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, 2021

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 NASDAQ Global Select Market
Depositary Shares, Each Representing a 1/400^th Interest in a Share of 6.875% Perpetual Non-Cumulative Preferred Stock, Series A	AUBAP	The NASDAQ Global Select Market

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 29, 2021 was 79,010,443.

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, 2021 (unaudited) and December 31, 2020 (audited)	2

	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2021 and 2020	3

	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2021 and 2020	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2021 and 2020	5

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2021 and 2020	6

	Notes to Consolidated Financial Statements (unaudited)	8

	Review Report of Independent Registered Public Accounting Firm	49

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79

Item 4.	Controls and Procedures	81

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	82

Item 1A.	Risk Factors	82

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82

Item 6.	Exhibits	83

	Signatures	84

Table of Contents

Glossary of Acronyms and Defined Terms


2020 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, 2020
Access	–	Access National Corporation and its subsidiaries
ACL	–	Allowance for credit losses
AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALLL	–	Allowance for loan and lease losses, a component of ACL
AOCI	–	Accumulated other comprehensive income (loss)
ASC	–	Accounting Standards Codification
ASC 326	–	ASU 2016-13, Financial Instruments and Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASC 820	–	ASC 820, Fair Value Measurements and Disclosures
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Atlantic Union Bank (formerly, Union Bank & Trust)
BOLI	–	Bank-owned life insurance
bps	–	Basis points
CAA	–	Consolidated Appropriations Act, 2021
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
CECL	–	Current expected credit losses
the Company	–	Atlantic Union Bankshares Corporation (formerly, Union Bankshares Corporation) and its subsidiaries
COVID-19	–	COVID-19 global pandemic
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)
Dodd-Frank Act	–	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS	–	Earnings per common share
Exchange Act	–	Securities Exchange Act of 1934, as amended
FASB	–	Financial Accounting Standards Board
FCMs	–	Futures Commission Merchants
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
Federal Reserve Act	–	Federal Reserve Act of 1913, as amended
Federal Reserve Bank or FRB	–	Federal Reserve Bank of Richmond
FHLB	–	Federal Home Loan Bank of Atlanta
FOMC	–	Federal Open Markets Committee
FTE	–	Fully taxable equivalent
GAAP or U.S. GAAP	–	Accounting principles generally accepted in the United States
HTM	–	Held to maturity
ICE Data Services	–	Intercontinental Exchange Data Services
the Joint Guidance	–	The five federal bank regulatory agencies and the Conference of State Bank Supervisors guidance issued on March 22, 2020 (subsequently revised on April 7, 2020)
LIBOR	–	London Interbank Offered Rate
MBS	–	Mortgage Backed Securities
MD&A	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NOW	–	Negotiable order of withdrawal
NPA	–	Nonperforming assets
NSF	–	Nonsufficient funds
OCI	–	Other comprehensive income

Table of Contents

OREO	–	Other real estate owned
OTTI	–	Other than temporary impairment
PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
PD/LGD	–	Probability of default/loss given default
PPPLF	–	Paycheck Protection Program Liquidity Facility
PPP	–	Paycheck Protection Program
PPP Round One	–	Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act
PPP Round Two	–	Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Consolidated Appropriations Act, 2021
Quarterly Report	–	Quarterly Report on Form 10-Q for the quarter ended March 31, 2021
ROA	–	Return on average assets
ROE	–	Return on average common equity
ROTCE	–	Return on average tangible common equity
ROU Asset	–	Right of Use Asset
RUC	–	Reserve for unfunded commitments
RVI	–	Residual value insurance
SBA	–	Small Business Administration
SEC	–	Securities and Exchange Commission
Series A preferred stock	–	6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share
SSFA	–	Simplified supervisory formula approach
TDR	–	Troubled debt restructuring
Topic 606	–	ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”
Topic 740	–	ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”
Topic 848	–	ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
TFSB	–	The Federal Savings Bank
Xenith	–	Xenith Bankshares, Inc. and its subsidiaries

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	March 31,		December 31,
	2021		2020
ASSETS		(unaudited)		(audited)
Cash and cash equivalents:
Cash and due from banks	$	155,972	$	172,307
Interest-bearing deposits in other banks		244,593		318,974
Federal funds sold		315		2,013
Total cash and cash equivalents		400,880		493,294
Securities available for sale, at fair value		2,697,043		2,540,419
Securities held to maturity, at carrying value		543,575		544,851
Restricted stock, at cost		76,824		94,782
Loans held for sale, at fair value		49,082		96,742
Loans held for investment, net of deferred fees and costs		14,272,280		14,021,314
Less allowance for loan and lease losses		142,911		160,540
Total loans held for investment, net		14,129,369		13,860,774
Premises and equipment, net		161,478		163,829
Goodwill		935,560		935,560
Amortizable intangibles, net		53,471		57,185
Bank owned life insurance		328,627		326,892
Other assets		478,703		514,121
Total assets	$	19,854,612	$	19,628,449
LIABILITIES
Noninterest-bearing demand deposits	$	5,066,399	$	4,368,703
Interest-bearing deposits		11,231,618		11,354,062
Total deposits		16,298,017		15,722,765
Securities sold under agreements to repurchase		105,522		100,888
Other short-term borrowings		168,000		250,000
Long-term borrowings		290,078		489,829
Other liabilities		283,263		356,477
Total liabilities		17,144,880		16,919,959
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock, $10.00 par value		173		173
Common stock, $1.33 par value		104,493		104,169
Additional paid-in capital		1,918,991		1,917,081
Retained earnings		649,574		616,052
Accumulated other comprehensive income (loss)		36,501		71,015
Total stockholders' equity		2,709,732		2,708,490
Total liabilities and stockholders' equity	$	19,854,612	$	19,628,449

Common shares outstanding		79,006,331		78,729,212
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)

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


	Three Months Ended
	March 31,		March 31,
	2021		2020
Interest and dividend income:
Interest and fees on loans	$	128,006	$	151,127
Interest on deposits in other banks		77		862
Interest and dividends on securities:
Taxable		10,353		11,627
Nontaxable		9,237		7,709
Total interest and dividend income		147,673		171,325
Interest expense:
Interest on deposits		9,128		28,513
Interest on short-term borrowings		48		1,340
Interest on long-term borrowings		3,599		6,464
Total interest expense		12,775		36,317
Net interest income		134,898		135,008
Provision for credit losses		(13,624)		60,196
Net interest income after provision for credit losses		148,522		74,812
Noninterest income:
Service charges on deposit accounts		5,509		7,578
Other service charges, commissions and fees		1,701		1,624
Interchange fees		1,847		1,625
Fiduciary and asset management fees		6,475		5,984
Mortgage banking income		8,255		2,022
Gains on securities transactions		78		1,936
Bank owned life insurance income		2,265		2,049
Loan-related interest rate swap fees		1,754		3,948
Other operating income		3,101		2,141
Total noninterest income		30,985		28,907
Noninterest expenses:
Salaries and benefits		52,660		50,117
Occupancy expenses		7,315		7,133
Furniture and equipment expenses		3,968		3,741
Technology and data processing		6,904		6,169
Professional services		4,960		3,307
Marketing and advertising expense		2,044		2,739
FDIC assessment premiums and other insurance		2,307		2,861
Other taxes		4,436		4,120
Loan-related expenses		1,877		2,697
OREO and credit-related expenses		(114)		688
Amortization of intangible assets		3,730		4,401
Loss on debt extinguishment		14,695		—
Other expenses		7,155		7,672
Total noninterest expenses		111,937		95,645
Income from continuing operations before income taxes		67,570		8,074
Income tax expense		11,381		985
Net income		56,189		7,089
Dividends on preferred stock		2,967		—
Net income available to common shareholders	$	53,222	$	7,089

Basic earnings per common share	$	0.67	$	0.09
Diluted earnings per common share	$	0.67	$	0.09
Dividends declared per common share	$	0.25	$	0.25
Basic weighted average number of common shares outstanding		78,863,468		79,290,352
Diluted weighted average number of common shares outstanding		78,884,235		79,317,382

