Wholesale Banking income before income taxes decreased $61.7 million to $115.1 million for the nine months ended September 30, 2022, compared to $176.8 million for the nine months ended September 30, 2021. The decrease was predominantly driven by an increase in provision for credit losses of $50.5 million, reflecting the increased provision for credit losses in the current period due to the changes in the economic outlook and loan growth. In addition, noninterest expense increased $11.7 million from the same period in 2021, primarily due to an increase in salaries, benefits, and variable incentive compensation. Net interest income for the nine months ended September 30, 2022 decreased $5.6 million from the same period in 2021, primarily due to a decrease in PPP related interest and fee income of $15.3 million, offset by increased interest income driven by higher loan balances. Partially offsetting the decreases in net interest income after provision for credit losses and the increase in noninterest expense, noninterest income for the nine months ended September 30, 2022 increased by $6.1 million from 2021, primarily due to an increase in loan swap fees driven by higher transaction volume and an increase in other operating income related to syndication, foreign exchange, and other capital market transaction fees.

segment.

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The following table presents operating results for the key balance sheet metrics as of Septemberthree and six months ended June 30, 20222023 and December 31, 20212022 for the Wholesale Banking segment (dollars in thousands):

September 30, 2022

December 31, 2021

    

Three Months Ended June 30, 

 

Six Months Ended June 30,

LHFI, net of deferred fees and costs

$

10,847,988

$

10,242,918

Total Deposits

6,173,703

6,114,078

2023

2022

 

2023

2022

Net interest income

$

66,133

$

72,930

$

133,674

$

144,354

Provision for credit losses

��

6,054

2,757

16,543

4,374

Net interest income after provision for credit losses

60,079

70,173

117,131

139,980

Noninterest income

8,861

8,327

16,275

17,514

Noninterest expense

 

41,236

 

38,401

 

83,550

 

78,410

Income before income taxes

$

27,704

$

40,099

$

49,856

$

79,084

Wholesale Banking income before income taxes decreased for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022, by $12.4 million and $29.2 million, respectively. The decreases were primarily due to a decrease in net interest income driven by spread compression on the loan and deposit portfolios due to the rapid rise in interest rates, an increase in the provision for credit losses due to increased uncertainty in the economic outlook and loan growth during 2023, and an increase in noninterest expense primarily due to an increase in salaries and benefits expense. In addition, noninterest income decreased for the first six months of 2023 compared to the first six months of 2022, primarily due to a decrease in loan-related interest rate swap fees primarily due to lower transaction volumes.

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

June 30, 2023

December 31, 2022 (1)

LHFI, net of deferred fees and costs

$

12,078,442

$

11,476,258

Total Deposits

6,190,224

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.


LHFI, net of deferred fees and costs, for the Wholesale Banking segment increased $605.1$602.2 million or 7.9%10.6% (annualized) to $10.8$12.1 billion at SeptemberJune 30, 20222023 compared to December 31, 2021;2022; growth occurred across the commercial and industrial, commercial real estate non-owner occupied, and construction and land development other commercial, and commercial and industrial loan portfolios. Growth in the commercial and industrial loan portfolio was primarily driven by an increase in equipment finance loans.

Wholesale banking deposits increased $59.6$61.5 million or 1.3%2.0% (annualized) to $6.2 billion at SeptemberJune 30, 20222023 compared to December 31, 2021.2022. This increase was primarily driven by an increase in interest bearing transaction deposits,checking accounts, partially offset by a decrease in demand deposits and money market balances, and maturing high cost time deposits.as customers moved from uninsured to insured deposit products.

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 the wealth management division, which consists of private banking, trust, and investment management and advisory services.services businesses.

The following tables present operating results for the three and nine months ended September 30, 2022 and 2021 for the Consumer Banking segment (dollars in thousands):

    

Three Months Ended September 30, 

2022

2021

Net interest income

$

60,265

$

56,536

Provision for credit losses

(2,146)

(2,764)

Net interest income after provision for credit losses

62,411

59,300

Noninterest income

14,909

21,454

Noninterest expense

 

59,460

 

59,824

Income before income taxes

$

17,860

$

20,930

Consumer Banking income before income taxes decreased $3.0 million to $17.9 million for the three months ended September 30, 2022, compared to $20.9 million for the three months ended September 30, 2021. The decrease was primarily driven by a $6.5 million decrease in noninterest income mainly driven by a decrease in mortgage banking income due to a decline in mortgage origination volumes, a decrease in fiduciary and asset management fees caused by a decrease in assets under management primarily related to the sale of DHFB in the second quarter of 2022, and a decrease in service charges on deposit accounts, reflective of changes to the Company’s overdraft policy. These decreases were partially offset by an increase in net interest income of $3.7 million driven by higher market rates, partially offset by a decrease in PPP related interest and fee income of $5.2 million.

    

Nine Months Ended September 30, 

2022

2021

Net interest income

$

162,297

$

169,680

Provision for credit losses

(89)

(22,186)

Net interest income after provision for credit losses

162,386

191,866

Noninterest income

54,664

64,341

Noninterest expense

 

180,020

 

175,697

Income before income taxes

$

37,030

$

80,510

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

    

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

2022

2023

2022

Net interest income

$

63,749

$

51,037

$

126,893

$

99,169

Provision for credit losses

32

775

1,371

1,958

Net interest income after provision for credit losses

63,717

50,262

125,522

97,211

Noninterest income

12,287

16,577

24,466

33,196

Noninterest expense

 

56,539

 

55,092

 

113,594

 

110,426

Income before income taxes

$

19,465

$

11,747

$

36,394

$

19,981

Consumer Banking income before income taxes decreased $43.5 million to $37.0 millionincreased for the ninethree and six months ended SeptemberJune 30, 2023, compared to the three and six months ended June 30, 2022 compared to $80.5by $7.7 million for the nine months ended September 30, 2021.and $16.4 million, respectively. The decrease was predominantlyincreases were primarily driven by a $22.1 millionan increase in net interest income due to favorable funding credit on deposits and increased interest income attributable to the provision for credit losses, reflecting the changes in the macroeconomic outlook. In addition, noninterest income for the nine months ended September 30, 2022 decreasedhigher interest rate environment and higher average loan balances, partially offset by $9.7 million from the nine months ended September 30, 2021, primarily drivenspread compression on loans. This increase was partially offset by a decrease in mortgage bankingnoninterest income primarily due to a decline in mortgage origination volumes, and a decrease in fiduciary and asset management fees due to a decrease in assets under management primarilymainly driven by the sale of DHFB sale. These decreases were partially offsetexecuted 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 due to an increase in service charges on deposit accounts. Net interest income decreased by $7.4 million from the same periodsalaries and benefits expense, as well as an increase in 2021 largelyFDIC assessment premiums and other insurance due to a decreasethe increase in PPP related interest and fee income of $12.9 million, partially offset by a decrease in interest expense. Noninterest expense for the nine months ended September 30, 2022 increased $4.3 million from the same period in 2021, primarily driven by technology and other operating expenses.FDIC assessment rates, effective January 1, 2023.

The following table presents the key balance sheet metrics as of SeptemberJune 30, 20222023 and December 31, 20212022 for the Consumer Banking segment (dollars in thousands):

September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022 (1)

LHFI, net of deferred fees and costs

$

3,089,334

$

2,976,200

$

3,001,369

$

2,990,017

Total Deposits

10,270,508

10,366,792

9,580,892

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.

LHFI, net of deferred fees and costs, for the Consumer Banking segment increased $113.1$11.4 million or 5.1%0.8% (annualized) to $3.1$3.0 billion at SeptemberJune 30, 20222023 compared to December 31, 2021;2022; growth primarily occurred inacross the residential 1-4 family and autoconsumer loan portfolios.portfolio.

Consumer Banking deposits decreased $96.3$143.7 million or 1.2%3.0% (annualized) to $10.3$9.6 billion at SeptemberJune 30, 20222023 compared to December 31, 2021.2022. This decrease was primarily due to a declinedecrease in demand deposits, money markets,market balances, interest checking accounts, and savings accounts, partially offset by growthan increase in savings accounts.time deposits, as customers moved funds from lower to higher yielding deposit products.

Income Taxes

The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

The Company’s effective tax rate for the three months ended SeptemberJune 30, 2023 and 2022 was 14.4% and 2021 was 17.0% and 18.0%16.7%, respectively. The effective tax rate for the ninesix months ended SeptemberJune 30, 2023 and 2022 was 15.5% and 2021 was 17.0% and 17.8%17.1%, respectively. The decrease in the effective tax rates reflects the impacts of the current year’s discrete items relatedrate is primarily due to the sale of DHFB and a higher proportion of tax-exempt income to pre-tax income in the 2022 period.second quarter of 2023.

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DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

Overview

Assets

At SeptemberJune 30, 2022,2023, total assets were $20.0$20.6 billion, a decreasean increase of $114.6$141.2 million or approximately 0.8%1.4% (annualized) from $20.1 billion at December 31, 2021.2022. The decreaseincrease in total assets was driven by the net investment securities portfolio decrease of $545.8 million mainlyprimarily due to the declinean increase in the AFS portfolio’s fair value, reflecting the impact of market interest rate increases which was partially offset by HTM portfolio growth of $213.3 million, and a decrease in cash and cash equivalents of $411.6 million, which was deployed primarily to fund loans, which increased by $722.9 million from December 31, 2021.

