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 March 31, 2023

OR

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

Commission File Number: 001-39325

ATLANTIC UNION BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)


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

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 New York Stock Exchange
Depositary Shares, Each Representing a 1/400^th Interest in a Share of 6.875% Perpetual Non-Cumulative Preferred Stock, Series A	AUB.PRA	The New York Stock Exchange

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

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

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


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

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

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


	Yes ☐ No ☒

The number of shares of common stock outstanding as of April 27, 2023 was 74,994,600.

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX


ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 (audited)	2

	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2023 and 2022	3

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2023 and 2022	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2023 and 2022	5

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2023 and 2022	6

	Notes to Consolidated Financial Statements (unaudited)	8

	Report of Independent Registered Public Accounting Firm	51

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	76

Item 4.	Controls and Procedures	78

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	80

Item 1A.	Risk Factors	80

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

Item 6.	Exhibits	81

	Signatures	83

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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.


2022 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, 2022
ACL	–	Allowance for credit losses
AFS	–	Available for sale
ALLL	–	Allowance for loan and lease losses, a component of ACL
AOCI	–	Accumulated other comprehensive income (loss)
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
AUB	–	Atlantic Union Bankshares Corporation
the Bank	–	Atlantic Union Bank
BOLI	–	Bank-owned life insurance
bps	–	Basis points
BTFP	–	Bank Term Funding Program
CECL	–	Current expected credit losses
CFPB	–	Consumer Financial Protection Bureau
the Company	–	Atlantic Union Bankshares Corporation and its subsidiaries
depositary shares	–	Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share)
DHFB	–	Dixon, Hubard, Feinour & Brown, Inc.
EPS	–	Earnings per common share
Exchange Act	–	Securities Exchange Act of 1934, as amended
FASB	–	Financial Accounting Standards Board
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
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 Market 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
GAAP	–	Accounting principles generally accepted in the United States
GNMA	–	Government National Mortgage Association
HTM	–	Held to maturity
ICE	–	Intercontinental Exchange Data Services
LHFI	–	Loans held for investment
LHFS	–	Loans held for sale
LIBOR	–	London Interbank Offered Rate
MBS	–	Mortgage-Backed Securities
MFC	–	Middleburg Financial Corporation
NPA	–	Nonperforming assets
NYSE	–	New York Stock Exchange
OCI	–	Other comprehensive (loss) income
OREO	–	Other real estate owned
PD/LGD	–	Probability of default/loss given default

Table of Contents

ROU asset	–	Right of Use Asset
RPAs	–	Risk Participation Agreements
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
TLM	–	Troubled loan modification
TDR	–	Troubled debt restructuring
VFG	–	Virginia Financial Group, Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2023 AND DECEMBER 31, 2022

(Dollars in thousands, except share data)


	March 31,		December 31,
	2023		2022
ASSETS		(unaudited)		(audited)
Cash and cash equivalents:
Cash and due from banks	$	187,106	$	216,384
Interest-bearing deposits in other banks		184,371		102,107
Federal funds sold		719		1,457
Total cash and cash equivalents		372,196		319,948
Securities available for sale, at fair value		2,252,365		2,741,816
Securities held to maturity, at carrying value		855,418		847,732
Restricted stock, at cost		87,616		120,213
Loans held for sale		14,213		3,936
Loans held for investment, net of deferred fees and costs		14,584,280		14,449,142
Less: allowance for loan and lease losses		116,512		110,768
Total loans held for investment, net		14,467,768		14,338,374
Premises and equipment, net		116,466		118,243
Goodwill		925,211		925,211
Amortizable intangibles, net		24,482		26,761
Bank owned life insurance		443,537		440,656
Other assets		544,098		578,248
Total assets	$	20,103,370	$	20,461,138
LIABILITIES
Noninterest-bearing demand deposits	$	4,578,009	$	4,883,239
Interest-bearing deposits		11,877,901		11,048,438
Total deposits		16,455,910		15,931,677
Securities sold under agreements to repurchase		163,760		142,837
Other short-term borrowings		245,000		1,176,000
Long-term borrowings		390,150		389,863
Other liabilities		408,314		448,024
Total liabilities		17,663,134		18,088,401
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock, $10.00 par value		173		173
Common stock, $1.33 par value		99,072		98,873
Additional paid-in capital		1,773,118		1,772,440
Retained earnings		929,806		919,537
Accumulated other comprehensive loss		(361,933)		(418,286)
Total stockholders' equity		2,440,236		2,372,737
Total liabilities and stockholders' equity	$	20,103,370	$	20,461,138

Common shares outstanding		74,989,228		74,712,622
Common shares authorized		200,000,000		200,000,000
Preferred shares outstanding		17,250		17,250
Preferred shares authorized		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 MONTHS ENDED MARCH 31, 2023 AND 2022

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


	Three Months Ended
	March 31,		March 31,
	2023		2022
Interest and dividend income:
Interest and fees on loans	$	189,992	$	114,200
Interest on deposits in other banks		1,493		131
Interest and dividends on securities:
Taxable		16,753		13,666
Nontaxable		9,308		10,459
Total interest and dividend income		217,546		138,456
Interest expense:
Interest on deposits		51,834		4,483
Interest on short-term borrowings		7,563		21
Interest on long-term borrowings		4,706		3,021
Total interest expense		64,103		7,525
Net interest income		153,443		130,931
Provision for credit losses		11,850		2,800
Net interest income after provision for credit losses		141,593		128,131
Noninterest income:
Service charges on deposit accounts		7,902		7,596
Other service charges, commissions and fees		1,746		1,655
Interchange fees		2,325		1,810
Fiduciary and asset management fees		4,262		7,255
Mortgage banking income		854		3,117
Loss on sale of securities		(13,400)		—
Bank owned life insurance income		2,828		2,697
Loan-related interest rate swap fees		1,439		3,860
Other operating income		1,672		2,163
Total noninterest income		9,628		30,153
Noninterest expenses:
Salaries and benefits		60,529		58,298
Occupancy expenses		6,356		6,883
Furniture and equipment expenses		3,752		3,597
Technology and data processing		8,142		7,796
Professional services		3,413		4,090
Marketing and advertising expense		2,351		2,163
FDIC assessment premiums and other insurance		3,899		2,485
Franchise and other taxes		4,498		4,499
Loan-related expenses		1,552		1,776
Amortization of intangible assets		2,279		3,039
Other expenses		11,503		10,695
Total noninterest expenses		108,274		105,321
Income from continuing operations before income taxes		42,947		52,963
Income tax expense		7,294		9,273
Net income		35,653		43,690
Dividends on preferred stock		2,967		2,967
Net income available to common shareholders	$	32,686	$	40,723

Basic earnings per common share	$	0.44	$	0.54
Diluted earnings per common share	$	0.44	$	0.54
Dividends declared per common share	$	0.30	$	0.28
Basic weighted average number of common shares outstanding		74,832,141		75,544,644
Diluted weighted average number of common shares outstanding		74,835,514		75,556,127