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended
	March 31,
	2021		2020
Net income	$	56,189	$	7,089
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges		(1,428)		(699)
Reclassification adjustment for losses (gains) included in net income (net of tax, $12 and $394 for the three months ended March 31, 2021 and 2020, respectively)⁽¹⁾		(47)		1,481
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $8,806 and $3,904 for the three months ended March 31, 2021 and 2020, respectively)		(33,125)		14,687
Reclassification adjustment for gains included in net income (net of tax, $16 and $407 for the three months ended March 31, 2021 and 2020, respectively) ⁽²⁾		(62)		(1,529)
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, 2021 and 2020, respectively)⁽³⁾		(5)		(5)
Bank owned life insurance:
Unrealized holding losses arising during the period		—		(1,289)
Reclassification adjustment for losses included in net income ⁽⁴⁾		153		108
Other comprehensive income (loss)		(34,514)		12,754
Comprehensive income	$	21,675	$	19,843

(1)

The gross amounts reclassified into earnings for the three months ended March 31, 2020 included a $1.8 million loss related to the termination of a cash flow hedge that is reported in “Other operating income” with the corresponding income tax effect being reflected as a component of income tax expense. The remaining gross amounts are reported in the interest income and interest expense sections of the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.

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

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

(4)	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, 2021 and 2020

(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, 2019	$	105,827	$	—	$	1,790,305	$	581,395	$	35,575	$	2,513,102
Net Income								7,089				7,089
Other comprehensive income (net of taxes of $3,890)										12,754		12,754
Dividends on common stock ($0.25 per share)								(19,825)				(19,825)
Stock purchased under stock repurchase plan (1,493,472 shares)		(1,985)				(47,894)						(49,879)
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (183,750 shares)		244				(1,273)						(1,029)
Impact of adoption of ASC 326								(39,053)				(39,053)
Stock-based compensation expense						2,291						2,291
Balance- March 31, 2020	$	104,086	$	—	$	1,743,429	$	529,606	$	48,329	$	2,425,450

Balance - December 31, 2020	$	104,169	$	173	$	1,917,081	$	616,052	$	71,015	$	2,708,490
Net Income								56,189				56,189
Other comprehensive loss (net of taxes of $8,835)										(34,514)		(34,514)
Dividends on common stock ($0.25 per share)								(19,700)				(19,700)
Dividends on preferred stock ($171.88 per share)								(2,967)				(2,967)
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (243,884 shares)		324				(289)						35
Stock-based compensation expense						2,199						2,199
Balance - March 31, 2021	$	104,493	$	173	$	1,918,991	$	649,574	$	36,501	$	2,709,732

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, 2021 AND 2020


(Dollars in thousands)	2021		2020
Operating activities:
Net income	$	56,189	$	7,089
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of premises and equipment		3,969		3,831
Writedown of foreclosed properties and former bank premises		1,065		95
Amortization, net		7,904		6,164
Accretion related to acquisitions, net		(532)		(5,262)
Provision for credit losses		(13,624)		60,196
Gains on securities transactions, net		(78)		(1,936)
BOLI income		(2,265)		(2,049)
Originations and purchases of loans held for sale		(185,885)		(111,008)
Proceeds from sales of loans held for sale		231,250		92,298
Losses (gains) on sales of foreclosed properties and former bank premises, net		(706)		141
Losses on debt extinguishment		14,695		—
Stock-based compensation expenses		2,199		2,291
Issuance of common stock for services		—		204
Net decrease (increase) in other assets		42,567		(112,493)
Net increase (decrease) in other liabilities		(72,375)		110,796
Net cash provided by operating activities		84,373		50,357
Investing activities:
Purchases of AFS securities and restricted stock		(355,992)		(208,318)
Proceeds from sales of AFS securities and restricted stock		45,436		120,701
Proceeds from maturities, calls and paydowns of AFS securities		124,053		81,240
Proceeds from maturities, calls and paydowns of HTM securities		432		2,042
Net increase in loans held for investment		(250,762)		(152,891)
Net increase in premises and equipment		(3,520)		(3,994)
Proceeds from BOLI settlements		556		—
Proceeds from sales of foreclosed properties and former bank premises		2,431		2,095
Net cash used in investing activities		(437,366)		(159,125)
Financing activities:
Net increase in noninterest-bearing deposits		697,696		97,434
Net increase (decrease) in interest-bearing deposits		(122,424)		150,670
Net increase (decrease) in short-term borrowings		(77,366)		528
Repayments of long-term debt		(214,695)		—
Cash dividends paid - common stock		(19,700)		(19,825)
Cash dividends paid - preferred stock		(2,967)		—
Repurchase of common stock		—		(49,879)
Issuance of common stock		2,183		777
Vesting of restricted stock, net of shares held for taxes		(2,148)		(2,010)
Net cash provided by financing activities		260,579		177,695
Increase (decrease) in cash and cash equivalents		(92,414)		68,927
Cash, cash equivalents, and restricted cash at beginning of the period		493,294		436,032
Cash, cash equivalents, and restricted cash at end of the period	$	400,880	$	504,959

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(Dollars in thousands)


	2021		2020
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	11,502	$	34,755

Supplemental schedule of noncash investing and financing activities
Transfers from loans to foreclosed properties		—		615
Transfers from bank premises to OREO		1,425		—
Transfers from LHFI to LHFS		—		2,001

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 (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 129 branches and approximately 150 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Atlantic Union Bank Wealth Management is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank affiliates of Atlantic Union Bank include: Old Dominion Capital Management, Inc., and its subsidiary, Outfitter Advisors, Ltd., and Dixon, Hubard, Feinour, & Brown, Inc., which provide investment advisory services, Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

Effective March 1, 2021, Middleburg Financial, the Bank’s wealth management division was rebranded to Atlantic Union Bank Wealth Management, and Middleburg Investment Services, LLC changed its name to Atlantic Union Financial Consultants, LLC.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management all adjustments necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other period.

The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 2020 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Adoption of New Accounting Standards

In March 2020, the FASB issued Topic 848. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. Global capital markets are going to be required to move away from LIBOR and other interbank offered rates and toward rates that are more observable or transaction based and less susceptible to manipulation. Topic 848 provides optional expedients and exceptions 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. Topic 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective as of March 12, 2020 through December 31, 2022 and can be adopted at an instrument level. As of March 31, 2021, the Company utilized the expedient to assert probability of the hedged interest, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. The Company expects to incorporate other components of Topic 848 at a later date. This amendment does not have a material impact on the consolidated financial statements.

On January 1, 2021, the Company adopted Topic 740. This guidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information difficult for users of financial statements to understand. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company’s adoption of Topic 740 did not have a material impact on the consolidated financial statements.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash, cash due from banks, interest-bearing deposits in other banks, money market investments, other interest-bearing deposits, and federal funds sold.

Restricted cash is disclosed in Note 7 “Commitments and Contingencies” and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other

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banks in the Company’s Consolidated Balance Sheets. In addition, the Company is required to maintain reserve balances with the Federal Reserve Bank based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions.

