UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the Quarterly Period Ended September 30, 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.)

4300 Cox Road

Glen Allen, Virginia 23060

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

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



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.33 per share	AUB	The New York Stock Exchange
Depositary Shares, Each Representing a 1/400^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 October 26, 2023 was 75,016,179.

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 September 30, 2023 (unaudited) and December 31, 2022 (audited)	2

	Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2023 and 2022	3

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2023 and 2022	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the nine months ended September 30, 2023 and 2022	5

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022	7

	Notes to Consolidated Financial Statements (unaudited)	9

	Report of Independent Registered Public Accounting Firm	52

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	86

Item 4.	Controls and Procedures	88

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	89

Item 1A.	Risk Factors	89

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	90

Item 5.	Other Information	90

Item 6.	Exhibits	91

	Signatures	92

Table of Contents

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
ALCO	–	Asset liability management committee
ALLL	–	Allowance for loan and lease losses, a component of ACL
American National	–	American National Bankshares Inc.
AOCI	–	Accumulated other comprehensive income (loss)
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
AUB	–	Atlantic Union Bankshares Corporation
the Bank	–	Atlantic Union Bank
BOLI	–	Bank-owned life insurance
bps	–	Basis points
BTFP	–	Bank Term Funding Program
CECL	–	Current expected credit losses
CFPB	–	Consumer Financial Protection Bureau
CME SOFR	–	Chicago Mercantile Exchange Secured Overnight Financing Rate
the Company	–	Atlantic Union Bankshares Corporation and its subsidiaries
depositary shares	–	Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share)
DHFB	–	Dixon, Hubard, Feinour & Brown, Inc.
EPS	–	Earnings per common share
Exchange Act	–	Securities Exchange Act of 1934, as amended
FASB	–	Financial Accounting Standards Board
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
FHLB	–	Federal Home Loan Bank of Atlanta
FHLMC	–	Federal Home Loan Mortgage Corporation
FNB	–	FNB Corporation
FNMA	–	Federal National Mortgage Association
FOMC	–	Federal Open Market Committee
FRB	–	Federal Reserve Bank of Richmond
FR Y9-C	–	Consolidated financial statements for a U.S. bank holding company, a savings and loan holding company, a U.S. intermediate holding company, and a securities holding company
FTE	–	Fully taxable equivalent
GAAP	–	Accounting principles generally accepted in the United States
GNMA	–	Government National Mortgage Association
HTM	–	Held to maturity
ICE	–	Intercontinental Exchange Data Services
LHFI	–	Loans held for investment
LHFS	–	Loans held for sale
LIBOR	–	London Interbank Offered Rate
MBS	–	Mortgage-Backed Securities
merger agreement	–	Agreement and Plan of Merger dated July 24, 2023 by and between Atlantic Union Bankshares Corporation and American National Bankshares Inc.

Table of Contents

merger	–	Proposed merger of American National Bankshares Inc. with and into Atlantic Union Bankshares Corporation pursuant to the merger agreement
MFC	–	Middleburg Financial Corporation
NPA	–	Nonperforming assets
NYSE	–	New York Stock Exchange
OCI	–	Other comprehensive (loss) income
PD/LGD	–	Probability of default/loss given default
ROU asset	–	Right of Use Asset
RPAs	–	Risk Participation Agreements
SEC	–	Securities and Exchange Commission
Series A preferred stock	–	6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share
SOFR	–	Secured Overnight Financing Rate
TLM	–	Troubled loan modification
TDR	–	Troubled debt restructuring
VFG	–	Virginia Financial Group, Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

(Dollars in thousands, except share data)


	September 30,		December 31,
	2023		2022
ASSETS		(unaudited)		(audited)
Cash and cash equivalents:
Cash and due from banks	$	233,526	$	216,384
Interest-bearing deposits in other banks		159,718		102,107
Federal funds sold		5,701		1,457
Total cash and cash equivalents		398,945		319,948
Securities available for sale, at fair value		2,084,928		2,741,816
Securities held to maturity, at carrying value		843,269		847,732
Restricted stock, at cost		104,785		120,213
Loans held for sale		6,608		3,936
Loans held for investment, net of deferred fees and costs		15,283,620		14,449,142
Less: allowance for loan and lease losses		125,627		110,768
Total loans held for investment, net		15,157,993		14,338,374
Premises and equipment, net		94,510		118,243
Goodwill		925,211		925,211
Amortizable intangibles, net		21,277		26,761
Bank owned life insurance		449,452		440,656
Other assets		649,258		578,248
Total assets	$	20,736,236	$	20,461,138
LIABILITIES
Noninterest-bearing demand deposits	$	4,144,949	$	4,883,239
Interest-bearing deposits		12,641,556		11,048,438
Total deposits		16,786,505		15,931,677
Securities sold under agreements to repurchase		134,936		142,837
Other short-term borrowings		495,000		1,176,000
Long-term borrowings		390,733		389,863
Other liabilities		540,261		448,024
Total liabilities		18,347,435		18,088,401
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock, $10.00 par value		173		173
Common stock, $1.33 par value		99,120		98,873
Additional paid-in capital		1,779,281		1,772,440
Retained earnings		988,133		919,537
Accumulated other comprehensive loss		(477,906)		(418,286)
Total stockholders' equity		2,388,801		2,372,737
Total liabilities and stockholders' equity	$	20,736,236	$	20,461,138

Common shares outstanding		74,997,132		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 AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