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Dollars in thousands)


	Three Months Ended
	March 31,
	2023		2022
Net income	$	35,653	$	43,690
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges (net of tax, $3,645 and $6,197 for the three months ended March 31, 2023 and 2022, respectively)		13,714		(23,313)
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $8,525 and $49,700 for the three months ended March 31, 2023 and 2022, respectively)		32,068		(186,967)
Reclassification adjustment for losses included in net income (net of tax, $2,814 and $0 for the three months ended March 31, 2023 and 2022, respectively) ⁽¹⁾		10,586		—
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 ended March 31, 2023 and 2022, respectively) ⁽²⁾		(3)		(5)
Bank owned life insurance:
Unrealized holding gains arising during the period		10		—
Reclassification adjustment for losses included in net income ⁽³⁾		(22)		167
Other comprehensive income (loss):		56,353		(210,118)
Comprehensive income (loss)	$	92,006	$	(166,428)

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

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

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

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

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

Accumulated

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2022

98,873

173

1,772,440

919,537

(418,286)

2,372,737

Net Income

35,653

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

56,353

Dividends on common stock ($0.30 per share)

(22,417)

Dividends on preferred stock ($171.88 per share)

(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

Balance - March 31, 2023

99,072

173

1,773,118

929,806

(361,933)

2,440,236



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

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Dollars in thousands)


	2023		2022
Operating activities:
Net income	$	35,653	$	43,690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		3,427		3,599
Writedown of ROU assets, foreclosed properties and equipment		112		4,570
Amortization, net		6,417		8,619
Amortization related to acquisitions, net		1,288		875
Provision for credit losses		11,850		2,800
Losses on securities transactions		13,400		—
BOLI income		(2,828)		(2,697)
Originations and purchases of LHFS		(286,526)		(91,957)
Proceeds from sales of LHFS		283,316		91,434
Stock-based compensation expenses		2,332		2,409
Issuance of common stock for services		187		217
Net decrease in other assets		18,840		46,434
Net (decrease) increase in other liabilities		(27,901)		1,454
Net cash provided by operating activities		59,567		111,447
Investing activities:
Purchases of AFS securities, restricted stock, and other investments		(45,633)		(62,773)
Purchases of HTM securities		(13,826)		(130,533)
Proceeds from sales of AFS securities and restricted stock		558,466		—
Proceeds from maturities, calls and paydowns of AFS securities		47,338		109,974
Proceeds from maturities, calls and paydowns of HTM securities		5,218		550
Net increase in LHFI		(145,260)		(258,502)
Net increase in premises and equipment		(1,624)		(797)
Proceeds from BOLI settlements		353		2,068
Proceeds from sales of foreclosed properties and former bank premises		533		—
Net cash provided by (used in) investing activities		405,565		(340,013)
Financing activities:
Net (decrease) increase in noninterest-bearing deposits		(305,230)		162,739
Net increase (decrease) in interest-bearing deposits		829,449		(289,594)
Net decrease in short-term borrowings		(910,077)		(2,843)
Cash dividends paid - common stock		(22,417)		(21,163)
Cash dividends paid - preferred stock		(2,967)		(2,967)
Repurchase of common stock		—		(25,018)
Issuance of common stock		474		3,804
Vesting of restricted stock, net of shares held for taxes		(2,116)		(2,590)
Net cash used in financing activities		(412,884)		(177,632)
Increase (decrease) in cash and cash equivalents		52,248		(406,198)
Cash, cash equivalents and restricted cash at beginning of the period		319,948		802,501
Cash, cash equivalents and restricted cash at end of the period	$	372,196	$	396,303

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Dollars in thousands)


	2023		2022
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	58,678	$	5,393

Supplemental schedule of noncash investing and financing activities
Transfer from LHFI to LHFS		7,087		—

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (NYSE: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank had 109 branches and approximately 125 ATMs located throughout Virginia, and in portions of Maryland and North Carolina as of March 31, 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.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by 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 2022 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 ASC 848, Reference Rate Reform. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. ASC 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASC 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective as of March 12, 2020 through December 31, 2024 and can be adopted at an instrument level. The Company has elected the practical expedients provided in ASC 848 related to (1) accounting for contract modifications on its loans and securities tied to LIBOR and (2) asserting probability of the hedged item occurring, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. The Company

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may incorporate other components of ASC 848 at a later date. This amendment did not have a significant impact on the Company’s consolidated financial statements.

Loan Modifications

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

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

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

Accrued Interest Receivable

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $60.7 million and $58.9 million on LHFI, $6.8 million and $8.6 million on HTM securities, and $9.4 million and $14.2 million on AFS securities at March 31, 2023 and December 31, 2022, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. The Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended March 31, 2023 and March 31, 2022, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

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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 March 31, 2023 and December 31, 2022.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of March 31, 2023 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Cost

Gains

(Losses)

Fair Value

March 31, 2023

U.S. government and agency securities

69,474

—

(6,900)

62,574

Obligations of states and political subdivisions

650,328

(127,251)

523,097

Corporate and other bonds ⁽¹⁾

171,899

—

(19,893)

152,006

Commercial MBS

Agency

220,617

156

(37,729)

183,044

Non-agency

80,239

—

(2,636)

77,603

Total commercial MBS

300,856

156

(40,365)

260,647

Residential MBS

Agency

1,394,464

(207,355)

1,187,166

Non-agency

71,552

—

(6,358)

65,194

Total residential MBS

1,466,016

(213,713)

1,252,360

Other securities

1,681

—

1,681

Total AFS securities

2,660,254

233

(408,122)

2,252,365

⁽¹⁾ Other bonds include asset-backed securities.

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


	Amortized		Gross Unrealized				Estimated
	Cost		Gains		(Losses)		Fair Value
December 31, 2022
U.S. government and agency securities	$	70,196	$	—	$	(8,253)	$	61,943
Obligations of states and political subdivisions		959,999		137		(152,701)		807,435
Corporate and other bonds ⁽¹⁾		243,979		—		(17,599)		226,380
Commercial MBS
Agency		250,186		75		(39,268)		210,993
Non-agency		99,412		—		(4,244)		95,168
Total commercial MBS		349,598		75		(43,512)		306,161
Residential MBS
Agency		1,510,110		81		(233,961)		1,276,230
Non-agency		68,815		—		(6,812)		62,003
Total residential MBS		1,578,925		81		(240,773)		1,338,233
Other securities		1,664		—		—		1,664
Total AFS securities	$	3,204,361	$	293	$	(462,838)	$	2,741,816

⁽¹⁾ Other bonds include asset-backed securities.