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 $57.4 million and $56.7 million on loans held for investment, $5.1 million and $6.8 million on HTM securities, and $11.7 million and $11.9 million on AFS securities at March 31, 2021 and December 31, 2020, respectfully, 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, 2021 and March 31, 2020, 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, 2021 and December 31, 2020.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of March 31, 2021 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Cost

Gains

(Losses)

Fair Value

March 31, 2021

U.S. government and agency securities

11,470

254

(47)

11,677

Obligations of states and political subdivisions

868,297

35,757

(4,956)

899,098

Corporate and other bonds ⁽¹⁾

145,403

2,448

(243)

147,608

Commercial mortgage-backed securities

Agency

316,527

11,260

(1,615)

326,172

Non-agency

58,691

(110)

58,660

Total commercial mortgage-backed securities

375,218

11,339

(1,725)

384,832

Residential mortgage-backed securities

Agency

1,138,014

26,812

(13,668)

1,151,158

Non-agency

100,036

1,521

(512)

101,045

Total residential mortgage-backed securities

1,238,050

28,333

(14,180)

1,252,203

Other securities

1,625

—

1,625

Total AFS securities

2,640,063

78,131

(21,151)

2,697,043

(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, 2020 are summarized as follows (dollars in thousands):


	Amortized		Gross Unrealized				Estimated
	Cost		Gains		(Losses)		Fair Value
December 31, 2020
U.S. government and agency securities	$	13,009	$	437	$	(52)	$	13,394
Obligations of states and political subdivisions		786,466		50,878		(18)		837,326
Corporate and other bonds ⁽¹⁾		148,747		2,430		(99)		151,078
Commercial mortgage-backed securities
Agency		321,015		16,277		(2)		337,290
Non-agency		51,244		167		(17)		51,394
Total commercial mortgage-backed securities		372,259		16,444		(19)		388,684
Residential mortgage-backed securities
Agency		1,012,237		31,816		(1,946)		1,042,107
Non-agency		104,904		1,507		(206)		106,205
Total residential mortgage-backed securities		1,117,141		33,323		(2,152)		1,148,312
Other securities		1,625		—		—		1,625
Total AFS securities	$	2,439,247	$	103,512	$	(2,340)	$	2,540,419

⁽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 for which an ACL has not been recorded at March 31, 2021 and December 31, 2020 and that are not deemed to be impaired as of those dates. 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		Losses		Value		Losses
March 31, 2021
U.S. government and agency securities	$	—	$	—	$	4,899	$	(47)	$	4,899	$	(47)
Obligations of states and political subdivisions		271,172		(4,956)		—		—		271,172		(4,956)
Corporate and other bonds⁽¹⁾		42,612		(237)		4,785		(6)		47,397		(243)
Commercial mortgage-backed securities
Agency		65,708		(1,614)		359		(1)		66,067		(1,615)
Non-agency		26,736		(110)		—		—		26,736		(110)
Total commercial mortgage-backed securities		92,444		(1,724)		359		(1)		92,803		(1,725)
Residential mortgage-backed securities
Agency		558,523		(13,650)		1,175		(18)		559,698		(13,668)
Non-agency		36,031		(491)		10,070		(21)		46,101		(512)
Total residential mortgage-backed securities		594,554		(14,141)		11,245		(39)		605,799		(14,180)
Total AFS securities	$	1,000,782	$	(21,058)	$	21,288	$	(93)	$	1,022,070	$	(21,151)

December 31, 2020
U.S. government and agency securities	$	—	$	—	$	5,456	$	(52)	$	5,456	$	(52)
Obligations of states and political subdivisions		5,091		(18)		—		—		5,091		(18)
Corporate and other bonds⁽¹⁾		17,946		(52)		10,698		(47)		28,644		(99)
Commercial mortgage-backed securities
Agency		5,893		(2)		376		—		6,269		(2)
Non-agency		17,654		(17)		—		—		17,654		(17)
Total commercial mortgage-backed securities		23,547		(19)		376		—		23,923		(19)
Residential mortgage-backed securities
Agency		219,388		(1,944)		1,055		(2)		220,443		(1,946)
Non-agency		36,942		(206)		—		—		36,942		(206)
Total residential mortgage-backed securities		256,330		(2,150)		1,055		(2)		257,385		(2,152)
Total AFS securities	$	302,914	$	(2,239)	$	17,585	$	(101)	$	320,499	$	(2,340)

⁽¹⁾ Other bonds includes asset-backed securities.

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As of March 31, 2021, there were $21.3 million, or 12 instances, of individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $93,000. As of December 31, 2020, there were $17.6 million, or 15 instances, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $101,000.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at March 31, 2021 and December 31, 2020 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, (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 mortgage-backed securities 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% SSFA rating.

The following table presents the amortized cost and estimated fair value of AFS securities as of March 31, 2021 and December 31, 2020, by contractual maturity. 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 (dollars in thousands).


	March 31, 2021				December 31, 2020
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	18,007	$	18,168	$	19,875	$	19,997
Due after one year through five years		166,575		172,723		161,448		169,103
Due after five years through ten years		233,566		239,838		235,021		242,791
Due after ten years		2,221,915		2,266,314		2,022,903		2,108,528
Total AFS securities	$	2,640,063	$	2,697,043	$	2,439,247	$	2,540,419

Refer to Note 7 "Commitments and Contingencies" for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of March 31, 2021 and December 31, 2020.

Held to Maturity

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities and the estimated credit loss inherent in the portfolio is currently immaterial. The Company’s HTM securities were all current, with no securities past due or on non-accrual at March 31, 2021 and December 31, 2020.

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

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The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of March 31, 2021 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

Value

Gains

(Losses)

Fair Value

March 31, 2021

U.S. government and agency securities

2,676

—

(31)

2,645

Obligations of states and political subdivisions

535,634

62,880

—

598,514

Commercial mortgage-backed securities

Agency

5,265

(66)

5,200

Non-agency

—

Total commercial mortgage-backed securities

5,265

(66)

5,200

Total held-to-maturity securities

543,575

62,881

(97)

606,359

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2020 are summarized as follows (dollars in thousands):


	Carrying		Gross Unrealized				Estimated
	Value		Gains		(Losses)		Fair Value
December 31, 2020
U.S. government and agency securities	$	2,751	$	—	$	(18)	$	2,733
Obligations of states and political subdivisions		536,767		74,978		—		611,745
Commercial mortgage-backed securities
Agency		5,333		4		(50)		5,287
Non-agency		—		—		—		—
Total commercial mortgage-backed securities		5,333		4		(50)		5,287
Total held-to-maturity securities	$	544,851	$	74,982	$	(68)	$	619,765

Credit Quality Indicators & Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at March 31, 2021 and December 31, 2020. 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 Company’s only 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, 2021 and December 31, 2020 by security type and credit rating (dollars in thousands):


	U.S. Government and Agency		Obligations of states and political		Mortgage-backed		Total HTM
	securities		subdivisions		securities		securities
March 31, 2021
Credit Rating:
AAA/AA/A	$	—	$	531,203	$	—	$	531,203
Not Rated - Agency⁽¹⁾		2,676		—		5,265		7,941
Not Rated - Non-Agency		—		4,431		—		4,431
Total	$	2,676	$	535,634	$	5,265	$	543,575
December 31, 2020
Credit Rating:
AAA/AA/A	$	—	$	532,157	$	—	$	532,157
Not Rated - Agency⁽¹⁾		2,751		—		5,333		8,084
Not Rated - Non-Agency		—		4,610		—		4,610
Total	$	2,751	$	536,767	$	5,333	$	544,851

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

The following table presents the amortized cost and estimated fair value of HTM securities as of March 31, 2021 and December 31, 2020, by contractual maturity. 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 (dollars in thousands).


	March 31, 2021				December 31, 2020
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Due in one year or less	$	1,441	$	1,449	$	1,443	$	1,460
Due after one year through five years		8,518		8,786		8,577		8,893
Due after five years through ten years		1,680		1,719		1,744		1,805
Due after ten years		531,936		594,405		533,087		607,607
Total HTM securities	$	543,575	$	606,359	$	544,851	$	619,765

Refer to Note 7 "Commitments and Contingencies" for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of March 31, 2021 and December 31, 2020.

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. The FHLB required the Bank to maintain stock in an amount equal to 3.75% and 4.25% of outstanding borrowings at March 31, 2021 and December 31, 2020, respectively, as well as a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of the Bank’s outstanding capital at both March 31, 2021 and December 31, 2020. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $67.0 million for March 31, 2021 and December 31, 2020 and FHLB stock in the amount of $9.8 million and $27.8 million as of March 31, 2021 and December 31, 2020, 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, 2021 and 2020 (dollars in thousands).