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


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Interest and dividend income:
Interest and fees on loans	$	221,380	$	144,673	$	616,544	$	382,139
Interest on deposits in other banks		1,309		941		3,815		1,229
Interest and dividends on securities:
Taxable		16,055		14,750		48,373		43,110
Nontaxable		8,415		10,792		26,220		31,889
Total interest and dividend income		247,159		171,156		694,952		458,367
Interest expense:
Interest on deposits		83,590		15,386		200,690		25,966
Interest on short-term borrowings		6,499		1,229		22,106		1,805
Interest on long-term borrowings		5,129		3,826		14,687		10,183
Total interest expense		95,218		20,441		237,483		37,954
Net interest income		151,941		150,715		457,469		420,413
Provision for credit losses		4,991		6,412		22,911		12,771
Net interest income after provision for credit losses		146,950		144,303		434,558		407,642
Noninterest income:
Service charges on deposit accounts		8,557		6,784		24,577		22,421
Other service charges, commissions and fees		2,632		1,770		6,071		5,134
Interchange fees		2,314		2,461		7,098		6,539
Fiduciary and asset management fees		4,549		4,134		13,169		18,329
Mortgage banking income		666		1,390		1,969		6,707
Loss on sale of securities		(27,594)		—		(40,992)		(2)
Bank owned life insurance income		2,973		3,445		8,671		8,858
Loan-related interest rate swap fees		2,695		2,050		6,450		8,510
Other operating income		30,302		3,550		33,905		17,527
Total noninterest income		27,094		25,584		60,918		94,023
Noninterest expenses:
Salaries and benefits		57,449		56,600		179,996		170,203
Occupancy expenses		6,053		6,408		18,503		19,685
Furniture and equipment expenses		3,449		3,673		10,765		10,860
Technology and data processing		7,923		8,273		24,631		23,930
Professional services		3,291		3,504		11,138		12,274
Marketing and advertising expense		2,219		2,343		7,387		7,008
FDIC assessment premiums and other insurance		4,258		3,094		12,231		8,344
Franchise and other taxes		4,510		4,507		13,508		13,506
Loan-related expenses		1,388		1,575		4,560		5,218
Amortization of intangible assets		2,193		2,480		6,687		8,434
Other expenses		15,775		7,466		33,036		24,550
Total noninterest expenses		108,508		99,923		322,442		304,012
Income before income taxes		65,536		69,964		173,034		197,653
Income tax expense		11,519		11,894		28,123		33,667
Net income		54,017		58,070		144,911		163,986
Dividends on preferred stock		2,967		2,967		8,901		8,901
Net income available to common shareholders	$	51,050	$	55,103	$	136,010	$	155,085

Basic earnings per common share	$	0.68	$	0.74	$	1.81	$	2.07
Diluted earnings per common share	$	0.68	$	0.74	$	1.81	$	2.07
Dividends declared per common share	$	0.30	$	0.30	$	0.90	$	0.86
Basic weighted average number of common shares outstanding		74,999,128		74,703,699		74,942,851		75,029,000
Diluted weighted average number of common shares outstanding		74,999,128		74,705,054		74,943,999		75,034,084

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	54,017	$	58,070	$	144,911	$	163,986
Other comprehensive (loss) income:
Cash flow hedges:
Change in fair value of cash flow hedges (net of tax, $2,547 and $6,417 for the three months and $3,241 and $15,691 for the nine months ended September 30, 2023 and 2022, respectively)		(9,581)		(24,142)		(12,192)		(59,027)
AFS securities:
Unrealized holding losses arising during period (net of tax, $21,051 and $32,388 for the three months and $21,178 and $112,226 for the nine months ended September 30, 2023 and 2022, respectively)		(79,193)		(121,841)		(79,669)		(422,183)
Reclassification adjustment for losses included in net income (net of tax, $5,795 and $0 for the three months and $8,609 and $0 for the nine months ended September 30, 2023 and 2022, respectively) ⁽¹⁾		21,799		—		32,383		2
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax) ⁽²⁾		(2)		(4)		(7)		(14)
Bank owned life insurance:
Unrealized holding gains arising during the period		—		—		10		—
Reclassification adjustment for (gains) losses included in net income ⁽³⁾		(62)		151		(145)		468
Other comprehensive (loss) income:		(67,039)		(145,836)		(59,620)		(480,754)
Comprehensive (loss) income	$	(13,022)	$	(87,766)	$	85,291	$	(316,768)

⁽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)

NINE MONTHS ENDED SEPTEMBER 30, 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

Net Income

55,241

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

(48,934)

Dividends on common stock ($0.30 per share)

(22,498)

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 (11,822 shares)

105

Stock-based compensation expense

3,287

Balance - June 30, 2023

99,088

173

1,776,494

959,582

(410,867)

2,424,470

Net Income

54,017

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

(67,039)

Dividends on common stock ($0.30 per share)

(22,499)

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 (24,477 shares)

Stock-based compensation expense

2,728

Balance - September 30, 2023

99,120

173

1,779,281

988,133

(477,906)