LHFI, (netnet of deferred fees and costs)costs, of $617.8 million driven primarily by increases in the commercial and industrial and commercial real estate non-owner occupied portfolios, partially offset by a decline in the investment securities portfolio of $566.5 million, primarily due to the sale of AFS securities as part of the Company’s balance sheet repositioning strategy executed during the first quarter of 2023.

LHFI, net of deferred fees and costs, were $13.9$15.1 billion including $12.1 million in PPP loans, at SeptemberJune 30, 2022,2023, an increase of $722.9$617.8 million or 7.3%8.6% (annualized) from December 31, 2021. Excluding the effects of the PPP(+),2022. At June 30, 2023, quarterly average LHFI, (netnet of deferred fees and costs) at September 30, 2022costs, increased $861.1 million$1.2 billion or 8.8% (annualized) from December 31, 2021. At September 30, 2022, quarterly average LHFI (net of deferred fees and costs) increased $281.8 million or 2.1%9.0% from the same period in the prior year. Excluding the effects of the PPP(+), the adjusted quarterly average LHFI (net of deferred fees and costs) at September 30, 2022 increased $954.8 million or 7.5% from September 30, 2021. 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 the Company’sour loan activity.

At June 30, 2023, total investments were $3.1 billion, a decrease of $566.5 million from December 31, 2022. AFS securities totaled $2.2 billion at June 30, 2023, a $559.4 million decrease from December 31, 2022. At June 30, 2023, total net unrealized losses on the AFS securities portfolio were $450.1 million, an improvement of $12.5 million from total net unrealized losses on AFS securities of $462.6 million at December 31, 2022. HTM securities totaled $849.6 million at June 30, 2023, a $1.9 million increase from December 31, 2022, with net unrealized losses of $41.8 million at June 30, 2023, an improvement of $4.0 million from net unrealized losses of $45.8 million at December 31, 2022.

Liabilities and Stockholders’ Equity

At SeptemberJune 30, 2022,2023, total liabilities were $17.7$18.2 billion, an increase of $314.4$89.5 million or approximately 1.0% (annualized) from $17.4$18.1 billion at December 31, 2021.2022, which was primarily driven by an increase in deposits of $480.3 million, partially offset by a decrease in borrowings of $388.4 million.

Total deposits at SeptemberJune 30, 20222023 were $16.5$16.4 billion, a decreasean increase of $64.9$480.3 million or approximately 0.5%6.1% (annualized) from December 31, 2021.2022. For the quarter ended SeptemberJune 30, 2022,2023, quarterly average deposits decreased $229.9increased $89.1 million or 1.4% compared0.6% from the same period in the prior year. Total deposits at June 30, 2023 increased from December 31, 2022 due to the quarter ended September 30, 2021. Thea $1.1 billion increase in interest-bearing deposits, which includes approximately $485.7 million in brokered deposits, partially offset by a $572.9 million decrease in demand deposits, as customers have moved funds from the prior year period were driven by maturing high cost time deposits.lower to higher yielding products. Refer to “Deposits” within this Item 2 for further discussionadditional information on this topic.

Total short-term and long-term borrowings at SeptemberJune 30, 20222023 were $669.6 million, an increase$1.3 billion, a decrease of $163.0$388.4 million or 32.2%22.7% when compared to $506.6 million$1.7 billion at December 31, 2021.2022 as a result of the Company’s execution of the balance sheet repositioning strategy during the first quarter of 2023, which allowed the Company to reduce its short-term borrowings exposure. Refer to Note 6 “Borrowings” in Part I, Item I1, and “Executive Overview” within this Item 2 of this Quarterly Report for further discussionadditional information on this topic.our borrowing activity.

At SeptemberJune 30, 2022,2023, stockholders’ equity was $2.3$2.4 billion, a decreasean increase of $428.9$51.7 million from December 31, 2021.2022, primarily due to lower unrealized losses within 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 the Company’sour capital resources.

For information related to the Company’s stock repurchase activity and the Repurchase Program, please refer to Note 9 “Stockholders’ Equity” in Part I, Item 1 and Part II, Item 2 of this Quarterly Report.

During the thirdsecond quarter of 2022,2023, the Company declared and paid a quarterly dividend on the outstanding shares of Series A preferred stockPreferred Stock of $171.88 per share (equivalent to $0.43 per outstanding depositary share), consistent with the secondfourth quarter of 2022 and the thirdsecond quarter of 2021.2022. During the thirdsecond quarter of 2022,2023, the Company also declared and paid a cash dividenddividends of $0.30 per common share, consistent with the fourth quarter of 2022 and an increase of $0.02 or approximately 7.1% from the second quarter of 2022 and the third quarter of 2021.

2022.

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At June 30, 2023, the Company 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.

Securities

At SeptemberJune 30, 2022,2023, the Company had total investments in the amount of $3.6$3.1 billion, or 18.2%15.3% of total assets, as compared to $4.2$3.7 billion, or 20.9%18.1% of total assets, at December 31, 2021.2022. This decline in the Company’s investment portfoliodecrease was primarily due to a decline in the market valuesale of AFS securities as part of the AFS securities portfolio,Company’s balance sheet repositioning strategy executed during the first quarter of 2023, which was partially offset by growth in the Company’s HTM portfolio. The Company may experience further declines in the AFS portfolio in future periods if market interest rates continue to increase or the FOMC reduces the Federal Reserve’s balance sheet more quickly than anticipated. The Company seeks to diversify its portfolio to minimize risk. Itrisk and focuses 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’s MBS are agency-backed securities, which have a government guarantee. For information regarding the hedge transaction related to AFS securities, see Note 8 "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 indicated (dollars in thousands):

    

September 30, 

    

December 31, 

    

June 30, 

    

December 31, 

2022

2021

2023

2022

Available for Sale:

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

61,636

$

73,849

$

61,347

$

61,943

Obligations of states and political subdivisions

 

764,543

 

1,008,396

 

513,026

 

807,435

Corporate and other bonds

 

231,088

 

153,376

 

142,572

 

226,380

MBS

 

 

 

 

Commercial

308,574

471,157

261,955

306,161

Residential

1,349,828

1,773,232

1,201,845

1,338,233

Total MBS

1,658,402

2,244,389

1,463,800

1,644,394

Other securities

 

1,654

 

1,640

 

1,703

 

1,664

Total AFS securities, at fair value

 

2,717,323

 

3,481,650

 

2,182,448

 

2,741,816

Held to Maturity:

 

  

 

  

 

  

 

  

U.S. government and agency securities

690

2,604

681

687

Obligations of states and political subdivisions

 

724,330

 

620,873

 

701,600

 

705,990

Corporate and other bonds

4,855

5,159

MBS

 

 

 

 

Commercial

29,096

4,523

54,019

42,761

Residential

87,233

88,455

93,135

Total MBS

116,329

4,523

142,474

135,896

Total held to maturity securities, at carrying value

 

841,349

 

628,000

 

849,610

 

847,732

Restricted Stock:

 

  

 

  

 

  

 

  

FRB stock

 

67,032

 

67,032

 

67,032

 

67,032

FHLB stock

 

15,018

 

9,793

 

44,146

 

53,181

Total restricted stock, at cost

 

82,050

 

76,825

 

111,178

 

120,213

Total investments

$

3,640,722

$

4,186,475

$

3,143,236

$

3,709,761

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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 SeptemberJune 30, 2022:2023:

    

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

 

%

2.59

%

1.46

%

%

1.48

%

 

%

1.41

%

5.98

%

%

1.57

%

Obligations of states and political subdivisions

 

3.55

%

 

2.83

%

2.59

%

2.77

%

2.76

%

 

3.90

%

 

2.61

%

1.98

%

2.23

%

2.23

%

Corporate bonds and other securities

 

3.02

%

 

3.29

%

3.87

%

3.85

%

3.66

%

 

4.18

%

 

7.49

%

3.84

%

5.29

%

4.32

%

MBS:

 

 

 

 

Commercial

4.67

%

4.39

%

2.47

%

2.20

%

2.64

%

5.83

%

3.33

%

4.17

%

2.24

%

3.06

%

Residential

2.74

%

2.24

%

2.56

%

2.14

%

2.16

%

2.68

%

2.27

%

2.68

%

2.22

%

2.23

%

Total MBS

4.19

%

3.87

%

2.53

%

2.15

%

2.24

%

5.83

%

2.65

%

3.32

%

2.22

%

2.38

%

Total AFS securities

 

3.99

%

 

3.44

%

2.91

%

2.36

%

2.49

%

 

5.79

%

 

2.74

%

3.58

%

2.23

%

2.45

%

(1) Yields on tax-exempt securities have been computed on a 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 SeptemberJune 30, 2022:2023:

    

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

%

4.29

%

%

%

4.29

%

%

4.95

%

%

%

4.95

%

Obligations of states and political subdivisions

0.88

%

3.87

%

3.85

%

3.66

%

3.57

%

2.38

%

4.05

%

3.44

%

3.49

%

3.49

%

Corporate bonds and other securities

%

%

%

6.26

%

6.26

%

MBS:

 

 

Commercial

%

%

%

2.39

%

2.39

%

%

%

%

4.60

%

4.60

%

Residential

%

5.36

%

%

3.46

%

4.02

%

%

5.46

%

%

3.57

%

4.08

%

Total MBS

%

5.36

%

%

3.12

%

3.61

%

%

5.46

%

%

4.04

%

4.28

%

Total HTM securities

 

0.88

%

4.95

%

3.85

%

3.59

%

3.58

%

 

2.38

%

5.00

%

3.44

%

3.59

%

3.64

%

(1) Yields on tax-exempt securities have been computed on a 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 SeptemberJune 30, 2022,2023, the Company maintained a diversified municipal bond portfolio with approximately 65%68% of its holdings in general obligation issues and the majority of the remainder primarily backed by revenue bonds. Issuances within the State of Texas represented 18%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 focuses on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.