	Three Months Ended		Three Months Ended
	March 31, 2021		March 31, 2020
Realized gains (losses):
Gross realized gains	$	138	$	2,164
Gross realized losses		(60)		(228)
Net realized gains	$	78	$	1,936

Proceeds from sales of securities	$	45,436	$	120,701

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3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

See Note 1 “Summary of Significant Accounting Policies” in this Quarterly Report for a summary of the Company’s impact of COVID-19. The information included below reflects the impact of the CARES Act, as amended by the CAA, and the Joint Guidance.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consist of the following at March 31, 2021 and December 31, 2020 (dollars in thousands):


	March 31, 2021		December 31, 2020
Construction and Land Development	$	884,303	$	925,798
Commercial Real Estate - Owner Occupied		2,083,155		2,128,909
Commercial Real Estate - Non-Owner Occupied		3,671,471		3,657,562
Multifamily Real Estate		842,906		814,745
Commercial & Industrial⁽¹⁾		3,599,884		3,263,460
Residential 1-4 Family - Commercial		658,051		671,949
Residential 1-4 Family - Consumer		816,916		822,866
Residential 1-4 Family - Revolving		563,786		596,996
Auto		406,349		401,324
Consumer		215,711		247,730
Other Commercial⁽²⁾		529,748		489,975
Total loans held for investment, net of deferred fees and costs⁽³⁾		14,272,280		14,021,314
Allowance for loan and lease losses		(142,911)		(160,540)
Total loans held for investment, net	$	14,129,369	$	13,860,774

⁽¹⁾ Commercial & industrial loans include approximately $1.5 billion and $1.2 billion in loans from the PPP at March 31, 2021 and December 31, 2020, respectively.

⁽²⁾ Other commercial loans include approximately $20.2 million and $11.3 million in loans from the PPP at March 31, 2021 and December 31, 2020, respectively.

⁽³⁾Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $83.8 million and $69.7 million as of March 31, 2021 and December 31, 2020, respectively.

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The following table shows the aging of the Company’s loan portfolio, by class, at March 31, 2021 (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

880,139

865

473

189

2,637

884,303

Commercial Real Estate - Owner Occupied

2,069,019

3,426

514

3,180

7,016

2,083,155

Commercial Real Estate - Non-Owner Occupied

3,666,228

1,055

1,413

817

1,958

3,671,471

Multifamily Real Estate

842,638

187

—

842,906

Commercial & Industrial

3,593,508

3,086

613

654

2,023

3,599,884

Residential 1-4 Family - Commercial

645,684

1,803

798

576

9,190

658,051

Residential 1-4 Family - Consumer

791,466

6,831

808

3,041

14,770

816,916

Residential 1-4 Family - Revolving

557,335

1,397

284

917

3,853

563,786

Auto

404,692

1,035

165

154

303

406,349

Consumer

214,438

595

314

248

116

215,711

Other Commercial

529,253

407

—

529,748

Total loans held for investment

14,194,400

20,687

5,551

9,776

41,866

14,272,280

% of total loans

99.45

0.15

0.04

0.07

0.29

100.00

The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2020 (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	$	920,276		$	1,903		$	547		$	—		$	3,072		$	925,798
Commercial Real Estate - Owner Occupied		2,114,804			1,870			1,380			3,727			7,128			2,128,909
Commercial Real Estate - Non-Owner Occupied		3,651,232			2,144			1,721			148			2,317			3,657,562
Multifamily Real Estate		814,095			617			—			—			33			814,745
Commercial & Industrial		3,257,201			1,848			1,190			1,114			2,107			3,263,460
Residential 1-4 Family - Commercial		657,351			2,227			818			1,560			9,993			671,949
Residential 1-4 Family - Consumer		792,852			10,182			1,533			5,699			12,600			822,866
Residential 1-4 Family - Revolving		587,522			2,975			1,044			826			4,629			596,996
Auto		398,206			2,076			376			166			500			401,324
Consumer		245,551			1,166			550			394			69			247,730
Other Commercial		489,959			16			—			—			—			489,975
Total loans held for investment	$	13,929,049		$	27,024		$	9,159		$	13,634		$	42,448		$	14,021,314
% of total loans		99.34	%		0.19	%		0.07	%		0.10	%		0.30	%		100.00	%

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The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2021, as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of March 31, 2021 (dollars in thousands):

Nonaccrual

January 1, 2021

March 31, 2021

Nonaccrual With No ALLL

90 Days and still Accruing

Construction and Land Development

3,072

2,637

1,985

189

Commercial Real Estate - Owner Occupied

7,128

7,016

1,994

3,180

Commercial Real Estate - Non-Owner Occupied

2,317

1,958

—

817

Multifamily Real Estate

—

Commercial & Industrial

2,107

2,023

654

Residential 1-4 Family - Commercial

9,993

9,190

6,388

576

Residential 1-4 Family - Consumer

12,600

14,770

2,364

3,041

Residential 1-4 Family - Revolving

4,629

3,853

917

Auto

500

303

—

154

Consumer

116

—

248

Total loans held for investment

42,448

41,866

12,792

9,776

The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020, as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of December 31, 2020 (dollars in thousands):


	Nonaccrual
	January 1, 2020		December 31, 2020		Nonaccrual With No ALLL		90 Days and still Accruing
Construction and Land Development	$	4,060	$	3,072	$	1,985	$	—
Commercial Real Estate - Owner Occupied		13,889		7,128		1,994		3,727
Commercial Real Estate - Non-Owner Occupied		1,368		2,317		—		148
Multifamily Real Estate		—		33		—		—
Commercial & Industrial		3,037		2,107		1		1,114
Residential 1-4 Family - Commercial		6,492		9,993		6,388		1,560
Residential 1-4 Family - Consumer		13,117		12,600		1,069		5,699
Residential 1-4 Family - Revolving		2,490		4,629		60		826
Auto		565		500		—		166
Consumer		88		69		—		394
Other Commercial		98		—		—		—
Total loans held for investment	$	45,204	$	42,448	$	11,497	$	13,634

There was no interest income recognized on nonaccrual loans during the three months ended March 31, 2021 and 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2020 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

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Troubled Debt Restructurings

The CARES Act, as amended by the CAA, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. As of March 31, 2021 and December 31, 2020, the Company had approximately $68.1 million and $146.1 million, respectively, in loans still under their modified terms. The Company’s modification program primarily included payment deferrals and interest only modifications.

In addition to the above mentioned modifications, as of March 31, 2021, the Company has TDRs totaling $19.7 million with an estimated $1.2 million of allowance for those loans for the current period. As of December 31, 2020, the Company had TDRs totaling $20.6 million with an estimated $1.6 million of allowance for those loans.

A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for credit losses in accordance with the Company’s ALLL methodology. For the three months ended March 31, 2021 and March 31, 2020, 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 March 31, 2021 and December 31, 2020 (dollars in thousands):


	March 31, 2021					December 31, 2020
	No. of	Recorded		Outstanding		No. of	Recorded		Outstanding
	Loans	Investment		Commitment		Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	212	$	—	4	$	215	$	—
Commercial Real Estate - Owner Occupied	5		1,827		—	6		2,033		176
Commercial Real Estate - Non-Owner Occupied	1		1,089		—	1		1,089		—
Commercial & Industrial	2		446		—	4		727		—
Residential 1-4 Family - Commercial	2		109		—	3		245		—
Residential 1-4 Family - Consumer	84		9,271		—	77		8,943		—
Residential 1-4 Family - Revolving	3		274		3	3		277		—
Consumer	4		35		—	3		22		—
Other Commercial	1		407		—	1		410		—
Total performing	106	$	13,670	$	3	102	$	13,961	$	176
Nonperforming
Commercial Real Estate - Owner Occupied	1	$	19	$	—	1	$	20	$	—
Commercial Real Estate - Non-Owner Occupied	1		128		—	1		134		—
Commercial & Industrial	4		427		—	3		237		—
Residential 1-4 Family - Commercial	3		404		—	4		1,296		—
Residential 1-4 Family - Consumer	26		4,977		—	23		4,865		—
Residential 1-4 Family - Revolving	3		103		—	3		103		—
Total nonperforming	38	$	6,058	$	—	35	$	6,655	$	—
Total performing and nonperforming	144	$	19,728	$	3	137	$	20,616	$	176