2,388,801

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

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


									Accumulated
					Additional				Other
	Common		Preferred		Paid-In		Retained		Comprehensive
	Stock		Stock		Capital		Earnings		Income (Loss)		Total
Balance - December 31, 2021	$	100,101	$	173	$	1,807,368	$	783,794	$	18,635	$	2,710,071
Net Income								43,690				43,690
Other comprehensive loss (net of taxes of $49,701)										(210,118)		(210,118)
Dividends on common stock ($0.28 per share)								(21,163)				(21,163)
Dividends on preferred stock ($171.88 per share)								(2,967)				(2,967)
Stock purchased under stock repurchase plan (629,691 shares)		(837)				(24,181)						(25,018)
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (291,723 shares)		387				1,044						1,431
Stock-based compensation expense						2,409						2,409
Balance - March 31, 2022	$	99,651	$	173	$	1,786,640	$	803,354	$	(191,483)	$	2,498,335
Net Income								62,226				62,226
Other comprehensive loss (net of taxes of $33,214)										(124,800)		(124,800)
Dividends on common stock ($0.28 per share)								(20,912)				(20,912)
Dividends on preferred stock ($171.88 per share)								(2,967)				(2,967)
Stock purchased under stock repurchase plan (649,208 shares)		(863)				(22,350)						(23,213)
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (25,955 shares)		34				(154)						(120)
Stock-based compensation expense						2,927						2,927
Balance - June 30, 2022	$	98,822	$	173	$	1,767,063	$	841,701	$	(316,283)	$	2,391,476
Net Income								58,070				58,070
Other comprehensive loss (net of taxes of $38,806)										(145,836)		(145,836)
Dividends on common stock ($0.30 per share)								(22,411)				(22,411)
Dividends on preferred stock ($171.88 per share)								(2,967)				(2,967)
Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (17,048 shares)		23				66						89
Stock-based compensation expense						2,729						2,729
Balance - September 30, 2022	$	98,845	$	173	$	1,769,858	$	874,393	$	(462,119)	$	2,281,150

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands)


	2023		2022
Operating activities:
Net income	$	144,911	$	163,986
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		9,897		10,652
Writedown of ROU assets, foreclosed properties and equipment		1,929		4,768
Amortization, net		18,215		23,838
Amortization related to acquisitions, net		3,530		2,271
Provision for credit losses		22,911		12,771
Losses on securities transactions		40,992		2
Gain on sale of DHFB		—		(9,082)
BOLI income		(8,671)		(8,858)
Originations and purchases of LHFS		(109,934)		(263,162)
Proceeds from sales of LHFS		107,264		270,853
Gains on sales of foreclosed properties and former bank premises, net		(798)		(507)
Gain on sale-leaseback transaction		(27,700)		—
Stock-based compensation expenses		8,347		8,065
Issuance of common stock for services		561		611
Net increase in other assets		(74,154)		(6,491)
Net increase in other liabilities		78,276		117,188
Net cash provided by operating activities		215,576		326,905
Investing activities:
Purchases of AFS securities, restricted stock, and other investments		(425,431)		(97,518)
Purchases of HTM securities		(13,826)		(225,026)
Proceeds from sales of AFS securities and restricted stock		856,881		29,719
Proceeds from maturities, calls and paydowns of AFS securities		133,947		281,542
Proceeds from maturities, calls and paydowns of HTM securities		15,453		8,223
Net increase in LHFI		(839,536)		(717,591)
Net purchases in premises and equipment		(3,835)		(3,054)
Proceeds from BOLI settlements		353		2,876
Proceeds from sale-leaseback transaction		45,805		—
Proceeds from sales of foreclosed properties and former bank premises		5,846		5,965
Net cash used in investing activities		(224,343)		(714,864)
Financing activities:
Net (decrease) increase in noninterest-bearing deposits		(738,290)		83,614
Net increase (decrease) in interest-bearing deposits		1,593,090		(148,497)
Net (decrease) increase in short-term borrowings		(688,901)		162,112
Cash dividends paid - common stock		(67,414)		(64,486)
Cash dividends paid - preferred stock		(8,901)		(8,901)
Repurchase of common stock		—		(48,231)
Issuance of common stock		563		3,849
Vesting of restricted stock, net of shares held for taxes		(2,383)		(3,060)
Net cash provided by (used in) financing activities		87,764		(23,600)
Increase (decrease) in cash and cash equivalents		78,997		(411,559)
Cash, cash equivalents and restricted cash at beginning of the period		319,948		802,501
Cash, cash equivalents and restricted cash at end of the period	$	398,945	$	390,942

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in thousands)


	2023		2022
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	224,809	$	34,099
Income taxes		15,501		1,224

Supplemental schedule of noncash investing and financing activities
Transfers from loans to foreclosed properties		—		404

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 123 ATMs located throughout Virginia and in portions of Maryland and North Carolina as of September 30, 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 it did not have significant impact on its consolidated financial statements.

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

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In March 2020, the FASB issued ASC 848, Reference Rate Reform. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. ASC 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASC 848 is intended to help stakeholders during the global market-wide reference rate transition period. The LIBOR cessation date for U.S. dollar settings was June 30, 2023. The amendments are effective as of March 12, 2020 through December 31, 2024 and can be adopted at an instrument level. The Company has elected the practical expedients provided in ASC 848 related to (1) accounting for contract modifications on its loans and securities tied to LIBOR and (2) asserting probability of the hedged item occurring, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. This amendment did not have a significant 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 $68.5 million and $58.9 million on LHFI, $6.7 million and $8.6 million on HTM securities, and $9.0 million and $14.2 million on AFS securities at September 30, 2023 and December 31, 2022, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. The Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended September 30, 2023 and September 30, 2022, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

Allowance for Loan and Lease Losses

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

The Company periodically reviews its internal policies and practices to enhance the process for estimating the ALLL. Effective September 30, 2023, the Company implemented certain changes to its ALLL estimation methodology, as described below. These changes did not have a significant impact on the overall ALLL estimate. For information regarding the Company’s ALLL methodology before September 30, 2023, as well as the components of the ALLL methodology that did not change, see Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” of the Company’s 2022 Form 10-K.