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The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses. 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
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value⁽²⁾		Losses		Value		Losses
March 31, 2023
U.S. government and agency securities	$	—	$	—	$	62,541	$	(6,900)	$	62,541	$	(6,900)
Obligations of states and political subdivisions		25,482		(1,225)		490,011		(126,026)		515,493		(127,251)
Corporate and other bonds⁽¹⁾		62,443		(3,586)		87,163		(16,307)		149,606		(19,893)
Commercial MBS
Agency		21,945		(3,119)		150,711		(34,610)		172,656		(37,729)
Non-agency		—		—		77,603		(2,636)		77,603		(2,636)
Total commercial MBS		21,945		(3,119)		228,314		(37,246)		250,259		(40,365)
Residential MBS
Agency		110,848		(5,385)		1,061,695		(201,971)		1,172,543		(207,356)
Non-agency		14,615		(138)		50,580		(6,219)		65,195		(6,357)
Total residential MBS		125,463		(5,523)		1,112,275		(208,190)		1,237,738		(213,713)
Total AFS securities	$	235,333	$	(13,453)	$	1,980,304	$	(394,669)	$	2,215,637	$	(408,122)

December 31, 2022
U.S. government and agency securities	$	2,594	$	(166)	$	59,269	$	(8,087)	$	61,863	$	(8,253)
Obligations of states and political subdivisions		588,668		(86,895)		187,375		(65,806)		776,043		(152,701)
Corporate and other bonds⁽¹⁾		206,861		(15,019)		17,121		(2,580)		223,982		(17,599)
Commercial MBS
Agency		73,362		(7,024)		127,193		(32,244)		200,555		(39,268)
Non-agency		66,618		(2,231)		28,550		(2,013)		95,168		(4,244)
Total commercial MBS		139,980		(9,255)		155,743		(34,257)		295,723		(43,512)
Residential MBS
Agency		328,590		(27,769)		929,581		(206,192)		1,258,171		(233,961)
Non-agency		18,939		(1,288)		43,064		(5,524)		62,003		(6,812)
Total residential MBS		347,529		(29,057)		972,645		(211,716)		1,320,174		(240,773)
Total AFS securities	$	1,285,632	$	(140,392)	$	1,392,153	$	(322,446)	$	2,677,785	$	(462,838)

⁽¹⁾ Other bonds include asset-backed securities.

⁽²⁾ Comprised of 752 and 363 individual securities as of March 31, 2023 and December 31, 2022, respectively.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at March 31, 2023 and December 31, 2022 and concluded no impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

Additionally, the majority of the Company’s MBS are issued by FNMA, FHLMC, and GNMA and do not have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a 20% simplified supervisory formula approach rating.

In 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 provides the Company with improved liquidity, enhanced tangible common equity, and additional run rate earnings.

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The following table presents the amortized cost and estimated fair value of AFS securities as of March 31, 2023 and December 31, 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.


	March 31, 2023				December 31, 2022
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	52,594	$	51,912	$	42,447	$	41,735
Due after one year through five years		122,772		113,380		158,063		152,523
Due after five years through ten years		204,347		180,610		343,303		312,935
Due after ten years		2,280,541		1,906,463		2,660,548		2,234,623
Total AFS securities	$	2,660,254	$	2,252,365	$	3,204,361	$	2,741,816

Refer to Note 7 "Commitments and Contingencies" within this Item 1 of this Quarterly Report for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of March 31, 2023 and December 31, 2022.

Held to Maturity

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

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

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of March 31, 2023 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

Value

Gains

(Losses)

Fair Value

March 31, 2023

U.S. government and agency securities

684

—

(50)

634

Obligations of states and political subdivisions

702,749

6,078

(26,903)

681,924

Corporate and other bonds⁽¹⁾

5,033

—

(37)

4,996

Commercial MBS

Agency

28,925

—

(4,953)

23,972

Non-agency

27,068

(224)

26,901

Total commercial MBS

55,993

(5,177)

50,873

Residential MBS

Agency

42,302

—

(5,606)

36,696

Non-agency

48,657

(732)

47,976

Total residential MBS

90,959

(6,338)

84,672

Total HTM securities

855,418

6,186

(38,505)

823,099

⁽¹⁾ Other bonds include asset-backed securities.

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


	Carrying		Gross Unrealized				Estimated
	Value		Gains		(Losses)		Fair Value
December 31, 2022
U.S. government and agency securities	$	687	$	—	$	(56)	$	631
Obligations of states and political subdivisions		705,990		2,218		(35,957)		672,251
Corporate and other bonds⁽¹⁾		5,159		—		(10)		5,149
Commercial MBS
Agency		29,025		—		(4,873)		24,152
Non-agency		13,736		—		(126)		13,610
Total commercial MBS		42,761		—		(4,999)		37,762
Residential MBS
Agency		42,699		—		(6,427)		36,272
Non-agency		50,436		—		(614)		49,822
Total residential MBS		93,135		—		(7,041)		86,094
Total HTM securities	$	847,732	$	2,218	$	(48,063)	$	801,887

⁽¹⁾ Other bonds include asset-backed securities.

Credit Quality Indicators & Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was insignificant at March 31, 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.

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


	U.S. Government and Agency		Obligations of states and political		Corporate and other		Mortgage-backed		Total HTM
	securities		subdivisions		bonds		securities		securities
March 31, 2023
Credit Rating:
AAA/AA/A	$	—	$	701,567	$	—	$	10,211	$	711,778
BBB/BB/B		—		1,182		—		—		1,182
Not Rated - Agency⁽¹⁾		684		—		—		71,227		71,911
Not Rated - Non-Agency⁽²⁾		—		—		5,033		65,514		70,547
Total	$	684	$	702,749	$	5,033	$	146,952	$	855,418
December 31, 2022
Credit Rating:
AAA/AA/A	$	—	$	704,803	$	—	$	2,702	$	707,505
BBB/BB/B		—		1,187		—		—		1,187
Not Rated - Agency⁽¹⁾		687		—		—		71,725		72,412
Not Rated - Non-Agency⁽²⁾		—		—		5,159		61,469		66,628
Total	$	687	$	705,990	$	5,159	$	135,896	$	847,732

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

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

The following table presents the amortized cost and estimated fair value of HTM securities as of March 31, 2023 and December 31, 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.


	March 31, 2023				December 31, 2022
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Due in one year or less	$	2,051	$	2,044	$	2,010	$	2,006
Due after one year through five years		36,675		36,745		35,044		35,014
Due after five years through ten years		28,128		28,355		19,941		20,239
Due after ten years		788,564		755,955		790,737		744,628
Total HTM securities	$	855,418	$	823,099	$	847,732	$	801,887

Refer to Note 7 "Commitments and Contingencies" within this Item 1 of this Quarterly Report for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of March 31, 2023 and December 31, 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. At March 31, 2023 and December 31, 2022, restricted stock consists of FRB stock in the amount of $67.0 million, respectively, and FHLB stock in the amount of $20.6 million and $53.2 million, respectively.

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


	Three Months Ended		Three Months Ended
	March 31, 2023		March 31, 2022
Realized (losses) gains⁽¹⁾:
Gross realized gains	$	1,346	$	—
Gross realized losses		(14,746)		—
Net realized losses	$	(13,400)	$	—

Proceeds from sales of securities	$	558,466	$	—

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

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3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

During the first quarter of 2023, the Company transferred a nonaccrual commercial real estate loan, totaling $7.1 million, from LHFI to LHFS. The following tables exclude LHFS.