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, 2021, 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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The following table shows, by class and modification type, TDRs that occurred during the three months ended March 31, 2021 and 2020 (dollars in thousands):


	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—	—	$	—

Term modification, at a market rate
Commercial & Industrial	—	$	—	1	$	517
Residential 1-4 Family - Consumer	2		105	—		—
Total loan term extended at a market rate	2	$	105	1	$	517

Term modification, below market rate
Construction and Land Development	—	$	—	1	$	35
Residential 1-4 Family - Consumer	9		472	10		1,763
Consumer	1		16	—		—
Total loan term extended at a below market rate	10	$	488	11	$	1,798

Interest rate modification, below market rate
Residential 1-4 Family - Commercial	1	$	45	—	$	—
Total interest only at below market rate of interest	1	$	45	—	$	—

Total	13	$	638	12	$	2,315

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. Within each segment, loan classes are further identified based on similar risk characteristics. The Company has identified the following classes within each 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: Residentil 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer

The following tables show the ALLL activity by segment for the three months ended March 31, 2021 and 2020 (dollars in thousands):


	Three Months Ended March 31, 2021
	Commercial		Consumer		Total
Balance at beginning of period	$	117,403	$	43,137	$	160,540
Loans charged-off		(1,974)		(1,667)		(3,641)
Recoveries credited to allowance		1,606		863		2,469
Provision charged to operations		(10,603)		(5,854)		(16,457)
Balance at end of period	$	106,432	$	36,479	$	142,911

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	Three Months Ended March 31, 2020
	Commercial		Consumer		Total
Balance at beginning of period	$	30,941	$	11,353	$	42,294
Impact of ASC 326 adoption on non-PCD loans		4,432		40,666		45,098
Impact of ASC 326 adoption on PCD loans		1,752		634		2,386
Impact of adopting ASC 326		6,184		41,300		47,484
Loans charged-off		(2,968)		(4,183)		(7,151)
Recoveries credited to allowance		1,154		1,006		2,160
Provision charged to operations		42,532		13,724		56,256
Balance at end of period	$	77,843	$	63,200	$	141,043

Credit Quality Indicators

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

Commercial Loans

The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for credit loss. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

●

Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;

●

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

●

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

●

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

●

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan.

Watch is determined by the following criteria:

●

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

Special Mention is determined by the following criteria:

●

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

Substandard is determined by the following criteria:

●

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

Doubtful is determined by the following criteria:

●

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

●

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

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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 March 31, 2021 (dollars in thousands):

March 31, 2021

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

Construction and Land Development

Pass

61,584

340,066

215,340

77,960

22,165

65,264

26,117

808,496

Watch

2,486

23,950

1,834

571

5,521

412

34,787

Special Mention

—

5,635

135

—

1,062

—

6,832

Substandard

—

28,395

5,785

—

34,188

Total Construction and Land Development

61,597

342,552

244,925

108,324

22,744

77,632

26,529

884,303

Commercial Real Estate - Owner Occupied

Pass

34,001

273,173

346,684

285,739

216,109

664,203

17,023

1,836,932

Watch

—

15,073

16,771

23,606

15,970

66,770

932

139,122

Special Mention

—

974

27,269

5,393

4,909

36,050

1,841

76,436

Substandard

—

4,950

5,060

158

20,497

—

30,665

Total Commercial Real Estate - Owner Occupied

34,001

289,220

395,674

319,798

237,146

787,520

19,796

2,083,155

Commercial Real Estate - Non-Owner Occupied

Pass

113,841

381,511

429,913

401,006

395,726

1,183,233

35,333

2,940,563

Watch

—

17,458

160,682

81,003

40,014

231,751

15,291

546,199

Special Mention

—

698

23,529

30,489

31,998

65,303

723

152,740

Substandard

—

10,991

—

13,263

—

7,715

—

31,969

Total Commercial Real Estate - Non-Owner Occupied

113,841

410,658

614,124

525,761

467,738

1,488,002

51,347

3,671,471

Commercial & Industrial

Pass

587,238

1,519,813

334,830

199,114

59,668

196,093

564,292

3,461,048

Watch

13,018

25,346

14,560

2,559

6,048

17,433

78,987

Special Mention

15,235

1,260

6,396

3,669

4,630

1,731

11,265

44,186

Substandard

—

527

4,942

1,278

303

2,865

5,748

15,663

Total Commercial & Industrial

602,496

1,534,618

371,514

218,621

67,160

206,737

598,738

3,599,884

Multifamily Real Estate

Pass

8,219

143,295

114,224

166,220

102,337

269,062

2,927

806,284

Watch

—

4,398

471

—

24,243

—

29,112

Special Mention

—

2,280

640

4,383

—

7,397

Substandard

—

113

—

113

Total Multifamily Real Estate

8,219

145,575

119,262

171,074

102,337

293,512

2,927

842,906

Residential 1-4 Family - Commercial

Pass

20,945

106,176

82,343

62,283

74,998

254,905

2,294

603,944

Watch

—

659

3,898

8,013

3,916

13,632

193

30,311

Special Mention

165

—

2,744

456

444

6,007

—

9,816

Substandard

—

773

5,433

1,444

5,842

488

13,980

Total Residential 1-4 Family - Commercial

21,110

106,835

89,758

76,185

80,802

280,386

2,975

658,051

Other Commercial

Pass

50,013

216,949

111,954

8,870

30,297

57,341

21,903

497,327

Watch

—

605

1,286

3,835

—

5,726

Special Mention

—

612

26,078

26,695

Total Other Commercial

50,013

216,949

111,954

9,475

31,588

61,788

47,981

529,748

Total Commercial

Pass

875,841

2,980,983

1,635,288

1,201,192

901,300

2,690,101

669,889

10,954,594

Watch

48,694

235,045

130,092

64,316

351,800

34,261

864,244

Special Mention

15,400

5,212

66,213

44,525

41,986

110,859

39,907

324,102

Substandard

—

11,518

10,665

53,429

1,913

42,817

6,236

126,578

Total Commercial

891,277

3,046,407

1,947,211

1,429,238

1,009,515

3,195,577

750,293

12,269,518

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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, 2020 (dollars in thousands):


		December 31, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Construction and Land Development
Pass	$	316,585	$	277,142	$	116,800	$	24,770	$	42,970	$	54,023	$	23,324	$	855,614
Watch		1,873		18,181		8,434		344		2,355		6,372		412		37,971
Special Mention		—		5,532		135		—		—		2,655		—		8,322
Substandard		—		—		17,780		64		2,037		4,010		—		23,891
Total Construction and Land Development	$	318,458	$	300,855	$	143,149	$	25,178	$	47,362	$	67,060	$	23,736	$	925,798

Commercial Real Estate - Owner Occupied
Pass	$	286,522	$	375,541	$	300,583	$	233,359	$	128,261	$	570,361	$	18,838	$	1,913,465
Watch		1,942		14,611		22,224		15,623		24,979		41,361		1,648		122,388
Special Mention		988		6,052		5,749		4,198		9,907		30,455		1,121		58,470
Substandard		—		4,858		5,159		914		1,555		21,101		999		34,586
Total Commercial Real Estate - Owner Occupied	$	289,452	$	401,062	$	333,715	$	254,094	$	164,702	$	663,278	$	22,606	$	2,128,909

Commercial Real Estate - Non-Owner Occupied
Pass	$	381,849	$	455,427	$	433,183	$	403,677	$	336,630	$	850,035	$	30,421	$	2,891,222
Watch		28,354		142,279		76,838		59,451		79,533		224,944		16,870		628,269
Special Mention		702		11,072		34,905		18,073		40,771		11,211		723		117,457
Substandard		246		—		13,357		—		25		6,986		—		20,614
Total Commercial Real Estate - Non-Owner Occupied	$	411,151	$	608,778	$	558,283	$	481,201	$	456,959	$	1,093,176	$	48,014	$	3,657,562