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

The estimated loan losses that are forecasted using the methodology described above are then adjusted for changes in qualitative factors not inherently considered in the quantitative analysis. The qualitative factors include, among others, industry concentrations of the loan portfolio, expected changes to the economic forecasts, model imprecision, factors related to credit administration.

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

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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 September 30, 2023 and December 31, 2022.

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

Amortized

Gross Unrealized

Estimated

Cost

Gains

(Losses)

Fair Value

September 30, 2023

U.S. government and agency securities

62,221

—

(383)

61,838

Obligations of states and political subdivisions

587,340

—

(169,880)

417,460

Corporate and other bonds ⁽¹⁾

267,816

—

(24,998)

242,818

Commercial MBS

Agency

215,203

307

(50,289)

165,221

Non-agency

72,057

—

(2,575)

69,482

Total commercial MBS

287,260

307

(52,864)

234,703

Residential MBS

Agency

1,319,987

(268,152)

1,051,836

Non-agency

81,677

—

(7,131)

74,546

Total residential MBS

1,401,664

(275,283)

1,126,382

Other securities

1,727

—

1,727

Total AFS securities

2,608,028

308

(523,408)

2,084,928

⁽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
September 30, 2023
U.S. government and agency securities	$	59,568	$	(349)	$	2,169	$	(34)	$	61,737	$	(383)
Obligations of states and political subdivisions		16,023		(3,567)		399,438		(166,313)		415,461		(169,880)
Corporate and other bonds⁽¹⁾		100,231		(776)		142,587		(24,222)		242,818		(24,998)
Commercial MBS
Agency		15,074		(709)		135,725		(49,580)		150,799		(50,289)
Non-agency		—		—		69,482		(2,575)		69,482		(2,575)
Total commercial MBS		15,074		(709)		205,207		(52,155)		220,281		(52,864)
Residential MBS
Agency		55,550		(461)		972,755		(267,691)		1,028,305		(268,152)
Non-agency		19,776		(90)		45,745		(7,041)		65,521		(7,131)
Total residential MBS		75,326		(551)		1,018,500		(274,732)		1,093,826		(275,283)
Total AFS securities	$	266,222	$	(5,952)	$	1,767,901	$	(517,456)	$	2,034,123	$	(523,408)

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 761 and 363 individual securities as of September 30, 2023 and December 31, 2022, respectively.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at September 30, 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.

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The following table presents the amortized cost and estimated fair value of AFS securities as of September 30, 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.


	September 30, 2023				December 31, 2022
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	56,948	$	56,120	$	42,447	$	41,735
Due after one year through five years		138,070		135,530		158,063		152,523
Due after five years through ten years		262,259		236,096		343,303		312,935
Due after ten years		2,150,751		1,657,182		2,660,548		2,234,623
Total AFS securities	$	2,608,028	$	2,084,928	$	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 September 30, 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 September 30, 2023 and December 31, 2022.

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

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

Carrying

Gross Unrealized

Estimated

Value

Gains

(Losses)

Fair Value

September 30, 2023

Obligations of states and political subdivisions

700,400

(64,625)

635,824

Corporate and other bonds⁽¹⁾

4,536

—

(170)

4,366

Commercial MBS

Agency

27,568

—

(6,788)

20,780

Non-agency

24,930

—

(904)

24,026

Total commercial MBS

52,498

—

(7,692)

44,806

Residential MBS

Agency

40,992

—

(7,865)

33,127

Non-agency

44,843

—

(920)

43,923

Total residential MBS

85,835

—

(8,785)

77,050

Total HTM securities

843,269

(81,272)

762,046

⁽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 September 30, 2023 and December 31, 2022. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.

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The following table presents the amortized cost of HTM securities as of September 30, 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
September 30, 2023
Credit Rating:
AAA/AA/A	$	—	$	689,699	$	—	$	9,471	$	699,170
BBB/BB/B		—		1,171		—		—		1,171
Not Rated – Agency⁽¹⁾		—		—		—		68,561		68,561
Not Rated – Non-Agency⁽²⁾		—		9,530		4,536		60,301		74,367
Total	$	—	$	700,400	$	4,536	$	138,333	$	843,269
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 September 30, 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.


	September 30, 2023				December 31, 2022
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Due in one year or less	$	2,759	$	2,735	$	2,010	$	2,006
Due after one year through five years		36,604		36,272		35,044		35,014
Due after five years through ten years		43,652		41,057		19,941		20,239
Due after ten years		760,254		681,982		790,737		744,628
Total HTM securities	$	843,269	$	762,046	$	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 September 30, 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 September 30, 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 $37.8 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 and nine months ended September 30, 2023 and 2022 (dollars in thousands):


	Three Months Ended		Nine Months Ended
	September 30, 2023		September 30, 2023
Realized gains (losses)⁽¹⁾:
Gross realized gains	$	4	$	1,352
Gross realized losses		(27,598)		(42,344)
Net realized losses	$	(27,594)	$	(40,992)

Proceeds from sales of securities	$	256,780	$	856,881


	Three Months Ended		Nine Months Ended
	September 30, 2022		September 30, 2022
Realized losses⁽¹⁾:
Gross realized losses		(2)		(2)
Net realized losses	$	(2)	$	(2)

Proceeds from sales of securities	$	12,469	$	12,469

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

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3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

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


	September 30, 2023		December 31, 2022
Construction and Land Development	$	1,132,940	$	1,101,260
Commercial Real Estate – Owner Occupied		1,975,281		1,982,608
Commercial Real Estate – Non-Owner Occupied		4,148,218		3,996,130
Multifamily Real Estate		947,153		802,923
Commercial & Industrial		3,432,319		2,983,349
Residential 1-4 Family – Commercial		517,034		538,063
Residential 1-4 Family – Consumer		1,057,294		940,275
Residential 1-4 Family – Revolving		599,282		585,184
Auto		534,361		592,976
Consumer		126,151		152,545
Other Commercial		813,587		773,829
Total LHFI, net of deferred fees and costs⁽¹⁾		15,283,620		14,449,142
Allowance for loan and lease losses		(125,627)		(110,768)
Total LHFI, net	$	15,157,993	$	14,338,374

⁽¹⁾ Total loans included unamortized premiums and discounts, and unamortized deferred fees and costs totaling $58.4 million and $50.4 million as of September 30, 2023 and December 31, 2022, respectively.