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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’s 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 June 30, 2023 were $16.4 billion, an increase of $480.3 million or approximately 6.1% (annualized) from December 31, 2022. For the quarter ended June 30, 2023, quarterly average deposits decreased $137.1 million or 2.4% (annualized) compared to the prior quarter. Total deposits at June 30, 2023 increased from December 31, 2022 due to a $1.1 billion increase in interest-bearing deposits, which includes approximately $485.7 million in brokered deposits, partially offset by a $572.9 million decrease in demand deposits, as customers have moved funds from lower to higher costing 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 Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the Federal Reserve Discount Window, the purchase of brokered certificates of deposit, corporate line of credit with a large correspondent bank, and debt and capital issuance. Management believes the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its 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 June 30, 2023, liquidity of $539.4 million was available based on the par-value of qualifying securities from BTFP. The Company did not utilize the BTFP facility as of June 30, 2023.

The Company closely monitors changes in the industry and market conditions that may impact the Company’s liquidity. Since the first half of 2020, the Company has seen increased customer deposit balances as a result of the impacts of COVID-19, including as a result of government stimulus programs. The Company considered a portion of the elevated levels in customer deposits to be temporaryliquidity and has seen, and continues to see declines in certain segments of the Company’s deposit portfolio from prior elevated periods; however, the Company will use other borrowing means or other liquidity and funding strategies sources to fund its liquidity needs based on declines in deposit balances.as needed. The Company is also closely tracking the potential impacts on the Company’s liquidity of declines in the fair value of the Company’s securities portfolio due to rising market interest rates.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 SeptemberJune 30, 2022,2023, liquid assets totaled $5.7$6.7 billion or 28.5%32.5% of total assets, and liquid earning assets totaled $5.5$6.5 billion or 31.0%35.2% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of SeptemberJune 30, 2022,2023, loan payments of approximately $5.0$6.0 billion or 35.9%39.7% of total loans are expected within one year based on contractual terms, adjusted for expected prepayments, and approximately $290.6$266.7 million or 8.0%8.5% of total securities 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 Bank may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. For additional information and outstanding balances on purchased certificates of deposits, please refer to “Deposits” 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’s cash requirements, outside of lending transactions, consist primarily of borrowings, debt and capital instruments which are used as part of the Company’s overall liquidity and capital management strategy. 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’s contractual obligations related to its major cash requirements and the scheduled payments due at the various intervals over the next year and beyond as of SeptemberJune 30, 20222023 (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)

279,327

16,842

262,485

Repurchase agreements

146,182

146,182

Total contractual obligations

$

830,668

$

163,024

$

667,644

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)

314,100

35,659

278,441

Repurchase agreements

130,461

130,461

Total contractual obligations

$

849,720

$

166,120

$

683,600

(1)Excludes related unamortized premium/discount and interest payments.
(2)Represents lease payments due on non-cancellable operating leases at September 30, 2022. Excluded from these tables are variable lease payments or renewals.

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

(2) Represents lease payments due on non-cancellable operating leases at June 30, 2023. 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.

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Loan Portfolio

LHFI, net of deferred fees and costs, totaled $13.9$15.1 billion at SeptemberJune 30, 2022,2023 and $13.2$14.4 billion at December 31, 2021.2022. Commercial real estate and commercial &and industrial loans represented the Company’s largest loan categories at Septemberboth June 30, 2022. Commercial and industrial loans included approximately $12.1 million and $145.3 million in loans from the PPP loan program as of September 30, 20222023 and December 31, 2021, respectively.2022.

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 SeptemberJune 30, 20222023 (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

$

1,068,201

$

308,961

$

593,618

$

540,703

$

51,148

$

1,767

$

165,622

$

74,198

$

40,282

$

51,142

$

1,231,720

$

438,829

$

617,990

$

518,076

$

95,711

$

4,203

$

174,901

$

94,336

$

32,288

$

48,277

Commercial Real Estate - Owner Occupied

 

1,953,872

 

158,637

 

604,726

 

120,860

 

471,418

 

12,448

 

1,190,509

 

515,150

 

645,303

 

30,056

 

1,952,189

 

137,939

 

607,658

 

141,491

 

452,520

 

13,647

 

1,206,592

 

587,974

 

607,952

 

10,666

Commercial Real Estate - Non-Owner Occupied

 

3,900,325

 

378,759

 

2,163,016

 

981,393

 

1,170,154

 

11,469

 

1,358,550

 

975,937

 

325,958

 

56,655

 

4,113,318

 

432,398

 

2,297,242

 

1,154,350

 

1,142,892

 

 

1,383,678

 

1,045,184

 

330,496

 

7,998

Multifamily Real Estate

 

774,970

 

77,515

 

484,279

 

117,230

 

367,049

 

 

213,176

 

159,772

 

53,404

 

 

788,895

 

83,838

 

494,408

 

137,789

 

356,619

 

 

210,649

 

169,718

 

40,931

 

Commercial & Industrial

 

2,709,047

 

451,271

 

1,380,757

 

1,182,179

 

192,864

 

5,714

 

877,019

 

545,719

 

323,667

 

7,633

 

3,373,148

 

525,040

 

1,774,709

 

1,639,920

 

131,332

 

3,457

 

1,073,399

 

687,444

 

380,702

 

5,253

Residential 1-4 Family - Commercial

 

542,612

 

75,146

 

105,769

 

29,581

 

69,387

 

6,801

 

361,697

 

266,936

 

84,355

 

10,406

 

518,317

 

43,161

 

120,145

 

44,787

 

70,479

 

4,879

 

355,011

 

275,521

 

69,356

 

10,134

Residential 1-4 Family - Consumer

 

891,353

 

5,104

 

160,256

 

1,816

 

27,643

 

130,797

 

725,993

 

7,166

 

73,246

 

645,581

 

1,017,698

 

800

 

183,779

 

1,934

 

27,634

 

154,211

 

833,119

 

9,335

 

76,614

 

747,170

Residential 1-4 Family - Revolving

 

588,452

 

28,276

 

481,410

 

28,416

 

135,495

 

317,499

 

78,766

 

3,811

 

25,132

 

49,823

 

600,339

 

23,326

 

474,840

 

27,052

 

118,021

 

329,767

 

102,173

 

5,998

 

36,044

 

60,131

Auto

 

561,277

 

3,290

 

 

 

 

 

557,987

 

206,936

 

351,051

 

 

585,756

 

3,481

 

 

 

 

 

582,275

 

255,064

 

327,211

 

Consumer

 

172,776

 

15,660

 

25,819

 

23,026

 

2,153

 

640

 

131,297

 

63,603

 

45,005

 

22,689

 

134,709

 

12,056

 

16,633

 

14,209

 

2,152

 

272

 

106,020

 

50,778

 

39,149

 

16,093

Other Commercial

 

755,835

 

26,861

 

104,737

 

15,567

 

57,456

 

31,714

 

624,237

 

216,887

 

271,911

 

135,439

 

750,841

 

37,276

 

100,679

 

12,550

 

64,006

 

24,123

 

612,886

 

225,983

 

269,171

 

117,732

Total LHFI

$

13,918,720

$

1,529,480

$

6,104,387

$

3,040,771

$

2,544,767

$

518,849

$

6,284,853

$

3,036,115

$

2,239,314

$

1,009,424

$

15,066,930

$

1,738,144

$

6,688,083

$

3,692,158

$

2,461,366

$

534,559

$

6,640,703

$

3,407,335

$

2,209,914

$

1,023,454

The Company remains committed to originating soundly underwritten loans to qualifying borrowers within its markets. As reflected in the loan table, at September 30, 2022 the largest components of the Company’s loan portfolio consisted of The Company seeks to mitigate risks attributable to our most highly concentrated portfolios—commercial real estate, commercial and commercial & industrial, loans. The risks attributable to these concentrations are mitigated by the Company’sand construction and land development—through its credit underwriting and monitoring processes, including

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oversight by a centralized credit administration function and credit policy and risk management committee, as well as through its seasoned bankers focusing theirthat focus on lending to borrowers with proven track records in markets with which the Company is familiar.