Commercial & Industrial
Pass	$	1,730,876	$	350,618	$	199,489	$	67,035	$	71,799	$	140,461	$	590,701	$	3,150,979
Watch		4,872		32,028		13,073		6,500		3,182		4,906		19,972		84,533
Special Mention		1,009		2,178		3,890		1,150		724		1,234		4,755		14,940
Substandard		534		4,269		1,274		309		560		2,676		3,386		13,008
Total Commercial & Industrial	$	1,737,291	$	389,093	$	217,726	$	74,994	$	76,265	$	149,277	$	618,814	$	3,263,460

Multifamily Real Estate
Pass	$	144,805	$	85,740	$	150,724	$	117,881	$	67,984	$	231,113	$	2,311	$	800,558
Watch		—		5,074		475		—		617		560		—		6,726
Special Mention		2,280		—		4,388		—		—		760		—		7,428
Substandard		—		—		—		—		—		33		—		33
Total Multifamily Real Estate	$	147,085	$	90,814	$	155,587	$	117,881	$	68,601	$	232,466	$	2,311	$	814,745

Residential 1-4 Family - Commercial
Pass	$	104,630	$	89,332	$	70,310	$	79,156	$	68,915	$	201,492	$	2,236	$	616,071
Watch		666		6,665		8,252		4,141		4,067		9,307		195		33,293
Special Mention		—		—		601		663		468		5,923		—		7,655
Substandard		644		793		4,913		1,995		986		5,111		488		14,930
Total Residential 1-4 Family - Commercial	$	105,940	$	96,790	$	84,076	$	85,955	$	74,436	$	221,833	$	2,919	$	671,949

Other Commercial
Pass	$	223,490	$	112,045	$	9,549	$	30,314	$	16,494	$	42,158	$	44,180	$	478,230
Watch		—		—		613		1,299		1,189		3,934		—		7,035
Special Mention		10		—		—		7		—		4,591		102		4,710
Total Other Commercial	$	223,500	$	112,045	$	10,162	$	31,620	$	17,683	$	50,683	$	44,282	$	489,975

Total Commercial
Pass	$	3,188,757	$	1,745,845	$	1,280,638	$	956,192	$	733,053	$	2,089,643	$	712,011	$	10,706,139
Watch		37,707		218,838		129,909		87,358		115,922		291,384		39,097		920,215
Special Mention		4,989		24,834		49,668		24,091		51,870		56,829		6,701		218,982
Substandard		1,424		9,920		42,483		3,282		5,163		39,917		4,873		107,062
Total Commercial	$	3,232,877	$	1,999,437	$	1,502,698	$	1,070,923	$	906,008	$	2,477,773	$	762,682	$	11,952,398

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Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of March 31, 2021 (dollars in thousands):


		March 31, 2021
		Term Loans Amortized Cost Basis by Origination Year


	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	59,779	$	203,048	$	73,588	$	56,557	$	58,921	$	339,562	$	11	$	791,466
30-59 Days Past Due		—		—		1,007		499		1,474		3,851		—		6,831
60-89 Days Past Due		—		—		—		—		108		700		—		808
90+ Days Past Due		—		607		831		—		27		1,576		—		3,041
Nonaccrual		—		—		109		2,210		903		11,548		—		14,770
Total Residential 1-4 Family - Consumer	$	59,779	$	203,655	$	75,535	$	59,266	$	61,433	$	357,237	$	11	$	816,916

Residential 1-4 Family - Revolving
Current	$	1,705	$	11,472	$	3,548	$	1,443	$	—	$	488	$	538,679	$	557,335
30-59 Days Past Due		—		43		—		—		—		—		1,354		1,397
60-89 Days Past Due		—		41		—		—		—		—		243		284
90+ Days Past Due		—		—		—		—		—		—		917		917
Nonaccrual		—		76		—		20		—		226		3,531		3,853
Total Residential 1-4 Family - Revolving	$	1,705	$	11,632	$	3,548	$	1,463	$	—	$	714	$	544,724	$	563,786

Consumer
Current	$	3,126	$	22,775	$	58,410	$	55,650	$	19,059	$	23,877	$	31,541	$	214,438
30-59 Days Past Due		—		47		167		238		70		40		33		595
60-89 Days Past Due		—		2		152		122		24		6		8		314
90+ Days Past Due		—		8		6		217		10		5		2		248
Nonaccrual		—		—		—		—		—		116		—		116
Total Consumer	$	3,126	$	22,832	$	58,735	$	56,227	$	19,163	$	24,044	$	31,584	$	215,711

Auto
Current	$	37,040	$	166,686	$	104,887	$	49,676	$	28,220	$	18,183	$	—	$	404,692
30-59 Days Past Due		55		89		244		193		278		176		—		1,035
60-89 Days Past Due		—		42		82		16		—		25		—		165
90+ Days Past Due		—		55		24		4		58		13		—		154
Nonaccrual		—		48		28		59		59		109		—		303
Total Auto	$	37,095	$	166,920	$	105,265	$	49,948	$	28,615	$	18,506	$	—	$	406,349

Total Consumer
Current	$	101,650	$	403,981	$	240,433	$	163,326	$	106,200	$	382,110	$	570,231	$	1,967,931
30-59 Days Past Due		55		179		1,418		930		1,822		4,067		1,387		9,858
60-89 Days Past Due		—		85		234		138		132		731		251		1,571
90+ Days Past Due		—		670		861		221		95		1,594		919		4,360
Nonaccrual		—		124		137		2,289		962		11,999		3,531		19,042
Total Consumer	$	101,705	$	405,039	$	243,083	$	166,904	$	109,211	$	400,501	$	576,319	$	2,002,762

The Company did not have any material revolving loans convert to term during the three months ended March 31, 2021.

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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, 2020 (dollars in thousands):


		December 31, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	213,763	$	75,133	$	64,299	$	68,320	$	102,123	$	269,203	$	11	$	792,852
30-59 Days Past Due		678		181		2,243		516		457		6,107		—		10,182
60-89 Days Past Due		156		—		57		679		—		641		—		1,533
90+ Days Past Due		608		1,696		23		—		1,246		2,126		—		5,699
Nonaccrual		—		—		696		851		887		10,166		—		12,600
Total Residential 1-4 Family - Consumer	$	215,205	$	77,010	$	67,318	$	70,366	$	104,713	$	288,243	$	11	$	822,866

Residential 1-4 Family - Revolving
Current	$	13,217	$	3,916	$	1,593	$	300	$	—	$	636	$	567,860	$	587,522
30-59 Days Past Due		70		—		—		—		—		—		2,905		2,975
60-89 Days Past Due		53		—		—		—		—		—		991		1,044
90+ Days Past Due		—		—		—		—		—		—		826		826
Nonaccrual		—		—		21		—		—		227		4,381		4,629
Total Residential 1-4 Family - Revolving	$	13,340	$	3,916	$	1,614	$	300	$	—	$	863	$	576,963	$	596,996

Consumer
Current	$	26,498	$	68,208	$	67,041	$	22,464	$	9,997	$	15,893	$	35,450	$	245,551
30-59 Days Past Due		35		252		504		98		15		143		119		1,166
60-89 Days Past Due		28		176		317		23		—		3		3		550
90+ Days Past Due		5		84		242		4		—		56		3		394
Nonaccrual		—		—		—		—		—		69		—		69
Total Consumer	$	26,566	$	68,720	$	68,104	$	22,589	$	10,012	$	16,164	$	35,575	$	247,730

Auto
Current	$	171,051	$	115,319	$	55,886	$	32,555	$	17,081	$	6,314	$	—	$	398,206
30-59 Days Past Due		239		467		543		478		197		152		—		2,076
60-89 Days Past Due		124		150		—		59		26		17		—		376
90+ Days Past Due		6		23		53		58		15		11		—		166
Nonaccrual		30		93		126		101		88		62		—		500
Total Auto	$	171,450	$	116,052	$	56,608	$	33,251	$	17,407	$	6,556	$	—	$	401,324

Total Consumer
Current	$	424,529	$	262,576	$	188,819	$	123,639	$	129,201	$	292,046	$	603,321	$	2,024,131
30-59 Days Past Due		1,022		900		3,290		1,092		669		6,402		3,024		16,399
60-89 Days Past Due		361		326		374		761		26		661		994		3,503
90+ Days Past Due		619		1,803		318		62		1,261		2,193		829		7,085
Nonaccrual		30		93		843		952		975		10,524		4,381		17,798
Total Consumer	$	426,561	$	265,698	$	193,644	$	126,506	$	132,132	$	311,826	$	612,549	$	2,068,916

The Company did not have any material revolving loans convert to term during the year ended December 31, 2020.