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

1,132,174

—

386

355

1,132,940

Commercial Real Estate – Owner Occupied

1,963,601

3,501

1,902

2,395

3,882

1,975,281

Commercial Real Estate – Non-Owner Occupied

4,134,014

4,573

797

2,835

5,999

4,148,218

Multifamily Real Estate

947,003

—

150

—

947,153

Commercial & Industrial

3,425,646

3,049

576

792

2,256

3,432,319

Residential 1-4 Family – Commercial

513,573

744

817

1,833

517,034

Residential 1-4 Family – Consumer

1,040,519

1,000

1,775

3,632

10,368

1,057,294

Residential 1-4 Family – Revolving

591,748

2,326

602

1,034

3,572

599,282

Auto

530,729

2,703

339

229

361

534,361

Consumer

125,373

517

164

—

126,151

Other Commercial

810,027

3,545

—

813,587

Total LHFI, net of deferred fees and costs

15,214,407

21,958

6,758

11,871

28,626

15,283,620

% of total loans

99.55

0.14

0.04

0.08

0.19

100.00

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


	September 30, 2023				December 31, 2022
	Nonaccrual		Nonaccrual With No ALLL		Nonaccrual		Nonaccrual With No ALLL
Construction and Land Development	$	355	$	—	$	307	$	—
Commercial Real Estate – Owner Occupied		3,882		—		7,178		908
Commercial Real Estate – Non-Owner Occupied		5,999		4,935		1,263		—
Commercial & Industrial		2,256		1		1,884		1
Residential 1-4 Family – Commercial		1,833		—		1,904		—
Residential 1-4 Family – Consumer		10,368		—		10,846		—
Residential 1-4 Family – Revolving		3,572		—		3,453		—
Auto		361		—		200		—
Consumer		—		—		3		—
Other Commercial		—		—		—		—
Total LHFI	$	28,626	$	4,936	$	27,038	$	909

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2023 and 2022. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2022 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

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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 September 30, 2023, the Company had TLMs with an amortized cost basis of $29.4 million with an estimated $155,000 in allowance for those loans. As of September 30, 2023, there was $1.5 million of unfunded commitments on loans modified and designated as TLMs since January 1, 2023.

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

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Amortized Cost

% of Total Class of Financing Receivable

Amortized Cost

% of Total Class of Financing Receivable

Term Extension

Commercial and Industrial

2,008

0.06

Commercial Real Estate – Non-Owner Occupied

—

0.00

20,133

0.49

Commercial Real Estate – Owner Occupied

766

0.04

766

0.04

Residential 1-4 Family – Consumer

603

0.06

Total Term Extension

892

23,510

Combination - Term Extension and Interest Rate Reduction

Residential 1-4 Family – Consumer

127

0.01

959

0.09

Residential 1-4 Family – Revolving

—

0.00

Total Combination - Term Extension and Interest Rate Reduction

127

974

Principal Forgiveness

Commercial Real Estate – Non-Owner Occupied

—

0.00

4,935

0.12

Total Principal Forgiveness

—

4,935

Total

1,019

29,419

NM= Not Meaningful

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Table of Contents

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


Three Months Ended September 30, 2023
Term Extension
Loan Type		Financial Effect
Commercial Real Estate – Owner Occupied		Added a weighted-average 0.2 years to the life of loans.


Nine Months Ended September 30, 2023
Term Extension
Loan Type				Financial Effect
Commercial and Industrial				Added a weighted-average 0.2 years to the life of loans.
Commercial Real Estate – Owner Occupied				Added a weighted-average 0.2 years to the life of loans.
Commercial Real Estate – Non-Owner Occupied				Added a weighted-average 0.5 years to the life of loans.
Residential 1-4 Family – Consumer				Added a weighted-average 10.7 years to the life of loans.

Combination - Term Extension and Interest Rate Reduction
Loan Type				Financial Effect
Residential 1-4 Family – Consumer				Added a weighted-average 20.3 years to the life of loans and reduced the weighted average contractual interest rate from 8.2% to 7.6%.
Residential 1-4 Family – Revolving				Added a weighted-average 19.1 years to the life of loans and reduced the weighted average contractual interest rate from 10.5% to 7.3%.

Principal Forgiveness
Loan Type				Financial Effect
Commercial Real Estate – Non-Owner Occupied				Reduced the amortized cost basis of loans by $3.5 million.

The Company considers a default of a TLM to occur when the borrower is 90 days past due following the modification or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30, 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 September 30, 2023, no loans that have been modified and designated as TLMs are past due.