The Company had no short-term loan modifications related to COVID-19 as of September 30, 2022 and had insignificant short-term loan modifications related to COVID-19 as of December 31, 2021.

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Asset Quality

Overview

At SeptemberJune 30, 2023 and December 31, 2022, the Company experienced decreases in both NPAs and in accruing past due loan levels as a percentage of total LHFI compared to December 31, 2021.totaled 0.19% and included nonaccrual LHFI of $29.1 million and $27.1 million, respectively. Net charge-offs increased $168,000 to $1.5were $6.1 million for the ninesix months ended SeptemberJune 30, 20222023, compared to net charge offs of $935,000 for the same period in the prior year. The ACL at SeptemberJune 30, 20222023 increased $11.2$11.8 million from December 31, 20212022 to $119.0$136.2 million, primarily due to increased uncertainty in the macroeconomiceconomic outlook and the impact ofnet loan growth in the first nine months of 2022.growth.

The Company continues to experience historically low levels of NPAs, stemming from unprecedented government stimulus during COVID-19, low unemployment levels in the Company’s markets, and relatively stable economic conditions in the Company’s footprint. However,however, the economic environment in the Company’s footprint could changebe impacted as persistent inflation, higher interest rates, and the threat of a recession looms, which could increase NPAs in future periods. The Company continues to refrain from originating or purchasing loans from foreign entities. The Company selectively originates loans to higher risk borrowers. The Company’s loan portfolio generally does not include exposure to option adjustable 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 SeptemberJune 30, 2022,2023, NPAs totaled $28.6$29.2 million, a decreasean increase of $4.2$2.0 million or 12.8%7.5% from December 31, 2021.2022. NPAs as a percentage of total outstanding loansLHFI at SeptemberJune 30, 2023 and December 31, 2022 were 0.21%, a decrease of 4 bps from December 31, 2021.0.19%.

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

    

September 30, 

    

December 31,

    

 

2022

 

2021

 

Nonaccrual loans

$

26,500

$

31,100

Foreclosed properties

 

2,087

 

1,696

Total NPAs

 

28,587

 

32,796

Loans past due 90 days and accruing interest

 

7,351

 

9,132

Total NPAs and loans past due 90 days and accruing interest

$

35,938

$

41,928

Performing TDRs

$

10,333

$

10,313

Balances

 

  

 

  

Allowance for loan and lease losses

$

108,009

$

99,787

Allowance for credit losses

119,009

107,787

Average loans, net of deferred fees and costs

 

13,733,447

 

13,082,412

Loans, net of deferred fees and costs

 

13,918,720

 

13,195,843

Ratios

 

  

 

  

Nonaccrual loans to total loans

0.19

%  

0.24

%  

NPAs to total loans

 

0.21

%  

 

0.25

%  

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

 

0.26

%  

 

0.32

%  

NPAs to total loans & foreclosed property

 

0.21

%  

 

0.25

%  

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

 

0.26

%  

 

0.32

%  

ALLL to nonaccrual loans

 

407.58

%  

 

320.86

%  

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

 

319.07

%  

 

248.03

%  

ACL to nonaccrual loans

449.09

%  

346.58

%  

    

June 30, 

    

December 31,

    

 

2023

 

2022

 

Nonaccrual LHFI

$

29,105

$

27,038

Foreclosed properties

 

50

 

76

Total NPAs

 

29,155

 

27,114

LHFI past due 90 days and accruing interest

 

10,111

 

7,490

Total NPAs and LHFI past due 90 days and accruing interest

$

39,266

$

34,604

Balances

 

  

 

  

Allowance for loan and lease losses

$

120,683

$

110,768

Allowance for credit losses

136,231

124,443

Average LHFI, net of deferred fees and costs

 

14,746,218

 

13,671,714

LHFI, net of deferred fees and costs

 

15,066,930

 

14,449,142

Ratios

 

  

 

  

Nonaccrual LHFI to total LHFI

0.19

%  

0.19

%  

NPAs to total LHFI

 

0.19

%  

 

0.19

%  

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

 

0.26

%  

 

0.24

%  

NPAs to total LHFI & foreclosed property

 

0.19

%  

 

0.19

%  

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

 

0.26

%  

 

0.24

%  

ALLL to nonaccrual LHFI

 

414.65

%  

 

409.68

%  

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

 

307.74

%  

 

320.81

%  

ACL to nonaccrual LHFI

468.07

%  

460.25

%  

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NPAs include nonaccrual LHFI, which totaled $29.1 million at SeptemberJune 30, 2022 included $26.5 million in nonaccrual loans,2023, a net decreaseincrease of $4.6$2.1 million or 14.8%7.6% from December 31, 2021.2022. The following table shows the activity in nonaccrual loansLHFI for the quarters ended (dollars in thousands):

    

September 30, 

    

December 31,

    

June 30, 

    

December 31,

2022

 

2021

2023

 

2022

Beginning Balance

$

29,070

$

35,472

$

29,082

$

26,500

Net customer payments

 

(3,725)

 

(5,068)

 

(5,950)

 

(1,805)

Additions

 

1,302

 

1,294

 

6,685

 

2,935

Charge-offs

 

(125)

 

(598)

 

(712)

 

(461)

Transfers to foreclosed property

 

(22)

 

Loans returning to accruing status

 

 

(131)

Ending Balance

$

26,500

$

31,100

$

29,105

$

27,038

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

    

September 30, 

    

December 31,

 

    

June 30, 

    

December 31,

 

2022

 

2021

 

2023

 

2022

 

Construction and Land Development

$

421

$

2,697

$

284

$

307

Commercial Real Estate - Owner Occupied

 

4,883

 

5,637

 

3,978

 

7,178

Commercial Real Estate - Non-owner Occupied

 

1,923

 

3,641

 

6,473

 

1,263

Multifamily Real Estate

113

Commercial & Industrial

 

2,289

 

1,647

 

2,738

 

1,884

Residential 1-4 Family - Commercial

 

1,962

 

2,285

 

1,844

 

1,904

Residential 1-4 Family - Consumer

 

11,121

 

11,397

 

10,033

 

10,846

Residential 1-4 Family - Revolving

 

3,583

 

3,406

 

3,461

 

3,453

Auto

 

318

 

223

 

291

 

200

Consumer

54

3

3

Total

$

26,500

$

31,100

$

29,105

$

27,038

Coverage Ratio(1)

407.58

%  

320.86

%  

414.65

%  

409.68

%  

(1) Represents the ALLL divided by nonaccrual loans.LHFI.

Past Due Loans

At SeptemberJune 30, 2022,2023, past due loansLHFI still accruing interest totaled $29.0$24.1 million or 0.16% of total LHFI, compared to $30.0 million or 0.21% of total LHFI compared to $29.9 million or 0.23% of total LHFI at December 31, 2021.2022. Of the total past due loansLHFI still accruing interest, $7.4$10.1 million or 0.05%0.07% of total LHFI were loans past due 90 days or more at SeptemberJune 30, 2022,2023, compared to $9.1$7.5 million or 0.07%0.05% of total LHFI at December 31, 2021.2022.

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 June 30, 2023, the Company had TLMs totaling $31.0 million.

Troubled Debt Restructurings

After the adoption of ASU 2022-02, the Company no longer has TDRs. The below information is presented for December 31, 2022, prior to adoption of ASU 2022-02.

A modification of a loan’s terms constitutesconstituted a TDR if the creditor grantsgranted a concession that it would not have otherwise considerconsidered to the borrower for economic or legal reasons related to the borrower’s financial difficulties. Management strivesstrove to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reachesreached nonaccrual status. These modified terms may includehave included rate reductions, extension of terms that are were

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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 September 30, 2022 totaled $15.6 million, compared to $18.0 million at December 31, 2021. Of the $15.62022 was $14.2 million of TDRs at September 30, 2022, $10.3which $9.3 million or 66.1%65.3% were considered performing, while the remaining $5.3$4.9 million were considered nonperforming. Of the $18.0 million of TDRs at December 31, 2021, $10.3 million or 57.4% were considered performing, while the remaining $7.6 million were considered nonperforming. Loans are removed from TDR status in accordance with the established policy described in Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K.

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Net Charge-offs

For the second quarter ended September 30, 2022,of 2023, net charge-offs were $587,000$1.6 million or 0.02%0.04% of total average loansLHFI on an annualized basis, compared to net charge-offs of less than 0.01%$939,000 or 0.03% for the same quarter last year. For the ninesix months ended SeptemberJune 30, 2022,2023, net charge-offs were $1.5$6.1 million or 0.02%0.08% of total average loansLHFI on an annualized basis, compared to $1.4 millionnet charge-offs of $935,000 or 0.01% for the same period last year. The majority of net charge-offs in the six months of 2023 related to two commercial loans continue to be insignificant, driven by continued low levelswithin the commercial and industrial and commercial real estate portfolios that took place during the first quarter of NPAs.2023.