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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 4 to 10 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 10 years, using various methods.

The COVID-19 pandemic has disrupted and adversely impacted the economy and created significant volatility in the financial markets. The volatility in the financial markets adversely affected the Company’s expected future cash flows, due to the lower interest rate environment and other factors. The forecasted impact from COVID-19 was included in the Company’s annual goodwill impairment test in the second quarter of 2020, and while the fair value of the reporting unit declined from the prior test, the Company determined that there was no impairment to its goodwill or intangible assets. 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 goodwill impairment process.

The Company analyzed its intangible assets at March 31, 2021 and concluded no impairment existed as of the balance sheet date. Amortization expense of intangibles for the three months ended March 31, 2021 and 2020 totaled $3.7 million and $4.4 million, respectively.

As of March 31, 2021, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):


For the remaining nine months of 2021	$	10,159
2022		11,490
2023		9,688
2024		7,818
2025		6,221
Thereafter		8,095
Total estimated amortization expense	$	53,471

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5. LEASES

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

Lessor Arrangements

The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixed and are typically payable in monthly installments with terms ranging from 31 months to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components. The Company has no material sale leaseback transactions and no lease transactions with related parties.

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 RVI to reduce its residual asset risk. At March 31, 2021 and December 31, 2020, the carrying value of residual assets covered by residual value guarantees and RVI was $14.1 million and $14.7 million, respectively.

The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. The Company’s net investment in sales-type and direct financing leases are included in Loans Held for Investment (net of deferred fees and costs) on the Company’s Consolidated Balance Sheets. Lease income is recorded within Interest Income on the Company’s Consolidated Statements of Income. There were no significant changes in the balance of the Company’s unguaranteed residual assets for the periods ending March 31, 2021and December 31, 2020.

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


	March 31, 2021		December 31, 2020
Sales-type and direct financing leases:
Lease receivables, net of unearned	$	150.0	$	141.2
Unguaranteed residual values, net of unearned		5.3		4.8
Total net investment in sales-type and direct financing leases	$	155.3	$	146.0

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 25 years. The Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. The Company does not have any material arrangements where the Company is in a sublease contract.

Lessee arrangements with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The ROU Assets and lease liabilities associated with operating and finance leases greater than 12 months are recorded in the Company’s Consolidated Balance Sheets; ROU Assets within Other Assets and lease liabilities within Other Liabilities. ROU Assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU Assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU Assets are recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to renew and the Company is reasonably certain to exercise those options. The options to exercise are included in the measurement of the operating ROU Assets and lease liabilities.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income. Finance lease expenses

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consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU Assets are recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in Interest Expense on Long-Term Borrowings within total interest expense on the Company’s Consolidated Statements of Income.

As of March 31, 2021 and December 31, 2020, the Company had no sales leaseback transactions or leases that have not yet commenced that create significant rights and obligations.

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


	March 31, 2021						December 31, 2020
	Operating			Finance			Operating			Finance
Right-of-use-assets	$	47,165		$	7,195		$	48,051		$	7,425
Lease liabilities		58,084			10,339			58,901			10,621
Lease Term and Discount Rate of Operating leases:
Weighted-average remaining lease term (years)		7.11			7.83			7.27			8.08
Weighted-average discount rate ⁽¹⁾		2.61	%		1.17	%		2.66	%		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,
	2021		2020
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Finance Leases	$	30	$	—
Operating Cash Flows from Operating Leases		3,015		3,517
Financing Cash Flows from Finance Leases		283		—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,820		1,216


	Three months ended March 31,
		2021		2020
Net Operating Lease Cost	$	2,541	$	2,918
Finance Lease Cost:
Amortization of right-of-use assets		230		—
Interest on lease liabilities		30		—
Total Lease Cost	$	2,801	$	2,918

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The maturities of lessor and lessee arrangements outstanding at March 31, 2021 are presented in the tables below (dollars in thousands):


	March 31, 2021
	Lessor		Lessee
		Sales-type and Direct Financing	Operating		Finance
For the remaining nine months of 2021	$	24,693	$	8,966	$	948
2022		34,150		11,322		1,292
2023		32,487		10,172		1,325
2024		30,537		9,178		1,358
2025		22,110		6,864		1,392
2026		6,630		4,318		1,427
Thereafter		11,757		13,369		3,088
Total undiscounted cash flows		162,364		64,189		10,830
Less: Adjustments ⁽¹⁾		12,377		6,105		491
Total ⁽²⁾	$	149,987	$	58,084	$	10,339

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

Total short-term borrowings consist of the following as of March 31, 2021 and December 31, 2020 (dollars in thousands):


	March 31,			December 31,
	2021			2020
Securities sold under agreements to repurchase	$	105,522		$	100,888
Federal Funds Purchased		168,000			150,000
FHLB Advances		—			100,000
Total short-term borrowings	$	273,522		$	350,888

Average outstanding balance during the period	$	149,761		$	213,932
Average interest rate (during the period)		0.13	%		0.79	%
Average interest rate at end of period		0.08	%		0.13	%

The Bank maintains federal funds lines with several correspondent banks, the remaining available balance was $829.0 million and $847.0 million at March 31, 2021 and December 31, 2020, respectively. The Company maintains an alternate line of credit at a correspondent bank, which had an available balance of $25.0 million at both March 31, 2021 and December 31, 2020. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with such covenants as of March 31, 2021 and December 31, 2020. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $5.9 billion and $6.0 billion at March 31, 2021 and December 31, 2020, respectively.

Long-term Borrowings

In response to the current rate environment, the Company prepaid a $200.0 million long-term FHLB advance on February 26, 2021 and $550.0 million of long-term FHLB advances in 2020, which resulted in prepayment penalties of $14.7 million and $31.2 million, respectively. In addition, on November 30, 2020, the Company redeemed $8.5 million in subordinated debt that was originally acquired as part of the Xenith acquisition.

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Total long-term borrowings consist of the following as of March 31, 2021 (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

2.94

6/17/2034

696

Trust Preferred Capital Note - Statutory Trust II

36,000

1.40

1.59

6/15/2036

1,114

VFG Limited Liability Trust I Indenture

20,000

2.73

2.92

3/18/2034

619

FNB Statutory Trust II Indenture

12,000

3.10

3.29

6/26/2033

372

Gateway Capital Statutory Trust I

8,000

3.10

3.29

9/17/2033

248

Gateway Capital Statutory Trust II

7,000

2.65

2.84

6/17/2034

217

Gateway Capital Statutory Trust III

15,000

1.50

1.69

5/30/2036

464

Gateway Capital Statutory Trust IV

25,000

1.55

1.74

7/30/2037

774

MFC Capital Trust II

5,000

2.85

3.04

1/23/2034

155

Total Trust Preferred Capital Securities

150,500

4,659

Subordinated Debt⁽³⁾⁽⁴⁾

2026 Subordinated Debt⁽⁵⁾

150,000

5.00

12/15/2026

Total Subordinated Debt

150,000

Fair Value Premium (Discount)⁽⁶⁾

(15,081)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

290,078

(1)	Rate as of March 31, 2021. Calculated using non-rounded numbers.