The Company’s LHFI are stated at their face amount, net of deferred fees and costs, and consisted of the following at March 31, 2023 and December 31, 2022 (dollars in thousands):


	March 31, 2023		December 31, 2022
Construction and Land Development	$	1,179,872	$	1,101,260
Commercial Real Estate - Owner Occupied		1,956,585		1,982,608
Commercial Real Estate - Non-Owner Occupied		3,968,085		3,996,130
Multifamily Real Estate		822,006		802,923
Commercial & Industrial		3,082,478		2,983,349
Residential 1-4 Family - Commercial		522,760		538,063
Residential 1-4 Family - Consumer		974,511		940,275
Residential 1-4 Family - Revolving		589,791		585,184
Auto		600,658		592,976
Consumer		145,090		152,545
Other Commercial		742,444		773,829
Total LHFI, net of deferred fees and costs⁽¹⁾		14,584,280		14,449,142
Allowance for loan and lease losses		(116,512)		(110,768)
Total LHFI, net	$	14,467,768	$	14,338,374

⁽¹⁾ Total loans included unamortized premiums and discounts, and unamortized deferred fees and costs totaling $47.3 million and $50.4 million as of March 31, 2023 and December 31, 2022, respectively.

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

Greater than

30-59 Days

60-89 Days

90 Days and

Current

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

1,178,445

815

—

249

363

1,179,872

Commercial Real Estate - Owner Occupied

1,945,229

2,251

798

2,133

6,174

1,956,585

Commercial Real Estate - Non-Owner Occupied

3,965,520

—

1,032

1,481

3,968,085

Multifamily Real Estate

822,006

—

822,006

Commercial & Industrial

3,075,988

981

633

4,815

3,082,478

Residential 1-4 Family - Commercial

518,951

1,399

271

232

1,907

522,760

Residential 1-4 Family - Consumer

951,375

11,579

158

859

10,540

974,511

Residential 1-4 Family - Revolving

582,123

1,384

1,069

1,766

3,449

589,791

Auto

597,853

2,026

295

137

347

600,658

Consumer

144,476

295

176

137

145,090

Other Commercial

742,378

—

742,444

Total LHFI, net of deferred fees and costs

14,524,344

20,782

2,828

7,244

29,082

14,584,280

% of total loans

99.59

0.14

0.02

0.05

0.20

100.00

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The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2022 (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	$	1,099,555		$	1,253		$	45		$	100		$	307		$	1,101,260
Commercial Real Estate - Owner Occupied		1,970,323			2,305			635			2,167			7,178			1,982,608
Commercial Real Estate - Non-Owner Occupied		3,993,091			1,121			48			607			1,263			3,996,130
Multifamily Real Estate		801,694			1,229			—			—			—			802,923
Commercial & Industrial		2,980,008			824			174			459			1,884			2,983,349
Residential 1-4 Family - Commercial		534,653			1,231			—			275			1,904			538,063
Residential 1-4 Family - Consumer		919,833			5,951			1,690			1,955			10,846			940,275
Residential 1-4 Family - Revolving		577,993			1,843			511			1,384			3,453			585,184
Auto		589,235			2,747			450			344			200			592,976
Consumer		151,958			351			125			108			3			152,545
Other Commercial		773,738			—			—			91			—			773,829
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		99.60	%		0.13	%		0.03	%		0.05	%		0.19	%		100.00	%

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 March 31, 2023 (dollars in thousands):



	Nonaccrual		Nonaccrual With No ALLL		90 Days Past due and still Accruing
Construction and Land Development	$	363	$	—	$	249
Commercial Real Estate - Owner Occupied		6,174		3,451		2,133
Commercial Real Estate - Non-Owner Occupied		1,481		—		1,032
Commercial & Industrial		4,815		2,647		633
Residential 1-4 Family - Commercial		1,907		—		232
Residential 1-4 Family - Consumer		10,540		—		859
Residential 1-4 Family - Revolving		3,449		—		1,766
Auto		347		—		137
Consumer		6		—		137
Other Commercial		—		—		66
Total LHFI	$	29,082	$	6,098	$	7,244

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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 December 31, 2022 (dollars in thousands):



	Nonaccrual		Nonaccrual With No ALLL		90 Days Past due and still Accruing
Construction and Land Development	$	307	$	—	$	100
Commercial Real Estate - Owner Occupied		7,178		908		2,167
Commercial Real Estate - Non-Owner Occupied		1,263		—		607
Commercial & Industrial		1,884		1		459
Residential 1-4 Family - Commercial		1,904		—		275
Residential 1-4 Family - Consumer		10,846		—		1,955
Residential 1-4 Family - Revolving		3,453		—		1,384
Auto		200		—		344
Consumer		3		—		108
Other Commercial		—		—		91
Total LHFI	$	27,038	$	909	$	7,490

There was no interest income recognized on nonaccrual loans during the three months ended March 31, 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.

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Troubled Loan Modifications

The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. See Note 1 “Summary of Significant Accounting Policies” within this 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 March 31, 2023, the Company had TLMs with an amortized cost basis of $20.5 million with an estimated $296,000 of allowance for those loans. As of March 31, 2023, unfunded commitments on loans modified and designated as TLMs since January 1, 2023 totaled $4.4 million. For the three months ended March 31, 2023, the change in the recorded investment in TLMs due to modifications was not significant.

The following table shows by class and modification type, the amortized cost basis of TLMs as of March 31, 2023 since January 1, 2023 (dollars in thousands):


	As of March 31, 2023
	Amortized Cost		% of Total Class of Financing Receivable
Term Extension
Construction and Land Development	$	1,344	0.11	%
Commercial Real Estate - Non-Owner Occupied		18,792	0.47	%
Residential 1-4 Family - Consumer		168	0.02	%
Total Term Extension	$	20,304
Combination - Term Extension and Interest Rate Reduction
Residential 1-4 Family - Consumer	$	237	0.02	%
Total Combination - Term Extension and Interest Rate Reduction	$	237
Total	$	20,541

The following table describes the financial effects of TLMs on a weighted average basis for TLMs within that loan type for the quarter ended March 31, 2023:


Term Extension
Loan Type				Financial Effect
Construction and Land Development				Added a weighted-average 0.5 years to the life of loans.
Commercial Real Estate - Non-Owner Occupied				Added a weighted-average 0.5 years to the life of loans.
Residential 1-4 Family - Consumer				Added a weighted-average 18.2 years to the life of loans.

Combination - Term Extension and Interest Rate Reduction
Loan Type				Financial Effect
Residential 1-4 Family - Consumer				Added a weighted-average 20.7 years to the life of loans and changed interest rate from variable to fixed rates, which reduced the weighted average contractual interest rate from 7.5% to 7.4%.

The Company considers a default of a TLM to occur when the borrower is 90 days past due following the modification or a foreclosure and repossession of the applicable collateral occurs. During the three months ended March 31, 2023, the Company did not have any significant loans either individually or in the aggregate that went into default that have been modified and designated as TLMs.