Provision for Credit Losses

The Company recorded a provision for credit losses of $6.4$6.1 million for the second quarter ended September 30, 2022,of 2023, an increase of $25.2$2.5 million compared to the negative provision for credit losses of $18.8$3.6 million recorded during the same quarter of 2021.2022. The provision for credit losses for the thirdsecond quarter of 20222023 reflected a provision of $4.4$5.7 million for loan losses and a $2.0 million$349,000 provision for unfunded commitments. The Company recorded a provision for credit losses of $12.8$17.9 million for the ninesix months ended SeptemberJune 30, 2022,2023, an increase of $72.7$11.5 million compared to the negative provision for credit losses of $59.9$6.4 million recorded during the same period last year.in 2022. The provision for credit losses for the ninesix months ended SeptemberJune 30, 20222023 reflected a provision of $9.7$16.0 million for loan and securities losses and a $3.0$1.9 million provision for unfunded commitments. The increased provision for credit losses is due to changesincreased uncertainty in the macroeconomic forecasteconomic outlook and the impact of loan growth in the first ninesix months of 2022.2023.

Allowance for Credit Losses

At SeptemberJune 30, 2022,2023, the ACL was $119.0$136.2 million and included an ALLL of $108.0$120.7 million and a RUCreserve for unfunded commitments of $11.0$15.5 million. The ACL at June 30, 2023 increased $11.2$11.8 million from December 31, 2021, primarily2022, due to increased uncertainty in the macroeconomiceconomic outlook and the impact of loan growth induring the first ninesix months of 2022.2023.

The ACL as a percentage of the total loan portfolio increasedLHFI was 0.90% at June 30, 2023, compared to 0.86% at September 30, 2022, compared to 0.82% at December 31, 2021.2022.

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

    

September 30, 

    

December 31,

    

    

June 30, 

    

December 31,

    

2022

 

2021

 

2023

 

2022

 

Total ALLL

$

108,009

$

99,787

$

120,683

$

110,768

Total RUC

11,000

8,000

Total Reserve for Unfunded Commitments

15,548

13,675

Total ACL

$

119,009

$

107,787

$

136,231

$

124,443

ALLL to total loans

 

0.78

%  

 

0.76

%  

ACL to total loans

0.86

%  

0.82

%  

ALLL to total LHFI

 

0.80

%  

 

0.77

%  

ACL to total LHFI

0.90

%  

0.86

%  

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

Three months ended,

Nine months ended,

Three months ended

Six months ended

September 30, 2022

September 30, 2022

June 30, 2023

June 30 2023

Commercial

    

Consumer

    

Total

    

Commercial

Consumer

    

Total

Commercial

    

Consumer

    

Total

    

Commercial

Consumer

    

Total

Loans charged-off

$

(1,086)

$

(715)

$

(1,801)

$

(2,852)

$

(2,415)

$

(5,267)

$

(1,794)

$

(808)

$

(2,602)

$

(6,801)

$

(1,527)

$

(8,328)

Recoveries

605

609

1,214

1,723

2,022

3,745

518

517

1,035

1,033

1,169

2,202

Net (charge-offs) recoveries

$

(481)

$

(106)

$

(587)

$

(1,129)

$

(393)

$

(1,522)

Net charge-offs

$

(1,276)

$

(291)

$

(1,567)

$

(5,768)

$

(358)

$

(6,126)

Net charge-offs to average loans(1)

 

0.02

%  

0.02

%  

0.02

%  

0.01

%  

 

0.04

%  

 

0.02

%  

 

0.04

%  

0.05

%  

0.04

%  

0.09

%  

 

0.03

%  

 

0.08

%  

Three months ended,

Nine months ended,

Three months ended

Six months ended

September 30, 2021

September 30, 2021

June 30, 2022

June 30, 2022

Commercial

    

Consumer

    

Total

    

Commercial

Consumer

    

Total

Commercial

    

Consumer

    

Total

    

Commercial

Consumer

    

Total

Loans charged-off

$

(967)

$

(1,299)

$

(2,266)

$

(3,832)

$

(4,020)

$

(7,852)

$

(1,007)

$

(950)

$

(1,957)

$

(1,766)

$

(1,700)

$

(3,466)

Recoveries

1,281

872

2,153

3,929

2,569

6,498

392

626

1,018

1,118

1,413

2,531

Net (charge-offs) recoveries

$

314

$

(427)

$

(113)

$

97

$

(1,451)

$

(1,354)

Net charge-offs

$

(615)

$

(324)

$

(939)

$

(648)

$

(287)

$

(935)

Net charge-offs to average loans(1)

 

NM

0.09

%  

0.00

%  

NM

 

0.10

%  

 

0.01

%  

 

0.02

%

0.06

%  

0.03

%  

0.01

%

 

0.03

%  

 

0.01

%  

(1) Annualized

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

September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022

Commercial

Consumer

    

Total

    

Commercial

Consumer

    

Total

Commercial

Consumer

    

Total

    

Commercial

Consumer

    

Total

ACL

$

94,304

$

24,705

$

119,009

$

85,323

$

22,464

$

107,787

$

107,591

$

28,640

$

136,231

$

95,527

$

28,916

$

124,443

Loan %(1)

84.1

%  

15.9

%  

100.0

%  

84.7

%  

15.3

%  

100.0

%  

84.5

%  

15.5

%  

100.0

%  

84.3

%  

15.7

%  

100.0

%  

ACL to total loans

0.81

%  

1.12

%  

0.86

%  

0.76

%  

 

1.11

%  

 

0.82

%  

ACL to total LHFI

0.85

%  

1.22

%  

0.90

%  

0.78

%  

 

1.27

%  

 

0.86

%  

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

The increase in the ACL for boththe commercial loan segmentssegment is due to increased uncertainty in the macroeconomic outlook and the impact of loan growth in the first ninesix months of 2022.2023.

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Deposits

As of SeptemberJune 30, 2022,2023, total deposits were $16.5$16.4 billion, a decreasean increase of $64.9$480.3 million or 0.5%6.1% annualized from December 31, 2021.2022. Total interest-bearing deposits consist of NOW,interest checking accounts, money market, savings, and time deposit account balances. Total time deposit balances of $1.8$2.4 billion accounted for 15.7%19.8% of total interest-bearing deposits at SeptemberJune 30, 2022,2023, compared to $1.9$1.8 billion and 16.3% at December 31, 2021.2022.

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

September 30, 2022

    

December 31, 2021

 

June 30, 2023

    

December 31, 2022

 

    

    

% of total

    

    

% of total

 

    

    

% of total

    

    

% of total

 

Deposits:

Amount

deposits

Amount

deposits

 

Amount

deposits

Amount

deposits

 

Non-interest bearing

$

5,290,938

 

32.0

%  

$

5,207,324

 

31.3

%

NOW accounts

 

4,354,351

 

26.3

%  

 

4,176,032

 

25.1

%

Interest checking accounts

$

4,824,192

 

29.4

%  

$

4,186,505

 

26.3

%

Money market accounts

 

3,962,473

 

23.9

%  

 

4,249,858

 

25.6

%

 

3,413,936

 

20.8

%  

 

3,922,533

 

24.6

%

Savings accounts

 

1,173,566

 

7.1

%  

 

1,121,297

 

6.8

%

 

986,081

 

6.0

%  

 

1,130,899

 

7.1

%

Time deposits of $250,000 and over

 

415,984

 

2.5

%  

 

452,193

 

2.7

%

Other time deposits

 

1,348,904

 

8.2

%  

 

1,404,364

 

8.5

%

Customer time deposits of $250,000 and over

 

578,739

 

3.5

%  

 

405,060

 

2.5

%

Other customer time deposits

 

1,813,031

 

11.0

%  

 

1,396,011

 

8.8

%

Time Deposits

2,391,770

 

14.5

%  

1,801,071

 

11.3

%

Total interest-bearing customer deposits

11,615,979

70.7

%

11,041,008

69.3

%

Brokered deposits

485,702

3.0

%  

7,430

-

%

Total interest-bearing deposits

$

12,101,681

73.7

%

$

11,048,438

69.3

%

Demand deposits

4,310,306

26.3

%

4,883,239

30.7

%

Total Deposits (1)

$

16,546,216

 

100.0

%  

$

16,611,068

 

100.0

%

$

16,411,987

 

100.0

%  

$

15,931,677

 

100.0

%

(1) Includes estimated uninsured deposits of $6.0$5.3 billion and $5.9$6.3 billion as of SeptemberJune 30, 20222023 and December 31, 2021, respectively. Amounts are based on estimated amounts2022, respectively, and collateralized deposits of uninsured deposits$930.4 million and $951.9 million as of the reported period.June 30, 2023 and December 31, 2022, respectively.

The Company may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. Theinstitutions, as the Company utilizes this funding source when rates are more favorable than other funding sources; however, it had reducedas part of its overall liquidity management strategy. As of June 30, 2023 and December 31, 2022, the usageCompany’s certificates of deposits included $135.6 million and $7.5 million, respectively, in purchased certificates of deposit, as compared to historical levels, due to increased customer deposit balances since the beginning of COVID-19. Customer deposits have begun to decline in certain segments of the Company’s deposit portfolio in the second half of 2022, resulting in the Company purchasing $21.1 million of certificates of deposit. At December 31, 2021 the Company had no purchased certificates of deposit.deposits.