(2)

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

(3)	The remaining issuance discount as of March 31, 2021 is $1.1 million.

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

(5)	Fixed-to-floating rate notes. On December 15, 2021, the interest rate will change to a floating rate of LIBOR plus 3.175% through its maturity date.

(6)	Includes discount on issued subordinated notes.

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Total long-term borrowings consist of the following as of December 31, 2020 (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	%	2.99	%	6/17/2034	$	696
Trust Preferred Capital Note - Statutory Trust II		36,000	1.40	%	1.64	%	6/15/2036		1,114
VFG Limited Liability Trust I Indenture		20,000	2.73	%	2.97	%	3/18/2034		619
FNB Statutory Trust II Indenture		12,000	3.10	%	3.34	%	6/26/2033		372
Gateway Capital Statutory Trust I		8,000	3.10	%	3.34	%	9/17/2033		248
Gateway Capital Statutory Trust II		7,000	2.65	%	2.89	%	6/17/2034		217
Gateway Capital Statutory Trust III		15,000	1.50	%	1.74	%	5/30/2036		464
Gateway Capital Statutory Trust IV		25,000	1.55	%	1.79	%	7/30/2037		774
MFC Capital Trust II		5,000	2.85	%	3.09	%	1/23/2034		155
Total Trust Preferred Capital Securities	$	150,500						$	4,659
FHLB Advances
Fixed Rate Convertible		200,000	-	%	1.78	%	10/26/2028
Total FHLB Advances	$	200,000
Subordinated Debt⁽³⁾⁽⁴⁾
2026 Subordinated Debt⁽⁵⁾		150,000	-	%	5.00	%	12/15/2026
Total Subordinated Debt	$	150,000
Fair Value Premium (Discount)⁽⁶⁾		(15,330)
Investment in Trust Preferred Capital Securities		4,659
Total Long-term Borrowings	$	489,829

(1)	Rate as of December 31, 2020. Calculated using non-rounded numbers.

(2)

(3)	The remaining issuance discount as of December 31, 2020 is $1.2 million.

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

(5)	Fixed-to-floating rate notes. On December 15, 2021, the interest rate will change to a floating rate of LIBOR plus 3.175% through its maturity date.

(6)	Includes discount on issued subordinated notes.

As of March 31, 2021, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):

Trust

Preferred

Fair Value

Total

Capital

Subordinated

Premium

Long-term

Notes

Debt

(Discount) ⁽¹⁾

Borrowings

For the remaining nine months of 2021

—

(760)

2022

—

(1,030)

2023

—

(1,053)

2024

—

(1,078)

2025

—

(1,102)

Thereafter

155,159

150,000

(10,058)

295,101

Total long-term borrowings

155,159

150,000

(15,081)

290,078

(1)	Includes discount on issued subordinated notes.

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7. COMMITMENTS AND CONTINGENCIES

Litigation Matters

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

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and 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 financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss 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 that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates.

As of March 31, 2021 and December 31, 2020, the Company’s reserves for unfunded commitment and indemnification were $13.6 million and $10.8 million, respectively.

Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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

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


	March 31, 2021		December 31, 2020
Commitments with off-balance sheet risk:
Commitments to extend credit ⁽¹⁾	$	5,550,942	$	4,722,412
Letters of credit		160,644		161,827
Total commitments with off-balance sheet risk	$	5,711,586	$	4,884,239
⁽¹⁾Includes unfunded overdraft protection.

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As of March 31, 2021, the Company had approximately $176.5 million in deposits in other financial institutions, of which $153.8 million served as collateral for cash flow and loan swap derivatives. As of December 31, 2020, the Company had approximately $290.5 million in deposits in other financial institutions, of which $251.0 million served as collateral for cash flow and loan swap derivatives. The Company had approximately $19.7 million and $36.4 million in deposits in other financial institutions that were uninsured at March 31, 2021 and December 31, 2020, 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 swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. Refer to Note 8 “Derivatives” 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, 2021 and December 31, 2020 (dollars in thousands):

Pledged Assets as of March 31, 2021

AFS

HTM

Cash

Securities ⁽¹⁾

Loans ⁽²⁾

Total

Public deposits

—

495,680

426,897

—

922,577

Repurchase agreements

—

107,620

—

107,620

FHLB advances

—

50,382

—

4,339,460

4,389,842

Derivatives

153,849

690

—

154,539

Fed Funds

—

367,342

Other purposes

—

96,728

979

—

97,707

Total pledged assets

153,849

751,100

427,876

4,706,802

6,039,627

⁽¹⁾ Balance represents market value.

⁽²⁾ Balance represents book value.


	Pledged Assets as of December 31, 2020
			AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	469,864	$	436,449	$	—	$	906,313
Repurchase agreements		—		116,876		—		—		116,876
FHLB advances		—		52,323		—		4,374,383		4,426,706
Derivatives		251,047		785		—		—		251,832
Fed Funds		—		—		—		340,847		340,847
Other purposes		—		123,388		8,634		—		132,022
Total pledged assets	$	251,047	$	763,236	$	445,083	$	4,715,230	$	6,174,596

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

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 OTC derivatives with central clearinghouses through FCMs due to applicable regulatory requirement, 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.

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 and range in 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.

During the quarter ended March 31, 2021, the Company executed two 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 LIBOR rate with a total notional amount of $200 million. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate.

During the quarter ended March 31, 2020, the Company terminated interest rate swaps designated as cash flow hedges prior to their respective maturity dates resulting in net losses of approximately $1.8 million, which resulted in the losses being recognized immediately in earnings as the forecasted transactions will not occur. The Company did not have any derivatives designated as cash flow hedges outstanding at December 31, 2020.

Fair Value Hedge

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.

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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, 2021 and December 31, 2020, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled $121.3 million and $74.7 million, respectively, and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of $672,000 and $5.1 million, respectively.

AFS Securities: The Company has entered into a swap agreement to hedge the interest rate risk on a portion of its fixed rate available for sale securities. At March 31, 2021 and December 31, 2020, the aggregate notional amount of the related hedged items of the AFS securities totaled $50 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of $5.1 million and $7.3 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.

Loan Swaps

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

The following table summarizes key elements of the Company’s derivative instruments as of March 31, 2021 and December 31, 2020, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):

March 31, 2021

December 31, 2020

Derivative ⁽²⁾

Notional or

Contractual

Amount ⁽¹⁾

Assets

Liabilities

Amount ⁽¹⁾

Assets

Liabilities

Derivatives designated as accounting hedges:

Interest rate contracts:

Cash flow hedges

200,000

—

1,808

—

Fair value hedges

171,323

2,139

7,949

124,726

—

12,483

Derivatives not designated as accounting hedges:

Loan Swaps :

Pay fixed - receive floating interest rate swaps

2,393,919

22,420

84,030

2,356,453

212

163,148

Pay floating - receive fixed interest rate swaps

2,393,919

84,030

22,420

2,356,453

163,148

212

(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.

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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, 2021 and December 31, 2020 (dollars in thousands):

March 31, 2021

December 31, 2020

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)}

150,545

5,115

166,413

7,297

Loans

121,323

598

74,726

5,088

(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, 2021 and December 31, 2020, the amortized cost basis of this portfolio was $151 million and $166 million, respectively, and the cumulative basis adjustment associated with this hedge was $5.1 million and $7.3 million, respectively. The amount of the designated hedged item at March 31, 2021 and December 31, 2020 totaled $50 million.

(2)	Carrying value represents amortized cost.

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Table of Contents

9. STOCKHOLDERS’ EQUITY

Series A Preferred Stock

On June 9, 2020, the Company issued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company.

Accumulated Other Comprehensive Income (Loss)

The change in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 is summarized as follows, net of tax (dollars in thousands):

Unrealized Gains

(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to