The Company monitors the performance of TLMs in order to determine the effectiveness of the modifications. As of March 31, 2023, no loans that have been modified and designated as TLMs are past due.

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Allowance for Loan and Lease Losses

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

●

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

●

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

The following tables show the ALLL activity by loan segment for the three months ended March 31, 2023 and 2022 (dollars in thousands):


	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	82,753	$	28,015	$	110,768	$	77,902	$	21,885	$	99,787
Loans charged-off		(5,007)		(719)		(5,726)		(759)		(750)		(1,509)
Recoveries credited to allowance		515		652		1,167		726		787		1,513
Provision charged to operations		9,825		478		10,303		1,902		898		2,800
Balance at end of period	$	88,086	$	28,426	$	116,512	$	79,771	$	22,820	$	102,591

The increase in net charge offs at March 31, 2023 compared to March 31, 2022 is primarily due to charge-offs associated with two commercial loans.

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Credit Quality Indicators

The Company’s primary credit quality indicator for the Commercial segment is risk rating categories of Pass, Watch, Special Mention, Substandard, and Doubtful. The primary credit quality indicator for the Consumer segment is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. See Note 3 “Loans and Allowance 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 for further information on the Company’s credit quality indicators.

Commercial Loans

The table below details the amortized cost and gross writeoffs of the classes of loans within the Commercial segment by risk level and year of origination as of March 31, 2023 (dollars in thousands):

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		March 31, 2023
		Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Construction and Land Development
Pass	$	56,060	$	431,758	$	461,280	$	93,920	$	17,082	$	52,347	$	33,793	$	1,146,240
Watch		—		277		21,347		—		325		1,025		—		22,974
Special Mention		—		3,029		628		—		—		1,350		149		5,156
Substandard		—		1,249		2,605		39		209		1,400		—		5,502
Total Construction and Land Development	$	56,060	$	436,313	$	485,860	$	93,959	$	17,616	$	56,122	$	33,942	$	1,179,872
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(10)	$	—	$	(10)

Commercial Real Estate - Owner Occupied
Pass	$	21,667	$	248,670	$	206,053	$	252,784	$	277,820	$	829,793	$	25,356	$	1,862,143
Watch		—		1,050		624		3,377		8,201		37,841		892		51,985
Special Mention		—		—		255		469		434		9,145		546		10,849
Substandard		226		—		2,565		—		4,259		24,558		—		31,608
Total Commercial Real Estate - Owner Occupied	$	21,893	$	249,720	$	209,497	$	256,630	$	290,714	$	901,337	$	26,794	$	1,956,585
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Non-Owner Occupied
Pass	$	57,700	$	506,109	$	668,543	$	381,043	$	515,413	$	1,647,468	$	37,429	$	3,813,705
Watch		—		—		—		12,234		6,464		74,783		8		93,489
Special Mention		—		—		2,151		—		19,369		9,294		—		30,814
Substandard		—		231		—		—		6,005		23,841		—		30,077
Total Commercial Real Estate - Non-Owner Occupied	$	57,700	$	506,340	$	670,694	$	393,277	$	547,251	$	1,755,386	$	37,437	$	3,968,085
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(2,941)	$	—	$	(2,941)

Commercial & Industrial
Pass	$	213,690	$	825,599	$	508,969	$	240,528	$	150,660	$	187,067	$	824,112	$	2,950,625
Watch		—		810		586		13,416		23,323		4,212		11,927		54,274
Special Mention		—		432		212		6,921		1,346		1,662		45,138		55,711
Substandard		—		135		490		111		3,266		3,988		13,878		21,868
Total Commercial & Industrial	$	213,690	$	826,976	$	510,257	$	260,976	$	178,595	$	196,929	$	895,055	$	3,082,478
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	(1,281)	$	(1,281)

Multifamily Real Estate
Pass	$	1,193	$	116,785	$	110,179	$	203,176	$	46,976	$	278,186	$	60,282	$	816,777
Watch		—		—		—		—		348		1,000		—		1,348
Special Mention		—		—		—		—		3,795		86		—		3,881
Total Multifamily Real Estate	$	1,193	$	116,785	$	110,179	$	203,176	$	51,119	$	279,272	$	60,282	$	822,006
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential 1-4 Family - Commercial
Pass	$	6,078	$	55,830	$	86,098	$	75,639	$	49,757	$	230,887	$	616	$	504,905
Watch		50		—		—		533		840		7,305		112		8,840
Special Mention		—		—		—		—		—		2,503		—		2,503
Substandard		—		—		627		1,585		632		3,369		299		6,512
Total Residential 1-4 Family - Commercial	$	6,128	$	55,830	$	86,725	$	77,757	$	51,229	$	244,064	$	1,027	$	522,760
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Other Commercial
Pass	$	1,965	$	195,697	$	197,300	$	140,029	$	120,288	$	69,752	$	8,385	$	733,416
Watch		102		4,995		—		—		8		3,857		—		8,962
Substandard		—		—		—		—		—		—		66		66
Total Other Commercial	$	2,067	$	200,692	$	197,300	$	140,029	$	120,296	$	73,609	$	8,451	$	742,444
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(775)	$	—	$	(775)

Total Commercial
Pass	$	358,353	$	2,380,448	$	2,238,422	$	1,387,119	$	1,177,996	$	3,295,500	$	989,973	$	11,827,811
Watch		152		7,132		22,557		29,560		39,509		130,023		12,939		241,872
Special Mention		—		3,461		3,246		7,390		24,944		24,040		45,833		108,914
Substandard		226		1,615		6,287		1,735		14,371		57,156		14,243		95,633
Total Commercial	$	358,731	$	2,392,656	$	2,270,512	$	1,425,804	$	1,256,820	$	3,506,719	$	1,062,988	$	12,274,230
Total current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(3,726)	$	(1,281)	$	(5,007)

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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, 2022 (dollars in thousands):


		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

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Consumer Loans

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 March 31, 2023 (dollars in thousands):


		March 31, 2023
		Term Loans Amortized Cost Basis by Origination Year


	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	32,610	$	221,919	$	268,051	$	158,016	$	34,748	$	236,018	$	13	$	951,375
30-59 Days Past Due		—		648		1,730		2,532		127		6,542		—		11,579
60-89 Days Past Due		—		—		—		—		63		95		—		158
90+ Days Past Due		—		—		—		—		—		859		—		859
Nonaccrual		—		—		585		—		306		9,649		—		10,540
Total Residential 1-4 Family - Consumer	$	32,610	$	222,567	$	270,366	$	160,548	$	35,244	$	253,163	$	13	$	974,511
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(29)	$	—	$	(29)