Maturities of uninsured time deposits in excess of FDIC insurance limits as of SeptemberJune 30, 20222023 and December 31, 20212022 were as follows (dollars in thousands):

    

    

September 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022

Within 3 Months

$

48,704

$

42,696

3 - 6 Months

 

35,901

 

30,313

6 - 12 Months

63,320

101,942

3 Months or Less

$

57,472

$

14,225

Over 3 Months through 6 Months

 

124,229

 

36,907

Over 6 Months through 12 Months

30,824

88,410

Over 12 Months

 

87,809

 

104,242

 

55,714

 

53,666

Total

$

235,734

$

279,193

$

268,239

$

193,208

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Capital Resources

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

On December 10, 2021,Under the Company’s Board of Directors authorized the Repurchase Program to purchase up to $100.0 million of the Company’s common stock through December 9, 2022 in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and /or Rule 10b-18 under the Exchange Act. For information about the Company’s stock repurchase activity and the Repurchase Program, please refer to Note 9 “Stockholders’ Equity” in Part I, Item 1 and Part II, Item 2 of this Quarterly Report.

The Federal Reserve requiresBasel III capital rules, the Company and the Bank tomust 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 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, 2020, the banking agencies issued an interim final rule that allows the Company 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 Company elected to phase-inphase in the regulatory capital impact as permitted under the aforementioned interim final rule. Beginning in 2022, theThe CECL transition amount began to impactis being phased out of regulatory capital by phasing it in over a three-year period, beginning 2022 and ending in 2024.

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The table summarizes the Company’s regulatory capital and related ratios for the periods presented (2) (dollars in thousands):

September 30, 

December 31, 

September 30, 

June 30, 

December 31, 

June 30, 

2022

2021

2021

2023

2022

2022

Common equity Tier 1 capital

$ 1,633,072

$ 1,569,752

$ 1,541,325

$ 1,723,535

$ 1,684,088

$ 1,592,401

Tier 1 capital

1,799,428

1,736,108

1,707,681

1,889,891

1,850,444

1,758,758

Tier 2 capital

463,175

437,435

340,464

494,517

468,716

456,853

Total risk-based capital

2,262,604

2,173,543

2,048,146

2,384,408

2,319,160

2,215,611

Risk-weighted assets

16,393,301

15,336,432

14,858,407

17,480,064

16,930,559

15,995,009

Capital ratios:

Common equity Tier 1 capital ratio

9.96%

10.24%

10.37%

9.86%

9.95%

9.96%

Tier 1 capital ratio

10.98%

11.32%

11.49%

10.81%

10.93%

11.00%

Total capital ratio

13.80%

14.17%

13.78%

13.64%

13.70%

13.86%

Leverage ratio (Tier 1 capital to average assets)

9.32%

9.01%

8.97%

9.64%

9.42%

9.26%

Capital conservation buffer ratio (1)

4.98%

5.32%

5.49%

4.81%

4.93%

5.00%

Common equity to total assets

10.60%

12.68%

10.96%

10.78%

11.32%

Tangible common equity to tangible assets (+)

6.11%

8.20%

8.16%

6.66%

6.43%

6.78%

(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 basedrisk-based capital. The lowest of the three measures represents the Company’s capital conservation buffer ratio.

(2) All ratios and amounts at SeptemberJune 30, 20222023 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

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

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

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NON-GAAP FINANCIAL MEASURES

In this Quarterly Report,reporting the results as of and for the period ended June 30, 2023, the Company has 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’s financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company’s non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company’s performance. The Company’s management believes that these non-GAAP financial measures provide additional understanding of ongoing operations, enhance comparability of 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’s underlying performance.

NetThe Company believes 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.

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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

 

Six Months Ended

 

September 30, 

 

September 30, 

 

June 30, 

 

June 30, 

 

    

2022

    

2021

 

    

2022

    

2021

 

    

2023

    

2022

 

    

2023

    

2022

 

Interest Income (FTE)

Interest and dividend income (GAAP)

$

171,156

$

146,379

$

458,367

$

444,904

$

230,247

$

148,755

$

447,793

$

287,212

FTE adjustment

 

3,842

 

3,164

 

10,755

 

9,361

 

3,666

 

3,577

 

7,455

 

6,912

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

$

174,998

$

149,543

$

469,122

$

454,265

$

233,913

$

152,332

$

455,248

$

294,124

Average earning assets

$

17,879,222

$

17,910,389

$

17,803,550

$

17,824,607

$

18,091,809

$

17,646,470

$

18,164,545

$

17,765,085

Yield on interest-earning assets (GAAP)

 

3.80

%  

 

3.24

%

 

3.44

%  

 

3.34

%

 

5.10

%  

 

3.38

%

 

4.97

%  

 

3.26

%

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

 

3.88

%  

 

3.31

%

 

3.52

%  

 

3.41

%

 

5.19

%  

 

3.46

%

 

5.05

%  

 

3.34

%

Net Interest Income (FTE)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Net interest income (GAAP)

$

150,715

$

137,488

$

420,413

$

412,934

$

152,084

$

138,767

$

305,528

$

269,698

FTE adjustment

 

3,842

 

3,164

 

10,755

 

9,361

 

3,666

 

3,577

 

7,455

 

6,912

Net interest income (FTE) (non-GAAP)

$

154,557

$

140,652

$

431,168

$

422,295

$

155,750

$

142,344

$

312,983

$

276,610

Noninterest income (GAAP)

25,584

29,938

94,023

89,388

24,197

38,286

33,824

68,439

Total revenue (FTE) (non-GAAP)

$

180,141

$

170,590

$

525,191

$

511,683

$

179,947

$

180,630

$

346,807

$

345,049

Average earning assets

$

17,879,222

$

17,910,389

$

17,803,550

$

17,824,607

$

18,091,809

$

17,646,470

$

18,164,545

$

17,765,085

Net interest margin (GAAP)

 

3.34

%  

 

3.05

%

 

3.16

%  

 

3.10

%

 

3.37

%  

 

3.15

%

 

3.39

%  

 

3.06

%

Net interest margin (FTE) (non-GAAP)

 

3.43

%  

 

3.12

%

 

3.24

%  

 

3.17

%

 

3.45

%  

 

3.24

%

 

3.47

%  

 

3.14

%

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

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, 

June 30, 

December 31, 

June 30, 

    

2022

    

2021

    

2021

    

    

2023

    

2022

    

2022

    

Tangible Assets

 

  

 

  

 

  

 

  

 

  

 

  

Ending Assets (GAAP)

$

19,950,231

$

20,064,796

$

19,935,657

$

20,602,332

$

20,461,138

$

19,661,799

Less: Ending goodwill

 

925,211

 

935,560

 

935,560

 

925,211

 

925,211

 

925,211

Less: Ending amortizable intangibles

 

29,142

 

43,312

 

46,537

 

23,469

 

26,761

 

31,621

Ending tangible assets (non-GAAP)

$

18,995,878

$

19,085,924

$

18,953,560

$

19,653,652

$

19,509,166

$

18,704,967

Tangible Common Equity

 

  

 

  

 

  

 

  

 

  

 

  

Ending Equity (GAAP)

$

2,281,150

$

2,710,071

$

2,694,439

$

2,424,470

$

2,372,737

$

2,391,476

Less: Ending goodwill

 

925,211

 

935,560

 

935,560

 

925,211

 

925,211

 

925,211

Less: Ending amortizable intangibles

 

29,142

 

43,312

 

46,537

 

23,469

 

26,761

 

31,621

Less: Perpetual preferred stock

166,357

166,357

166,357

166,357

166,357

166,357

Ending tangible common equity (non-GAAP)

$

1,160,440

$

1,564,842

$

1,545,985

$

1,309,433

$

1,254,408

$

1,268,287

Average equity (GAAP)

$

2,436,999

$

2,715,610

$

2,718,032

$

2,460,741

$

2,321,208

$

2,445,045

Less: Average goodwill

 

925,211

 

935,560

 

935,560

 

925,211

 

925,211

 

935,446

Less: Average amortizable intangibles

 

30,347

 

44,866

 

48,179

 

23,748

 

27,909

 

38,707

Less: Average perpetual preferred stock

166,356

166,356

166,356

166,356

166,356

166,356

Average tangible common equity (non-GAAP)

$

1,315,085

$

1,568,828

$

1,567,937

$

1,345,426

$

1,201,732

$

1,304,536

Common equity to total assets (GAAP)

10.60

%  

12.68

%  

12.68

%  

10.96

%  

10.78

%  

11.32

%  

Tangible common equity to tangible assets (non-GAAP)

 

6.11

%

 

8.20

%

 

8.16

%

 

6.66

%

 

6.43

%

 

6.78

%

Book value per share (GAAP)

$

28.46

$

33.80

$

33.60

Book value per common share (GAAP)

$

30.31

$

29.68

$

29.95

Adjusted operating measures exclude, the losses related to balance sheet repositioningas applicable, expenses incurred in our strategic cost saving initiatives (principally composed of losses on debt extinguishment)severance charges related to headcount reductions and charges for exiting leases), gains or losses on sale of securities, gain on the sale of DHFB, as well asa legal reserve associated with an ongoing regulatory matter previously disclosed, strategic branch closingclosure initiatives and related facility consolidation costs (principally composed of real estate, leases and other assets write downs, as well as severance associated with branch closing and corporate expense reduction initiatives)., gain (loss) on sale of securities, as well as the gain on sale of DHFB. The Company believes these non-GAAP adjusted measures provide investors with important information about the continuing economic results of the organization’s operations. Prior periods in this Quarterly Report have been adjusted for previously announced branch closing and corporate expense reduction initiatives.