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Table of Contents

Allowance for Loan and Lease Losses

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

●

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

●

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

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

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Commercial

Consumer

Total

Commercial

Consumer

Total

Balance at beginning of period

92,970

27,713

120,683

82,753

28,015

110,768

Loans charged-off

(788)

(841)

(1,629)

(7,589)

(2,368)

(9,957)

Recoveries credited to allowance

878

457

1,335

1,911

1,626

3,537

Provision charged to operations

5,880

(642)

5,238

21,865

(586)

21,279

Balance at end of period

98,940

26,687

125,627

98,940

26,687

125,627


	Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	77,413	$	26,771	$	104,184	$	77,902	$	21,885	$	99,787
Loans charged-off		(1,086)		(715)		(1,801)		(2,852)		(2,415)		(5,267)
Recoveries credited to allowance		605		609		1,214		1,723		2,022		3,745
Provision charged to operations		6,969		(2,557)		4,412		7,128		2,616		9,744
Balance at end of period	$	83,901	$	24,108	$	108,009	$	83,901	$	24,108	$	108,009

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

Credit Quality Indicators

The Company’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 and for further information on the Company’s credit quality indicators.

Commercial Loans

The table below details the amortized cost and gross write-offs of the classes of loans within the Commercial segment by risk level and year of origination as of September 30, 2023 (dollars in thousands):

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Table of Contents


		September 30, 2023
		Term Loans Amortized Cost Basis by Origination Year											Revolving
	2023		2022		2021		2020		2019		Prior		Loans		Total
Construction and Land Development
Pass	$	168,844	$	459,943	$	329,757	$	22,020	$	12,638	$	42,963	$	45,247	$	1,081,412
Watch		106		4,432		16,493		—		—		836		—		21,867
Special Mention		168		—		4,514		—		—		350		—		5,032
Substandard		23		1,244		1,824		21,208		205		125		—		24,629
Total Construction and Land Development	$	169,141	$	465,619	$	352,588	$	43,228	$	12,843	$	44,274	$	45,247	$	1,132,940
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(11)	$	—	$	(11)

Commercial Real Estate – Owner Occupied
Pass	$	123,946	$	261,768	$	196,135	$	246,359	$	264,095	$	763,587	$	23,835	$	1,879,725
Watch		—		1,325		4,021		2,815		9,671		26,719		847		45,398
Special Mention		788		859		251		—		992		10,312		464		13,666
Substandard		370		—		—		337		4,196		31,589		—		36,492
Total Commercial Real Estate – Owner Occupied	$	125,104	$	263,952	$	200,407	$	249,511	$	278,954	$	832,207	$	25,146	$	1,975,281
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate – Non-Owner Occupied
Pass	$	310,417	$	526,072	$	714,965	$	342,131	$	483,006	$	1,494,449	$	23,728	$	3,894,768
Watch		—		—		1,691		7,754		27,825		76,136		4		113,410
Special Mention		—		—		—		—		18,980		57,063		11,855		87,898
Substandard		4,936		—		2,139		11,298		5,939		27,830		—		52,142
Total Commercial Real Estate – Non-Owner Occupied	$	315,353	$	526,072	$	718,795	$	361,183	$	535,750	$	1,655,478	$	35,587	$	4,148,218
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(3,528)	$	—	$	(3,528)

Commercial & Industrial
Pass	$	730,110	$	677,320	$	449,135	$	213,937	$	131,347	$	160,071	$	887,127	$	3,249,047
Watch		596		23,517		186		1,346		18,017		4,814		25,128		73,604
Special Mention		1,809		21,723		1,094		6,890		2,753		1,848		23,984		60,101
Substandard		—		150		468		2,109		3,853		3,438		39,549		49,567
Total Commercial & Industrial	$	732,515	$	722,710	$	450,883	$	224,282	$	155,970	$	170,171	$	975,788	$	3,432,319
Current period gross writeoff	$	—	$	—	$	(6)	$	—	$	—	$	(18)	$	(1,813)	$	(1,837)

Multifamily Real Estate
Pass	$	14,082	$	117,935	$	244,089	$	223,382	$	46,431	$	254,568	$	28,521	$	929,008
Watch		—		—		—		—		—		395		—		395
Special Mention		—		—		—		250		3,734		232		—		4,216
Substandard		—		—		—		13,534		—		—		—		13,534
Total Multifamily Real Estate	$	14,082	$	117,935	$	244,089	$	237,166	$	50,165	$	255,195	$	28,521	$	947,153
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential 1-4 Family – Commercial
Pass	$	29,169	$	63,380	$	78,926	$	71,358	$	46,347	$	212,109	$	1,070	$	502,359
Watch		49		390		586		223		765		6,124		109		8,246
Special Mention		48		—		—		—		—		1,323		—		1,371
Substandard		—		—		618		182		604		3,401		253		5,058
Total Residential 1-4 Family – Commercial	$	29,266	$	63,770	$	80,130	$	71,763	$	47,716	$	222,957	$	1,432	$	517,034
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Other Commercial
Pass	$	235,254	$	126,200	$	149,863	$	84,078	$	123,799	$	65,234	$	24,947	$	809,375
Watch		—		—		—		32		8		3,410		—		3,450
Special Mention		98		—		—		—		—		649		—		747
Substandard		—		—		—		—		—		—		15		15
Total Other Commercial	$	235,352	$	126,200	$	149,863	$	84,110	$	123,807	$	69,293	$	24,962	$	813,587
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	(2,213)	$	—	$	(2,213)