Residential 1-4 Family - Revolving
Current	$	10,726	$	63,001	$	13,036	$	4,837	$	1,451	$	1,223	$	487,849	$	582,123
30-59 Days Past Due		—		14		—		—		—		—		1,370		1,384
60-89 Days Past Due		—		138		—		—		—		—		931		1,069
90+ Days Past Due		—		—		—		—		—		29		1,737		1,766
Nonaccrual		—		87		149		54		—		—		3,159		3,449
Total Residential 1-4 Family - Revolving	$	10,726	$	63,240	$	13,185	$	4,891	$	1,451	$	1,252	$	495,046	$	589,791
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Auto
Current	$	54,750	$	270,291	$	142,237	$	73,589	$	38,687	$	18,299	$	—	$	597,853
30-59 Days Past Due		—		624		595		356		274		177		—		2,026
60-89 Days Past Due		—		86		103		80		4		22		—		295
90+ Days Past Due		—		94		33		5		5		—		—		137
Nonaccrual		—		98		72		81		94		2		—		347
Total Auto	$	54,750	$	271,193	$	143,040	$	74,111	$	39,064	$	18,500	$	—	$	600,658
Current period gross writeoff	$	—	$	(135)	$	(32)	$	(69)	$	(49)	$	(32)	$	—	$	(317)

Consumer
Current	$	5,082	$	32,914	$	14,495	$	10,178	$	21,327	$	31,412	$	29,068	$	144,476
30-59 Days Past Due		—		76		42		10		58		101		8		295
60-89 Days Past Due		—		35		31		5		67		36		2		176
90+ Days Past Due		—		49		40		17		20		8		3		137
Nonaccrual		—		—		3		—		3		—		—		6
Total Consumer	$	5,082	$	33,074	$	14,611	$	10,210	$	21,475	$	31,557	$	29,081	$	145,090
Current period gross writeoff	$	—	$	—	$	(22)	$	(182)	$	(12)	$	(117)	$	(40)	$	(373)

Total Consumer
Current	$	103,168	$	588,125	$	437,819	$	246,620	$	96,213	$	286,952	$	516,930	$	2,275,827
30-59 Days Past Due		—		1,362		2,367		2,898		459		6,820		1,378		15,284
60-89 Days Past Due		—		259		134		85		134		153		933		1,698
90+ Days Past Due		—		143		73		22		25		896		1,740		2,899
Nonaccrual		—		185		809		135		403		9,651		3,159		14,342
Total Consumer	$	103,168	$	590,074	$	441,202	$	249,760	$	97,234	$	304,472	$	524,140	$	2,310,050
Total current period gross writeoff	$	—	$	(135)	$	(54)	$	(251)	$	(61)	$	(178)	$	(40)	$	(719)

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


		December 31, 2022
		Term Loans Amortized Cost Basis by Origination Year


	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	212,697	$	263,734	$	162,826	$	36,197	$	22,629	$	221,738	$	12	$	919,833
30-59 Days Past Due		174		2,169		89		46		220		3,253		—		5,951
60-89 Days Past Due		—		—		—		—		413		1,277		—		1,690
90+ Days Past Due		—		—		—		64		—		1,891		—		1,955
Nonaccrual		—		423		—		307		940		9,176		—		10,846
Total Residential 1-4 Family - Consumer	$	212,871	$	266,326	$	162,915	$	36,614	$	24,202	$	237,335	$	12	$	940,275

Residential 1-4 Family - Revolving
Current	$	68,434	$	13,810	$	4,997	$	1,672	$	801	$	476	$	487,803	$	577,993
30-59 Days Past Due		90		—		—		—		—		—		1,753		1,843
60-89 Days Past Due		—		—		—		—		—		—		511		511
90+ Days Past Due		—		—		—		—		—		—		1,384		1,384
Nonaccrual		—		149		57		—		13		—		3,234		3,453
Total Residential 1-4 Family - Revolving	$	68,524	$	13,959	$	5,054	$	1,672	$	814	$	476	$	494,685	$	585,184

Auto
Current	$	285,036	$	154,904	$	81,710	$	44,086	$	15,974	$	7,525	$	—	$	589,235
30-59 Days Past Due		808		772		451		456		134		126		—		2,747
60-89 Days Past Due		65		129		146		76		30		4		—		450
90+ Days Past Due		169		—		111		32		12		20		—		344
Nonaccrual		—		113		18		62		2		5		—		200
Total Auto	$	286,078	$	155,918	$	82,436	$	44,712	$	16,152	$	7,680	$	—	$	592,976

Consumer
Current	$	36,513	$	15,897	$	11,019	$	23,838	$	16,084	$	19,070	$	29,537	$	151,958
30-59 Days Past Due		61		27		36		113		34		61		19		351
60-89 Days Past Due		43		17		10		11		14		21		9		125
90+ Days Past Due		22		—		9		12		32		—		33		108
Nonaccrual		—		3		—		—		—		—		—		3
Total Consumer	$	36,639	$	15,944	$	11,074	$	23,974	$	16,164	$	19,152	$	29,598	$	152,545

Total Consumer
Current	$	602,680	$	448,345	$	260,552	$	105,793	$	55,488	$	248,809	$	517,352	$	2,239,019
30-59 Days Past Due		1,133		2,968		576		615		388		3,440		1,772		10,892
60-89 Days Past Due		108		146		156		87		457		1,302		520		2,776
90+ Days Past Due		191		—		120		108		44		1,911		1,417		3,791
Nonaccrual		—		688		75		369		955		9,181		3,234		14,502
Total Consumer	$	604,112	$	452,147	$	261,479	$	106,972	$	57,332	$	264,643	$	524,295	$	2,270,980

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

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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 quarter ended March 31, 2022 were not significant.

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 months ended March 31, 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 continue to accrue interest under the terms of the applicable restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of 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 considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the three months ended March 31, 2022 and the year ended December 31, 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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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 four years to ten years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from four years to ten years, using various methods. The Company concluded there was no impairment to the Company’s goodwill or intangible assets as of the balance sheet date. In the normal course of business, the Company routinely monitors the impact of the changes in the financial markets and includes these assessments in the Company’s impairment process.

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

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


	Wholesale Banking		Consumer Banking		Corporate Other		Total
As of March 31, 2023
Goodwill	$	639,180	$	286,031	$	—	$	925,211
Intangible assets		1,494		69		22,919		24,482
As of December 31, 2022
Goodwill	$	639,180	$	286,031	$	—	$	925,211
Intangible assets		1,558		75		25,128		26,761

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

Amortization expense of intangibles for the three months ended March 31, 2023 and 2022 totaled $2.3 million and $3.0 million, respectively.

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


For the remaining nine months of 2023	$	6,239
2024		6,753
2025		5,155
2026		3,559
2027		1,986
Thereafter		790
Total estimated amortization expense	$	24,482

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5. LEASES

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment, including vehicles and machinery, with terms ranging from 14 months to 125 months. At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party residual value insurance to reduce its residual asset risk. At March 31, 2023 and December 31, 2022, the carrying value of residual assets covered by residual value guarantees and residual value insurance was $45.9 million and $44.3 million, respectively. For more information on the Company’s lessor arrangements, refer to Note 1 “Summary of Significant Accounting Policies” in the Company’s 2022 Form 10-K.