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

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

Six Months Ended

 

September 30, 

 

September 30, 

 

June 30, 

 

June 30, 

 

    

2022

    

2021

 

    

2022

    

2021

 

    

2023

    

2022

 

    

2023

    

2022

 

Adjusted Operating Earnings & EPS

Net income (GAAP)

$

58,070

$

74,565

$

163,986

$

216,138

$

55,241

$

62,226

$

90,894

$

105,916

Plus: Net loss related to balance sheet repositioning, net of tax

11,609

Less: (Loss) gain on sale of securities, net of tax

7

(2)

69

Plus: Strategic cost saving initiatives, net of tax

3,109

3,109

Plus: Legal reserve, net of tax

3,950

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

4,351

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

2

(2)

(10,584)

(2)

Less: Gain on sale of DHFB, net of tax

7,984

7,984

7,984

Plus: Branch closing and facility consolidation costs, net of tax

4,351

713

Adjusted operating earnings (non-GAAP)

$

58,070

$

74,558

$

160,355

$

228,391

$

58,348

$

54,244

$

108,537

$

102,285

Less: Dividends on preferred stock

2,967

2,967

8,901

8,901

2,967

2,967

5,934

5,934

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

$

55,103

$

71,591

$

151,454

$

219,490

$

55,381

$

51,277

$

102,603

$

96,351

Weighted average common shares outstanding, diluted

 

74,705,054

 

76,322,736

 

75,034,084

 

78,007,543

 

74,995,557

 

74,849,871

 

74,915,977

 

75,201,326

Earnings per common share, diluted (GAAP)

$

0.74

$

0.94

$

2.07

$

2.66

$

0.70

$

0.79

$

1.13

$

1.33

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

$

0.74

$

0.94

$

2.02

$

2.81

$

0.74

$

0.69

$

1.37

$

1.28

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Adjusted operating measures excludenoninterest expense excludes, as applicable, the amortization of intangibles, losses related to balance sheet repositioningintangible assets, expenses incurred in our strategic cost saving initiatives (principally composed of losses on debt extinguishment)severance charges related to headcount reductions and charges for exiting leases), gains or losses on sale of securities, as well asa legal reserve associated with an ongoing regulatory matter previously disclosed, strategic branch closingclosure initiatives and related facility consolidation costs (principally composed of real estate, leases and other assetsasset write downs, as well as severance associated with branch closing and corporate expense reduction initiatives)., while our adjusted operating noninterest income excludes, as applicable, gain (loss) on sale of securities and the gain on sale of DHFB. The Company believes thisthese adjusted measuremeasures provides investors with important information about the continuing economic results of the organization’s operations. Net interest income (FTE), which is used in computing net interest margin (FTE) provides valuable additional insight into the net interest margin by adjusting for differences in tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing yield on earning assets. Interest expense is 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

 

Six Months Ended

 

September 30, 

 

September 30, 

 

June 30, 

 

June 30, 

 

    

2022

    

2021

 

    

2022

    

2021

 

    

2023

    

2022

 

    

2023

    

2022

 

Adjusted Operating Noninterest Expense & Noninterest Income

Noninterest expense (GAAP)

$

99,923

$

95,343

$

304,012

$

299,251

$

105,661

$

98,768

$

213,934

$

204,089

Less: Amortization of intangible assets

 

2,480

 

3,381

 

8,434

 

10,679

 

2,216

 

2,915

 

4,494

 

5,954

Less: Losses related to balance sheet repositioning

14,695

Less: Branch closing and facility consolidation costs

5,508

902

Less: Strategic cost saving initiatives

3,935

3,935

Less: Legal reserve

5,000

Less: Strategic branch closing and facility consolidation costs

5,508

Adjusted operating noninterest expense (non-GAAP)

$

97,443

$

91,962

$

290,070

$

272,975

$

99,510

$

95,853

$

200,505

$

192,627

Noninterest income (GAAP)

$

25,584

$

29,938

$

94,023

$

89,388

$

24,197

$

38,286

$

33,824

$

68,439

Less: (Loss) gain on sale of securities

9

(2)

87

Less: Gain (loss) on sale of securities

2

(2)

(13,398)

(2)

Less: Gain on sale of DHFB

9,082

9,082

9,082

Adjusted operating noninterest income (non-GAAP)

$

25,584

$

29,929

$

84,943

$

89,301

$

24,195

$

29,206

$

47,222

$

59,359

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PPP adjustment impact excludes the unforgiven portion of PPP loans. The Company believes LHFI (net of deferred fees and costs), excluding PPP is useful to investors as it provides more clarity on the Company’s organic growth.

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

September 30,

December 31,

September 30,

September 30,

September 30,

2022

2021

2021

2022

2021

Adjusted Loans

Loans held for investment (net of deferred fees and costs)(GAAP)

$

13,918,720

$

13,195,843

$

13,139,586

$

13,918,720

$

13,139,586

Less: PPP adjustments (net of deferred fees and costs)

12,146

150,363

466,609

12,146

466,609

Total adjusted loans (non-GAAP)

$

13,906,574

$

13,045,480

$

12,672,977

$

13,906,574

$

12,672,977

Average loans held for investment (net of deferred fees and costs) (GAAP)

$

13,733,447

$

13,082,412

$

13,451,674

$

13,521,507

$

13,827,002

Less: Average PPP adjustments (net of deferred fees and costs)

14,280

288,204

687,259

53,246

1,059,130

Total adjusted average loans (non-GAAP)

$

13,719,167

$

12,794,208

$

12,764,415

$

13,468,261

$

12,767,872

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’s market risk is composed primarily of interest rate risk. The ALCO of the CompanyCompany’s asset liability management committee (“ALCO”) is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelinespolicies established by ALCO.

InterestThe Company monitors interest rate risk is monitored through the use of three complementary modeling tools: static gap analysis, earnings simulation modeling, and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk models has limitations, taken together, they represent a reasonably comprehensive view of the magnitude of the Company’s interest rate risk, in the Company, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. StaticThe Company’s static gap analysis, which measures aggregate re-pricing values, is utilized less utilizedoften because it does not effectively measuretake into account the options risk impact onoptionality embedded into many assets and liabilities and, therefore, the Company and isdoes not addressedaddress it here. EarningsThe Company uses 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 utilized by management on a regular basis and are explaineddiscussed below.

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

Earnings Simulation AnalysisModeling

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

AssumptionsThe Company derives the assumptions used in the model are derived from historical trends and management’s outlook, and includeincluding expected loan andgrowth, loan prepayment rates, deposit growth rates, changes to deposit product betas and non-maturity deposit decay rates, and projected yields and rates. These assumptions may not materializebe realized and unanticipated events and circumstances may occur.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. SuchThe Company’s ALCO monitors the assumptions are monitored by managementat least quarterly and periodically adjustedadjusts them as deemed appropriate. AllIn the modeling, the Company assumed that all maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments.instruments, and the Company based the MBS prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning.

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Different The Company also used different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the primeshort-term market rate changes and these differences are reflected in the different rate scenarios.Deposit betas, decay rates and loan prepayment speeds are adjusted periodically in the Company’s models for non-maturity deposits and loans.

The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates and futures curves. The analysis assesses the impact on net interest income over a 12-month time horizon 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 net interest income for the Company across the rate paths modeled for balances as of SeptemberJune 30, 2022,2023, December 31, 2021,2022, and SeptemberJune 30, 2021:2022:

Change In Net Interest Income

Change In Net Interest Income

September 30, 

December 31, 

September 30, 

June 30,

December 31, 

June 30,

2022

2021

2021

2023

2022

2022

    

%

    

%

    

%

    

    

%

    

%

    

%

Change in Yield Curve:

 

  

 

  

  

 

 

  

 

  

  

+300 basis points

 

16.70

 

30.15

22.43

 

7.47

 

11.73

19.04

+200 basis points

 

11.05

 

20.39

14.90

 

5.25

 

8.25

12.81

+100 basis points

 

5.54

 

10.33

7.26

 

2.89

 

4.65

6.54

Most likely rate scenario

 

 

 

 

-100 basis points

 

(4.99)

 

(9.20)

(6.50)

 

(2.94)

 

(3.18)

(7.33)

-200 basis points

 

(10.10)

 

(13.62)

(7.73)

 

(7.34)

 

(7.40)

(16.45)

-300 basis points

(14.07)

(12.21)

(26.50)


Asset sensitivity indicates thatIf 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, the Company’sand 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 increase and in a decreasing interest rate environment, the Company’s net interest income would decrease. Liability sensitivity indicates thatbe expected to decrease in a rising interest rate environment the Company’s net interest income would decrease and increase in a decreasingfalling interest rate environment, the Company’s net interest income would increase.environment.