Total Commercial
Pass	$	1,611,822	$	2,232,618	$	2,162,870	$	1,203,265	$	1,107,663	$	2,992,981	$	1,034,475	$	12,345,694
Watch		751		29,664		22,977		12,170		56,286		118,434		26,088		266,370
Special Mention		2,911		22,582		5,859		7,140		26,459		71,777		36,303		173,031
Substandard		5,329		1,394		5,049		48,668		14,797		66,383		39,817		181,437
Total Commercial	$	1,620,813	$	2,286,258	$	2,196,755	$	1,271,243	$	1,205,205	$	3,249,575	$	1,136,683	$	12,966,532
Total current period gross writeoff	$	—	$	—	$	(6)	$	—	$	—	$	(5,770)	$	(1,813)	$	(7,589)

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Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 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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Table of Contents

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 September 30, 2023 (dollars in thousands):


		September 30, 2023
		Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Residential 1-4 Family – Consumer
Current	$	101,653	$	255,179	$	270,580	$	155,239	$	33,221	$	224,635	$	12	$	1,040,519
30-59 Days Past Due		47		97		33		173		—		650		—		1,000
60-89 Days Past Due		—		427		149		—		—		1,199		—		1,775
90+ Days Past Due		49		—		1,719		—		—		1,864		—		3,632
Nonaccrual		—		491		565		—		106		9,206		—		10,368
Total Residential 1-4 Family – Consumer	$	101,749	$	256,194	$	273,046	$	155,412	$	33,327	$	237,554	$	12	$	1,057,294
Current period gross writeoff	$	—	$	(16)	$	—	$	—	$	(69)	$	(39)	$	—	$	(124)

Residential 1-4 Family – Revolving
Current	$	36,058	$	56,777	$	12,148	$	4,517	$	1,059	$	1,165	$	480,024	$	591,748
30-59 Days Past Due		—		135		—		—		—		—		2,191		2,326
60-89 Days Past Due		183		—		—		—		—		—		419		602
90+ Days Past Due		—		—		—		—		—		—		1,034		1,034
Nonaccrual		—		157		27		53		—		—		3,335		3,572
Total Residential 1-4 Family – Revolving	$	36,241	$	57,069	$	12,175	$	4,570	$	1,059	$	1,165	$	487,003	$	599,282
Current period gross writeoff	$	—	$	—	$	(3)	$	—	$	—	$	—	$	(26)	$	(29)

Auto
Current	$	84,225	$	229,046	$	118,931	$	59,340	$	28,926	$	10,261	$	—	$	530,729
30-59 Days Past Due		229		905		851		317		315		86		—		2,703
60-89 Days Past Due		—		68		95		69		73		34		—		339
90+ Days Past Due		29		88		65		21		1		25		—		229
Nonaccrual		10		171		68		73		39		—		—		361
Total Auto	$	84,493	$	230,278	$	120,010	$	59,820	$	29,354	$	10,406	$	—	$	534,361
Current period gross writeoff	$	(23)	$	(410)	$	(171)	$	(101)	$	(60)	$	(48)	$	—	$	(813)

Consumer
Current	$	10,803	$	26,226	$	11,550	$	8,635	$	17,174	$	25,877	$	25,107	$	125,372
30-59 Days Past Due		49		136		55		19		95		133		30		517
60-89 Days Past Due		12		5		12		24		59		19		33		164
90+ Days Past Due		10		40		37		4		—		7		—		98
Nonaccrual		—		—		—		—		—		—		—		—
Total Consumer	$	10,874	$	26,407	$	11,654	$	8,682	$	17,328	$	26,036	$	25,170	$	126,151
Current period gross writeoff	$	(15)	$	(65)	$	(90)	$	(652)	$	(14)	$	(510)	$	(56)	$	(1,402)

Total Consumer
Current	$	232,739	$	567,228	$	413,209	$	227,731	$	80,380	$	261,938	$	505,143	$	2,288,368
30-59 Days Past Due		325		1,273		939		509		410		869		2,221		6,546
60-89 Days Past Due		195		500		256		93		132		1,252		452		2,880
90+ Days Past Due		88		128		1,821		25		1		1,896		1,034		4,993
Nonaccrual		10		819		660		126		145		9,206		3,335		14,301
Total Consumer	$	233,357	$	569,948	$	416,885	$	228,484	$	81,068	$	275,161	$	512,185	$	2,317,088
Total current period gross writeoff	$	(38)	$	(491)	$	(264)	$	(753)	$	(143)	$	(597)	$	(82)	$	(2,368)

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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 nine months ended September 30, 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 three and nine months ended September 30, 2022 were not significant.

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

The following table provides a summary, by class, of TDRs that continued to accrue interest under the terms of the applicable restructuring agreement, which were considered to be performing, and TDRs that had been placed on nonaccrual status, which were considered to be nonperforming, as of December 31, 2022 (dollars in thousands):


	December 31, 2022
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	3	$	155	$	—
Commercial Real Estate – Owner Occupied	2		997		—
Commercial & Industrial	1		93		—
Residential 1-4 Family – Consumer	83		7,761		—
Residential 1-4 Family – Revolving	3		254		5
Consumer	1		13		—
Total performing	93	$	9,273	$	5
Nonperforming
Commercial Real Estate – Owner Occupied	1	$	15	$	—
Commercial Real Estate – Non-Owner Occupied	2		233		—
Commercial & Industrial	2		375		—
Residential 1-4 Family – Commercial	3		332		—
Residential 1-4 Family – Consumer	23		3,869		—
Residential 1-4 Family – Revolving	3		93		—
Total nonperforming	34	$	4,917	$	—
Total performing and nonperforming	127	$	14,190	$	5

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

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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 September 30, 2023 and December 31, 2022 (dollars in thousands):


	Wholesale Banking		Consumer Banking		Corporate Other		Total
September 30, 2023
Goodwill	$	639,180	$	286,031	$	—	$	925,211
Intangible Assets		1,366		1,108		18,803		21,277
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 September 30, 2023 and 2022 totaled $2.2 million and $2.5 million, respectively. Amortization expense of intangibles for the nine months ended September 30, 2023 and 2022 totaled $6.7 million and $8.4 million, respectively.