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


	March 31, 2023		December 31, 2022
Sales-type and direct financing leases:
Lease receivables, net of unearned income and deferred selling profit	$	257,643	$	266,380
Unguaranteed residual values, net of unearned income and deferred selling profit		15,269		15,159
Total net investment in sales-type and direct financing leases	$	272,912	$	281,539

Lessee Arrangements

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

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


	March 31, 2023						December 31, 2022
	Operating			Finance			Operating			Finance
ROU assets	$	34,520		$	5,358		$	35,729		$	5,588
Lease liabilities		45,897			7,983			47,696			8,288
Lease Term and Discount Rate of Operating leases:
Weighted-average remaining lease term (years)		6.70			5.83			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 information available at commencement date of lease or at remeasurement date.


	Three months ended March 31,
	2023		2022
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Finance Leases	$	24	$	27
Operating Cash Flows from Operating Leases		2,812		2,891
Financing Cash Flows from Finance Leases		306		294
ROU assets obtained in exchange for lease obligations:
Operating leases	$	852	$	143

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	Three months ended March 31,
		2023		2022
Net Operating Lease Cost	$	2,240	$	2,309
Finance Lease Cost:
Amortization of right-of-use assets		230		230
Interest on lease liabilities		24		27
Total Lease Cost	$	2,494	$	2,566

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


	March 31, 2023
	Lessor		Lessee
		Sales-type and Direct Financing	Operating		Finance
For the remaining nine months of 2023	$	49,822	$	8,243	$	996
2024		66,025		10,394		1,358
2025		55,221		8,214		1,392
2026		43,834		5,711		1,427
2027		33,152		4,450		1,462
Thereafter		38,814		14,129		1,626
Total undiscounted cash flows		286,868		51,141		8,261
Less: Adjustments ⁽¹⁾		29,225		5,244		278
Total ⁽²⁾	$	257,643	$	45,897	$	7,983

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

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

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


	March 31,			December 31,
	2023			2022
Securities sold under agreements to repurchase	$	163,760		$	142,837
Federal Funds Purchased		—			160,000
FHLB Advances		245,000			1,016,000
Total short-term borrowings	$	408,760		$	1,318,837

Average outstanding balance during the period	$	724,065		$	302,060
Average interest rate during the period		4.24	%		1.79	%
Average interest rate at end of period		4.40	%		3.89	%

The Bank maintains federal funds lines with several correspondent banks; the available balance was $1.0 billion at March 31, 2023 and December 31, 2022, respectively. The Company maintains an alternate line of credit at a correspondent bank; the available balance was $25.0 million at both March 31, 2023 and December 31, 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 March 31, 2023 and December 31, 2022. Additionally, the Company has a collateral dependent line of credit with the FHLB of up to $6.1 billion and $6.0 billion at March 31, 2023 and December 31, 2022, respectively. The remaining credit availability on the collateral dependent line of credit with the FHLB was $5.9 billion and $4.9 billion at March 31, 2023 and December 31, 2022, respectively.

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 March 31, 2023, liquidity of $548.6 million was available based on the par-value of qualifying securities from BTFP. The Company did not utilize the available funds from BTFP as of March 31, 2023.

Long-term Borrowings

In connection with several previous bank acquisitions, the Company issued $58.5 million and acquired $92.0 million of trust preferred capital notes. The remaining fair value discount on all acquired trust preferred capital notes was $12.3 million and $12.5 million at March 31, 2023 and December 31, 2022, respectively.

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

Spread to

Principal

3-Month LIBOR

Rate ⁽¹⁾

Maturity

Investment ⁽²⁾

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

22,500

2.75

7.94

6/17/2034

696

Trust Preferred Capital Note - Statutory Trust II

36,000

1.40

6.59

6/15/2036

1,114

VFG Limited Liability Trust I Indenture

20,000

2.73

7.92

3/18/2034

619

FNB Statutory Trust II Indenture

12,000

3.10

8.29

6/26/2033

372

Gateway Capital Statutory Trust I

8,000

3.10

8.29

9/17/2033

248

Gateway Capital Statutory Trust II

7,000

2.65

7.84

6/17/2034

217

Gateway Capital Statutory Trust III

15,000

1.50

6.69

5/30/2036

464

Gateway Capital Statutory Trust IV

25,000

1.55

6.74

7/30/2037

774

MFC Capital Trust II

5,000

2.85

8.04

1/23/2034

155

Total Trust Preferred Capital Securities

150,500

4,659

Subordinated Debt⁽³⁾⁽⁴⁾

2031 Subordinated Debt

250,000

—

2.875

12/15/2031

Total Subordinated Debt⁽⁵⁾

250,000

Fair Value Discount⁽⁶⁾

(15,009)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

390,150

⁽¹⁾Rate as of March 31, 2023. Calculated using non-rounded numbers.

⁽²⁾ Represents the junior subordinated debentures owned by the Company in trust and is reported in "Other assets" on the Company’s Consolidated Balance Sheets.

⁽³⁾The remaining issuance discount as of March 31, 2023 is $2.7 million.

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

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

⁽⁶⁾Remaining discounts of $12.3 million and $2.7 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

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Total long-term borrowings consist of the following as of December 31, 2022 (dollars in thousands):


			Spread to
	Principal		3-Month LIBOR		Rate ⁽¹⁾		Maturity	Investment ⁽²⁾
Trust Preferred Capital Securities
Trust Preferred Capital Note - Statutory Trust I	$	22,500	2.75	%	7.52	%	6/17/2034	$	696
Trust Preferred Capital Note - Statutory Trust II		36,000	1.40	%	6.17	%	6/15/2036		1,114
VFG Limited Liability Trust I Indenture		20,000	2.73	%	7.50	%	3/18/2034		619
FNB Statutory Trust II Indenture		12,000	3.10	%	7.87	%	6/26/2033		372
Gateway Capital Statutory Trust I		8,000	3.10	%	7.87	%	9/17/2033		248
Gateway Capital Statutory Trust II		7,000	2.65	%	7.42	%	6/17/2034		217
Gateway Capital Statutory Trust III		15,000	1.50	%	6.27	%	5/30/2036		464
Gateway Capital Statutory Trust IV		25,000	1.55	%	6.32	%	7/30/2037		774
MFC Capital Trust II		5,000	2.85	%	7.62	%	1/23/2034		155
Total Trust Preferred Capital Securities	$	150,500						$	4,659
Subordinated Debt⁽³⁾⁽⁴⁾
2031 Subordinated Debt		250,000	—	%	2.875	%	12/15/2031
Total Subordinated Debt⁽⁵⁾	$	250,000
Fair Value Discount⁽⁶⁾		(15,296)
Investment in Trust Preferred Capital Securities		4,659
Total Long-term Borrowings	$	389,863

⁽¹⁾ Rate as of December 31, 2022. Calculated using non-rounded numbers.

⁽²⁾ Represents the junior subordinated debentures owned by the Company in trust and is reported in "Other assets" on the Company’s Consolidated Balance Sheets.