From a net interest income perspective, the Company was less asset sensitive as of SeptemberJune 30, 2022,2023, compared to its position as of SeptemberJune 30, 2021.2022. This shift is 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 would expect net interest income to increase with an immediate increase or shock in market rates. In the decreasing interest rate environments, the Company would expect a decline in net interest income as interest-earning assets re-price at lower rates andmore quickly than interest-bearing deposits remain at or near their floors.deposits.

Economic Value SimulationModeling

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

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The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly periods ended SeptemberJune 30, 2022,2023, December 31, 2021,2022, and SeptemberJune 30, 2021:2022:

Change In Economic Value of Equity

Change In Economic Value of Equity

September 30, 

December 31, 

September 30, 

June 30,

December 31, 

June 30,

2022

2021

2021

2023

2022

2022

    

%

    

%

    

%

    

    

%

    

%

    

%

Change in Yield Curve:

 

  

  

  

 

  

  

  

+300 basis points

 

(6.21)

(6.85)

5.80

 

(10.85)

(12.32)

(8.07)

+200 basis points

 

(4.44)

(3.55)

4.86

 

(7.46)

(8.41)

(5.43)

+100 basis points

 

(2.49)

(1.22)

3.20

 

(3.86)

(4.25)

(2.07)

Most likely rate scenario

 

 

-100 basis points

 

1.29

(4.82)

(6.13)

 

1.56

3.55

0.97

-200 basis points

 

1.95

(12.89)

(7.92)

 

2.46

6.41

(2.45)

-300 basis points

(0.27)

5.71

(11.10)

As of SeptemberJune 30, 2022,2023, the Company’s economic value of equity is generally less asset sensitive in a rising interest rate environment compared to its position as of SeptemberJune 30, 20212022 primarily due to the composition of the Consolidated Balance Sheets and due in part to the pricing characteristics and assumptions of certain deposits.

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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 SeptemberJune 30, 2022.2023. 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 SeptemberJune 30, 2022,2023, 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 maintain the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended SeptemberJune 30, 2022.2023. There have been no changes during the quarter ended SeptemberJune 30, 20222023 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the ordinary course of itsour operations, the Company and its subsidiarieswe are partiesparty to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company, subject to the potential outcomes of the matter discussed below.

As previously disclosed, proceedings. There have been no material changeson February 9, 2022, pursuant to the CFPB’s Notice and Opportunity to Respond and Advise process, the CFPB Office of Enforcement notified us that it is considering recommending that the CFPB take legal action against us 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 our overdraft practices and policies.  In March 2023, the CFPB commenced settlement discussions with us to resolve the matter, which are ongoing. We 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. Any final loss could be materially different from our current estimate and accrued amount. If the Company’s previously disclosed proceedings.Company and the CFPB do not reach a settlement, the CFPB may commence litigation against the Company. See Note 7, “Commitments and Contingencies” in the “Notes to the Consolidated Financial Statements” in Part I, Item I of this Form 10-Q for additional information.

ITEM 1A – RISK FACTORS

DuringExcept as described below, and as set forth in Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022,March 31, 2023, filed with the SEC on May 4, 2023, and incorporated herein by reference, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in the Company’s 2021our 2022 Form 10-K.

An investment in the Company’sour securities involves risks. In addition to the other information set forth in this Quarterly Report, including the information addressed in this Item 1A and under “Forward-Looking Statements,” investors in the Company’sour securities should carefully consider the risk factors discussed in our 2022 Form 10-K and Quarterly Report on Form 10-Q for the Company’s 2021 Form 10-K.quarter ended March 31, 2023. These factors could materially and adversely affect the Company’sour business, financial condition, liquidity, results of operations, and capital position and could cause the Company’sour actual results to differ materially from itsour historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’sour securities could decline.

Risks Related to the Proposed Merger with American National

Failure to complete the merger could negatively impact us.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger.  If the merger is not completed for any reason, there may be various adverse consequences and we may experience negative reactions from the financial markets and from our customers and employees. For example, our business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of our management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of our common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. We also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against us to perform our obligations under the merger agreement.

Additionally, we have incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement. If the merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the merger.

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

Before the merger and the bank merger may be completed, various approvals, consents and non-objections must be obtained from bank regulatory authorities, including the Federal Reserve. In determining whether to grant these approvals, the

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regulators consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political or regulatory environment generally.

The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. The completion of the merger is conditioned on the receipt of the requisite regulatory approvals without the imposition of any materially financially burdensome regulatory condition and the expiration of all statutory waiting periods. Additionally, the completion of the merger is conditioned on the absence of certain laws, orders, injunctions or decrees issued by any court or governmental entity of competent jurisdiction that would prevent, prohibit or make illegal the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement.

If the consummation of the merger is delayed, including by a delay in receipt of necessary regulatory approvals, our business, financial condition and results of operations may be adversely affected.

Combining the Company and American National may be more difficult, costly or time consuming than expected and we may fail to realize the anticipated benefits and cost savings of the merger.

The success of the merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses of the Company and American National. To realize the anticipated benefits and cost savings from the merger, the Company and American National must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If the Company and American National are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the merger could be less than anticipated, and integration may result in additional unforeseen expenses.

An inability to realize the full extent of the anticipated benefits of the merger and the other transactions contemplated by the merger agreement, as well as any delays encountered in the integration process, could have an adverse effect on the revenues, levels of expenses and operating results of the combined company following the completion of the merger, which may adversely affect the value of the common stock of the combined company following the completion of the merger.

The Company and American National have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect each company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts may also divert management attention during this transition period and for an undetermined period after completion of the merger, which may have an adverse effect on the combined company.

The current rising interest rate environment may adversely impact the fair value adjustments of investments and loans acquired in the merger.

Upon the closing of the merger, the combined company will need to adjust the fair value of American National’s investment and loan portfolios. The rising interest rate environment could have the effect of increasing the magnitude of the purchase accounting marks relating to such fair value adjustments, thereby increasing initial tangible book value dilution, extending the tangible book value earn-back period, and negatively impacting the combined company’s capital ratios, after consummation of the merger.

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Shareholder litigation could prevent or delay the completion of the merger or otherwise negatively impact our business, financial condition and results of operations.

Shareholders of the Company and/or American National may file lawsuits against the Company, American National and/or the directors and officers of either company in connection with the merger. One of the conditions to the closing is that no law order, injunction or decree issued by any court or governmental entity of competent jurisdiction would prevent, prohibit or make illegal the completion of the merger, the bank merger or any of the other transactions contemplated by the merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting the Company or American National from completing the merger, the bank merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to the Company, including any cost associated with the indemnification of our directors and officers. We may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the merger. Shareholder lawsuits may divert management attention from management of our business or operations. Such litigation could have an adverse effect on our business, financial condition and results of operations and could prevent or delay the completion of the merger.

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

(a) Sales of Unregistered Securities – None

(b) Use of Proceeds – Not Applicable.Applicable

(c) Issuer Purchases of Securities 

Stock Repurchase Program; Other Repurchases

On December 10, 2021,As of June 30, 2023, the Company’s Board of DirectorsCompany does not have an authorized a share repurchase program (the “Repurchase Program”) to purchase up to $100.0 million of the Company’s common stock through December 9, 2022 in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and /or Rule 10b-18 under the Exchange Act. The Repurchase Program permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the Repurchase Program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. The Repurchase Program does not obligate the Company to purchase any particular number of shares.program.

The following information describes the Company’s common stock repurchases for the three months ended SeptemberJune 30, 2022:2023:

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, 2022

2,098

34.19

51,767,983

August 1 - August 31, 2022

824

33.88

51,767,983

September 1 - September 30, 2022

1,471

33.67

51,767,983

April 1 - April 30, 2023

421

34.05

May 1 - May 31, 2023

893

25.32

June 1 - June 30, 2023

1,671

26.97

Total

4,393

33.96

2,985

27.48

_________________________________________

(1)For the three months ended SeptemberJune 30, 2022, 4,3932023, 2,985 shares were withheld upon vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations.

ITEM 5 – OTHER INFORMATION

During the three months ended June 30, 2023, 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, 2019 (incorporated by reference to Exhibit 3.3 to Annual Report on Form 10-K filed on February 25, 2020).

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 SeptemberJune 30, 2023 30, 2022 pursuant to Rule 405 of Regulation S-T (1):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’s Quarterly Report on Form 10-Q for the quarter ended September June 30, 202330, 2022,, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).

*  Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. 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: NovemberAugust 3 2022, 2023

By:

/s/ John C. Asbury

John C. Asbury,

President and Chief Executive Officer

(principal executive officer)

Date: NovemberAugust 3 2022, 2023

By:

/s/ Robert M. Gorman

Robert M. Gorman,

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

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