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


For the remaining three months of 2023	$	2,095
2024		6,936
2025		5,289
2026		3,654
2027		2,068
Thereafter		1,235
Total estimated amortization expense	$	21,277

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

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


	September 30, 2023		December 31, 2022
Sales-type and direct financing leases:
Lease receivables, net of unearned income and deferred selling profit	$	325,556	$	266,380
Unguaranteed residual values, net of unearned income and deferred selling profit		16,711		15,159
Total net investment in sales-type and direct financing leases	$	342,267	$	281,539

Lessee Arrangements

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

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

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


	September 30, 2023						December 31, 2022
	Operating			Finance			Operating			Finance
ROU assets	$	68,807		$	4,899		$	35,729		$	5,588
Lease liabilities		75,502			7,369			47,696			8,288
Lease Term and Discount Rate of Operating leases:
Weighted-average remaining lease term (years)		11.66			5.33			6.80			6.08
Weighted-average discount rate ⁽¹⁾		6.06	%		1.17	%		2.91	%		1.17	%

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

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	Nine months ended September 30,
	2023		2022
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Finance Leases	$	68	$	79
Operating Cash Flows from Operating Leases		8,902		8,514
Financing Cash Flows from Finance Leases		919		885
ROU assets obtained in exchange for lease obligations:
Operating leases	$	38,318	$	1,268


	Three months ended September 30,				Nine months ended September 30,
		2023		2022		2023		2022
Net Operating Lease Cost	$	2,381	$	2,117	$	7,291	$	6,658
Finance Lease Cost:
Amortization of right-of-use assets		230		230		689		689
Interest on lease liabilities		22		25		68		79
Total Lease Cost	$	2,633	$	2,372	$	8,048	$	7,426

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


	September 30, 2023
	Lessor		Lessee
		Sales-type and Direct Financing	Operating		Finance
For the remaining three months of 2023	$	20,314	$	3,536	$	337
2024		84,391		13,666		1,358
2025		73,581		11,603		1,392
2026		62,743		9,146		1,427
2027		50,928		7,759		1,462
Thereafter		76,765		66,137		1,627
Total undiscounted cash flows		368,722		111,847		7,603
Less: Adjustments ⁽¹⁾		43,166		36,345		234
Total ⁽²⁾	$	325,556	$	75,502	$	7,369

⁽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 September 30, 2023 and December 31, 2022 (dollars in thousands):


	September 30,			December 31,
	2023			2022
Securities sold under agreements to repurchase	$	134,936		$	142,837
Federal Funds Purchased		—			160,000
FHLB Advances		495,000			1,016,000
Total short-term borrowings	$	629,936		$	1,318,837

Average outstanding balance during the period	$	633,896		$	302,060
Average interest rate during the period		4.66	%		1.79	%
Average interest rate at end of period		5.12	%		3.89	%

The Bank maintains federal funds lines with several correspondent banks; the available balance was $737.0 million and $1.0 billion at September 30, 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 September 30, 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 was in compliance with these covenants as of September 30, 2023 and December 31, 2022. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $6.2 billion at September 30, 2023 and $6.0 billion at December 31, 2022. The remaining credit availability on the collateral dependent line of credit with the FHLB was $5.7 billion and $4.9 billion at September 30, 2023 and December 31, 2022, respectively. Refer to Note 7 “Commitments and Contingencies” for additional information on the Company’s pledged collateral.

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

Long-term Borrowings

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

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

Spread to

Principal

3-Month SOFR ⁽¹⁾

Rate ⁽²⁾

Maturity

Investment ⁽³⁾

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

22,500

2.75

8.41

6/17/2034

696

Trust Preferred Capital Note - Statutory Trust II

36,000

1.40

7.06

6/15/2036

1,114

VFG Limited Liability Trust I Indenture

20,000

2.73

8.39

3/18/2034

619

FNB Statutory Trust II Indenture

12,000

3.10

8.76

6/26/2033

372

Gateway Capital Statutory Trust I

8,000

3.10

8.76

9/17/2033

248

Gateway Capital Statutory Trust II

7,000

2.65

8.31

6/17/2034

217

Gateway Capital Statutory Trust III

15,000

1.50

7.16

5/30/2036

464

Gateway Capital Statutory Trust IV

25,000

1.55

7.21

7/30/2037

774

MFC Capital Trust II

5,000

2.85

8.51

1/23/2034

155

Total Trust Preferred Capital Securities

150,500

4,659

Subordinated Debt ⁽⁴⁾

2031 Subordinated Debt

250,000

—

2.875

12/15/2031

Total Subordinated Debt ⁽⁵⁾

250,000

Fair Value Discount ⁽⁶⁾

(14,426)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

390,733

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

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

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

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

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

⁽⁶⁾Remaining discounts of $11.9 million and $2.6 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 ⁽¹⁾		Rate ⁽²⁾		Maturity	Investment ⁽³⁾
Trust Preferred Capital Securities
Trust Preferred Capital Note - Statutory Trust I	$	22,500	2.75	%	7.52	%	6/17/2034	$	696
Trust Preferred Capital Note - Statutory Trust II		36,000	1.40	%	6.17	%	6/15/2036		1,114
VFG Limited Liability Trust I Indenture		20,000