⁽³⁾The remaining issuance discount as of December 31, 2022 is $2.8 million.

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

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

⁽⁶⁾ Remaining discounts of $12.5 million and $2.8 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

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

Trust

Preferred

Total

Capital

Subordinated

Fair Value

Long-term

Notes

Debt

Discount ⁽¹⁾

Borrowings

For the remaining nine months of 2023

—

(875)

2024

—

(1,187)

2025

—

(1,211)

2026

—

(1,236)

2027

—

(1,263)

Thereafter

155,159

250,000

(9,237)

395,922

Total long-term borrowings

155,159

250,000

(15,009)

390,150

⁽¹⁾ Includes discount on 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 subject to loss contingencies related to legal and regulatory proceedings. The Company establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. When it is practicable, 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 amounts accrued, the Company discloses the aggregate estimation of such possible losses.

As previously disclosed, on February 9, 2022, pursuant to the CFPB’s Notice and Opportunity to Respond and Advise process, the CFPB Office of Enforcement notified the Bank that it 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.

As of March 31, 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 this matter. If the Company and the CFPB do not reach a settlement, the CFPB may commence litigation against the Company.

Financial Instruments with Off-Balance Sheet Risk

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

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss and funding information, current and future economic conditions, risk ratings, and past due status among other factors in the consideration of expected credit losses in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve based on historical statistics and loss rates related to mortgage loans previously sold. At both March 31, 2023 and December 31, 2022, the Company’s reserve for unfunded commitments and indemnification reserve totaled $15.6 million and $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):


	March 31, 2023		December 31, 2022
Commitments with off-balance sheet risk:
Commitments to extend credit⁽¹⁾	$	5,485,988	$	5,229,252
Letters of credit		155,878		156,459
Total commitments with off-balance sheet risk	$	5,641,866	$	5,385,711

⁽¹⁾ Includes unfunded overdraft protection.

As of March 31, 2023, the Company had approximately $213.2 million in deposits in other financial institutions of which $162.3 million served as collateral for cash flow and loan swap derivatives. As of December 31, 2022, the Company had approximately $273.5 million in deposits in other financial institutions of which $196.2 million served as collateral for the Company’s cash flow and loan swap derivatives. The Company had approximately $47.5 million and $74.0 million in deposits in other financial institutions that were uninsured at March 31, 2023 and December 31, 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 over-the-counter derivatives cleared with the central clearinghouses, the variation margin is treated as a settlement of the related derivatives fair values. Refer to Note 8 “Derivatives” within this Item 1 of this Quarterly Report for additional information.

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

Pledged Assets as of March 31, 2023

AFS

HTM

Cash

Securities ⁽¹⁾

Loans ⁽²⁾

Total

Public deposits

—

778,257

623,009

—

1,401,266

Repurchase agreements

—

181,670

—

181,670

FHLB advances

—

58,078

—

2,598,273

2,656,351

Derivatives

162,329

58,405

—

220,734

Fed Funds ⁽³⁾

—

440,955

18,273

485,569

944,797

Other purposes

—

23,399

—

23,399

Total pledged assets

162,329

1,540,764

641,282

3,083,842

5,428,217

⁽¹⁾ Balance represents market value.

⁽²⁾ Balance represents book value.

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

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	Pledged Assets as of December 31, 2022
			AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	713,761	$	579,550	$	—	$	1,293,311
Repurchase agreements		—		159,221		—		—		159,221
FHLB advances		—		36,039		—		2,679,316		2,715,355
Derivatives		196,180		57,114		—		—		253,294
Fed Funds		—		—		—		458,680		458,680
Other purposes		—		27,311		865		—		28,176
Total pledged assets	$	196,180	$	993,446	$	580,415	$	3,137,996	$	4,908,037

⁽¹⁾ Balance represents market value.

⁽²⁾ Balance represents book value.

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8. DERIVATIVES

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

Derivatives Counterparty Credit Risk

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

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

Cash Flow Hedges

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

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

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

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

Fair Value Hedges

Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates.

Loans: During the normal course of business, the Company enters into swap agreements to convert certain long-term fixed-rate loans to floating rates to hedge the Company’s exposure to interest rate risk. The Company pays a fixed interest rate to the counterparty and receives a floating rate from the same counterparty calculated on the aggregate notional amount. At March 31, 2023 and December 31, 2022, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled $82.0 million and $83.6 million, respectively, and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $9.2 million and $11.0 million, respectively.

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AFS Securities: The Company has a swap agreement to hedge the interest rate risk on a portion of its fixed rate AFS securities. At March 31, 2023 and December 31, 2022, the aggregate notional amount of the related hedged items of the AFS securities totaled $50.0 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $1.2 million and $1.9 million, respectively.

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

Interest Rate Contracts

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

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

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

March 31, 2023

December 31, 2022

Derivative ⁽²⁾

Notional or

Contractual

Amount ⁽¹⁾

Assets

Liabilities

Amount ⁽¹⁾

Assets

Liabilities

Derivatives designated as accounting hedges:

Interest rate contracts: ⁽³⁾

Cash flow hedges

900,000

2,838

2,158

900,000

1,163

6,599

Fair value hedges

131,976

2,938

—

133,576

4,117

—

Derivatives not designated as accounting hedges:

Interest rate contracts⁽³⁾⁽⁴⁾

6,002,395

67,954

195,375

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

March 31, 2023

December 31, 2022

Cumulative

Amount of Basis

Adjustments

Included in the

Carrying Amount

Carrying

Carrying Amount

Carrying

of Hedged

Amount of the

of Hedged

Amount of the

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Amount ⁽¹⁾

Assets/(Liabilities)

Amount ⁽¹⁾

Assets/(Liabilities)

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

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

88,891

(1,226)

91,388

(1,889)

Loans⁽³⁾

81,976

(9,007)

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 March 31, 2023 and December 31, 2022, the amortized cost basis of this portfolio was $88.9 million and $91 million, respectively, and the cumulative basis adjustment associated with this hedge was $1.2 million and $1.9 million, respectively. The amount of the designated hedged item at March 31, 2023 and December 31, 2022 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 March 31, 2023 and December 31, 2022 was an unrealized gain of $9.2 million and $11.0 million, respectively.

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9. STOCKHOLDERS’ EQUITY

Repurchase Programs

As of March 31, 2023, the Company does not have an active share repurchase program. The Company’s prior share repurchase plan expired on December 9, 2022.

Accumulated Other Comprehensive Income (Loss)

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

Unrealized Gains

(Losses)

Unrealized

for AFS

Unrealized

(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)

(54,610)

226

(418,286)

Other comprehensive income (loss):

Other comprehensive income before reclassification

32,068

—

13,714

45,792

Amounts reclassified from AOCI into earnings

10,586

(3)

—

(22)

10,561

Net current period other comprehensive income (loss)

42,654

(3)

13,714

(12)

56,353

AOCI (loss) - March 31, 2023

(321,265)

(40,896)

214

(361,933)

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

Unrealized Gain

(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash