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 June 30, 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 July 29, 2021 was 76,904,963.

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 June 30, 2021 (unaudited) and December 31, 2020 (audited)	2

	Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2021 and 2020	3

	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 30, 2021 and 2020	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2021 and 2020	5

	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2021 and 2020	6

	Notes to Consolidated Financial Statements (unaudited)	8

	Review Report of Independent Registered Public Accounting Firm	50

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	82

Item 4.	Controls and Procedures	84

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	86

Item 1A.	Risk Factors	86

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86

Item 6.	Exhibits	87

	Signatures	88

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)
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
FHLMC	–	Federal Home Loan Mortgage Corporation
FNMA	–	Federal National Mortgage Association
FOMC	–	Federal Open Markets Committee
FTE	–	Fully taxable equivalent
GAAP or U.S. GAAP	–	Accounting principles generally accepted in the United States
GNMA	–	Government National Mortgage Association
HTM	–	Held to maturity
ICE 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
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

Table of Contents

OCI	–	Other comprehensive income
OREO	–	Other real estate owned
OTC	–	Over-the-counter
PCD	–	Purchased credit deteriorated
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 June 30, 2021
Repurchase Program	–	The share repurchase program, approved on May 4, 2021 by the Company’s Board of Directors, which authorizes the Company to purchase up to $125 million worth of the Company’s common stock
ROA	–	Return on average assets
ROE	–	Return on average 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”
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)


	June 30,		December 31,
	2021		2020
ASSETS		(unaudited)		(audited)
Cash and cash equivalents:
Cash and due from banks	$	268,682	$	172,307
Interest-bearing deposits in other banks		593,271		318,974
Federal funds sold		3,217		2,013
Total cash and cash equivalents		865,170		493,294
Securities available for sale, at fair value		2,873,405		2,540,419
Securities held to maturity, at carrying value		541,439		544,851
Restricted stock, at cost		76,825		94,782
Loans held for sale, at fair value		32,726		96,742
Loans held for investment, net of deferred fees and costs		13,697,929		14,021,314
Less allowance for loan and lease losses		118,261		160,540
Total loans held for investment, net		13,579,668		13,860,774
Premises and equipment, net		161,114		163,829
Goodwill		935,560		935,560
Amortizable intangibles, net		49,917		57,185
Bank owned life insurance		427,727		326,892
Other assets		445,805		514,121
Total assets	$	19,989,356	$	19,628,449
LIABILITIES
Noninterest-bearing demand deposits	$	5,222,572	$	4,368,703
Interest-bearing deposits		11,436,647		11,354,062
Total deposits		16,659,219		15,722,765
Securities sold under agreements to repurchase		89,749		100,888
Other short-term borrowings		—		250,000
Long-term borrowings		290,330		489,829
Other liabilities		202,461		356,477
Total liabilities		17,241,759		16,919,959
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock, $10.00 par value		173		173
Common stock, $1.33 par value		103,091		104,169
Additional paid-in capital		1,881,395		1,917,081
Retained earnings		709,866		616,052
Accumulated other comprehensive income (loss)		53,072		71,015
Total stockholders' equity		2,747,597		2,708,490
Total liabilities and stockholders' equity	$	19,989,356	$	19,628,449

Common shares outstanding		77,928,948		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.

-2-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
Interest and dividend income:
Interest and fees on loans	$	130,570	$	143,234	$	258,576	$	294,361
Interest on deposits in other banks		86		155		163		1,017
Interest and dividends on securities:
Taxable		10,519		11,267		20,872		22,895
Nontaxable		9,677		8,211		18,914		15,920
Total interest and dividend income		150,852		162,867		298,525		334,193
Interest expense:
Interest on deposits		7,238		19,861		16,366		48,375
Interest on short-term borrowings		21		186		69		1,526
Interest on long-term borrowings		3,045		5,515		6,644		11,979
Total interest expense		10,304		25,562		23,079		61,880
Net interest income		140,548		137,305		275,446		272,313
Provision for credit losses		(27,414)		34,200		(41,037)		94,396
Net interest income after provision for credit losses		167,962		103,105		316,483		177,917
Noninterest income:
Service charges on deposit accounts		6,607		4,930		12,116		12,508
Other service charges, commissions and fees		1,735		1,354		3,436		2,978
Interchange fees		2,203		1,697		4,050		3,321
Fiduciary and asset management fees		6,819		5,515		13,294		11,499
Mortgage banking income		4,619		5,826		12,874		7,847
Gains on securities transactions		—		10,339		78		12,275
Bank owned life insurance income		3,209		2,027		5,475		4,076
Loan-related interest rate swap fees		1,321		5,484		3,075		9,432
Other operating income		1,953		(1,240)		5,053		902
Total noninterest income		28,466		35,932		59,451		64,838
Noninterest expenses:
Salaries and benefits		50,766		49,896		103,426		100,013
Occupancy expenses		7,140		7,224		14,454		14,357
Furniture and equipment expenses		3,911		3,406		7,880		7,147
Technology and data processing		7,219		6,454		14,123		12,623
Professional services		4,408		2,989		9,369		6,297
Marketing and advertising expense		2,738		2,043		4,782		4,782
FDIC assessment premiums and other insurance		2,319		2,907		4,626		5,768
Other taxes		4,435		4,120		8,871		8,240
Loan-related expenses		1,909		2,501		3,786		5,198
Amortization of intangible assets		3,568		4,223		7,298		8,624
Loss on debt extinguishment		—		10,306		14,695		10,306
Other expenses		3,558		6,745		10,598		15,104
Total noninterest expenses		91,971		102,814		203,908		198,459
Income from continuing operations before income taxes		104,457		36,223		172,026		44,296
Income tax expense		19,073		5,514		30,453		6,498
Net income		85,384		30,709		141,573		37,798
Dividends on preferred stock		2,967		—		5,934		—
Net income available to common shareholders	$	82,417	$	30,709	$	135,639	$	37,798

Basic earnings per common share	$	1.05	$	0.39	$	1.72	$	0.48
Diluted earnings per common share	$	1.05	$	0.39	$	1.72	$	0.48
Dividends declared per common share	$	0.28	$	0.25	$	0.53	$	0.50
Basic weighted average number of common shares outstanding		78,819,697		78,711,765		78,841,462		79,001,058
Diluted weighted average number of common shares outstanding		78,843,724		78,722,690		78,863,859		79,020,036

See accompanying notes to consolidated financial statements.

-3-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income	$	85,384	$	30,709	$	141,573	$	37,798
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges		2,607		—		1,179		(699)
Reclassification adjustment for losses (gains) included in net income (net of tax, $0 and $0 for the three months and $12 and $394 for the six months ended June 30, 2021 and 2020, respectively) ⁽¹⁾		—		—		(47)		1,481
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $3,673 and $5,587 for the three months and $5,132 and $9,492 for the six months ended June 30, 2021 and 2020, respectively)		13,818		21,019		(19,307)		35,706
Reclassification adjustment for gains included in net income (net of tax, $0 and $2,171 for the three months and $16 and $2,578 for the six months ended June 30, 2021 and 2020, respectively) ⁽²⁾		—		(8,168)		(62)		(9,697)
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $3 and $3 for the six months ended June 30, 2021 and 2020, respectively) ⁽³⁾		(5)		(5)		(10)		(10)
Bank owned life insurance:
Unrealized holding losses arising during the period		—		—		—		(1,289)
Reclassification adjustment for losses included in net income ⁽⁴⁾		151		129		304		237
Other comprehensive income (loss)		16,571		12,975		(17,943)		25,729
Comprehensive income	$	101,955	$	43,684	$	123,630	$	63,527

⁽¹⁾ The gross amounts reclassified into earnings for the six months ended June 30, 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.

-4-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 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		Total
Balance - December 31, 2020	$	104,169	$	173	$	1,917,081	$	616,052	$	71,015	$	2,708,490
Net Income								56,189				56,189
Other comprehensive loss (net of taxes of $8,835)										(34,514)		(34,514)
Dividends on common stock ($0.25 per share)								(19,700)				(19,700)
Dividends on preferred stock ($171.88 per share)								(2,967)				(2,967)
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (243,884 shares)		324				(289)						35
Stock-based compensation expense						2,199						2,199
Balance - March 31, 2021	$	104,493	$	173	$	1,918,991	$	649,574	$	36,501	$	2,709,732
Net Income								85,384				85,384
Other comprehensive gain (net of taxes of $3,672)										16,571		16,571
Dividends on common stock ($0.28 per share)								(22,125)				(22,125)
Dividends on preferred stock ($171.88 per share)								(2,967)				(2,967)
Stock purchased under stock repurchase plan (1,090,169 shares)		(1,450)				(40,913)						(42,363)
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (35,693 shares)		48				663						711
Stock-based compensation expense						2,654						2,654
Balance- June 30, 2021	$	103,091	$	173	$	1,881,395	$	709,866	$	53,072	$	2,747,597

									Accumulated
					Additional				Other
	Common		Preferred		Paid-In		Retained		Comprehensive
	Stock		Stock		Capital		Earnings		Income		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
Net Income								30,709				30,709
Other comprehensive income (net of taxes of $3,415)										12,975		12,975
Issuance of preferred stock (17,250 shares)				173		166,190						166,363
Dividends on common stock ($0.25 per share)								(19,677)				(19,677)
Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (30,120 shares)		40				5						45
Stock-based compensation expense						2,361						2,361
Balance - June 30, 2020	$	104,126	$	173	$	1,911,985	$	540,638	$	61,304	$	2,618,226

See accompanying notes to consolidated financial statements.

-5-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2021 AND 2020


(Dollars in thousands)	2021		2020
Operating activities:
Net income	$	141,573	$	37,798
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of premises and equipment		7,966		7,517
Writedown of foreclosed properties and former bank premises		1,065		95
Amortization, net		15,928		12,749
Accretion related to acquisitions, net		(1,056)		(7,591)
Provision for credit losses		(41,037)		94,396
Gains on securities transactions, net		(78)		(12,275)
BOLI income		(5,475)		(4,076)
Originations and purchases of loans held for sale		(348,138)		(293,629)
Proceeds from sales of loans held for sale		409,809		292,883
Losses (gains) on sales of foreclosed properties and former bank premises, net		(1,810)		10
Losses on debt extinguishment		14,695		10,306
Stock-based compensation expenses		4,853		4,652
Issuance of common stock for services		188		404
Net (increase) decrease in other assets		64,826		(173,045)
Net increase (decrease) in other liabilities		(125,899)		151,970
Net cash provided by operating activities		137,410		122,164
Investing activities:
Purchases of AFS securities and restricted stock		(651,254)		(403,272)
Proceeds from sales of AFS securities and restricted stock		45,436		228,271
Proceeds from maturities, calls and paydowns of AFS securities		256,903		171,345
Proceeds from maturities, calls and paydowns of HTM securities		1,730		5,927
Net decrease (increase) in loans held for investment		305,615		(1,686,449)
Net increase in premises and equipment		(6,836)		(10,884)
Proceeds from BOLI settlements		3,152		—
Purchases of BOLI policies		(100,000)		—
Proceeds from sales of foreclosed properties and former bank premises		8,632		2,452
Net cash used in investing activities		(136,622)		(1,692,610)
Financing activities:
Net increase in noninterest-bearing deposits		853,869		1,375,821
Net increase in interest-bearing deposits		82,617		924,421
Net decrease in short-term borrowings		(261,139)		(359,037)
Proceeds from issuance of long-term debt		—		189,941
Repayments of long-term debt		(214,695)		(230,306)
Cash dividends paid - common stock		(41,825)		(39,502)
Cash dividends paid - preferred stock		(5,934)		—
Repurchase of common stock		(42,363)		(49,879)
Issuance of common stock		2,876		801
Issuance of preferred stock, net		—		166,363
Vesting of restricted stock, net of shares held for taxes		(2,318)		(2,189)
Net cash provided by financing activities		371,088		1,976,434
Increase in cash and cash equivalents		371,876		405,988
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	$	865,170	$	842,020

-6-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(Dollars in thousands)


	2021		2020
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	23,859	$	63,198
Income taxes		1,221		106

Supplemental schedule of noncash investing and financing activities
Transfers from loans to foreclosed properties		14		615
Transfers from bank premises to OREO		1,109		—
Transfers from LHFS to LHFI		—		1,050

See accompanying notes to consolidated financial statements.

-7-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 130 branches and approximately 150 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. Certain non-bank financial services affiliates of Atlantic Union Bank include: Atlantic Union Equipment Finance, Inc., which provides equipment financing; 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. 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 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

-8-

Table of Contents

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 $51.1 million and $56.7 million on loans held for investment, $6.7 million and $6.8 million on HTM securities, and $12.9 million and $11.9 million on AFS securities at June 30, 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 June 30, 2021 and June 30, 2020, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

Segment Reporting

Operating segments are components of a business about which separate financial information is available and evaluated regularly by the chief operating decision makers in deciding how to allocate resources and assessing performance. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance. While the Company’s chief operating decision makers do have some limited financial information about its various financial products and services, that information is not complete since it does not include a full allocation of revenue, costs, and capital from key corporate functions; therefore, the Company evaluates financial performance on the Company-wide basis. Management continues to evaluate these business units for separate reporting as facts and circumstances change.

-9-

Table of Contents

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 June 30, 2021 and December 31, 2020.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of June 30, 2021 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Cost

Gains

(Losses)

Fair Value

June 30, 2021

U.S. government and agency securities

75,554

1,099

(44)

76,609

Obligations of states and political subdivisions

899,117

44,105

(751)

942,471

Corporate and other bonds ⁽¹⁾

148,774

4,156

(45)

152,885

Commercial mortgage-backed securities

Agency

315,274

11,443

(1,119)

325,598

Non-agency

95,254

276

(281)

95,249

Total commercial mortgage-backed securities

410,528

11,719

(1,400)

420,847

Residential mortgage-backed securities

Agency

1,190,087

24,025

(9,035)

1,205,077

Non-agency

73,010

1,137

(263)

73,884

Total residential mortgage-backed securities

1,263,097

25,162

(9,298)

1,278,961

Other securities

1,632

—

1,632

Total AFS securities

2,798,702

86,241

(11,538)

2,873,405

⁽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

-10-

Table of Contents

The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses for which an ACL has not been recorded at June 30, 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
June 30, 2021
U.S. government and agency securities	$	—	$	—	$	4,607	$	(44)	$	4,607	$	(44)
Obligations of states and political subdivisions		92,775		(751)		—		—		92,775		(751)
Corporate and other bonds⁽¹⁾		5,660		(40)		3,344		(5)		9,004		(45)
Commercial mortgage-backed securities
Agency		89,240		(1,118)		348		(1)		89,588		(1,119)
Non-agency		31,437		(281)		—		—		31,437		(281)
Total commercial mortgage-backed securities		120,677		(1,399)		348		(1)		121,025		(1,400)
Residential mortgage-backed securities
Agency		591,860		(8,805)		11,485		(230)		603,345		(9,035)
Non-agency		22,869		(262)		177		(1)		23,046		(263)
Total residential mortgage-backed securities		614,729		(9,067)		11,662		(231)		626,391		(9,298)
Total AFS securities	$	833,841	$	(11,257)	$	19,961	$	(281)	$	853,802	$	(11,538)

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

-11-

Table of Contents

As of June 30, 2021, there were $20.0 million, or 13 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 approximately $281,000. 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 June 30, 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 June 30, 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).


	June 30, 2021				December 31, 2020
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	16,586	$	16,738	$	19,875	$	19,997
Due after one year through five years		180,322		186,429		161,448		169,103
Due after five years through ten years		306,429		316,325		235,021		242,791
Due after ten years		2,295,365		2,353,913		2,022,903		2,108,528
Total AFS securities	$	2,798,702	$	2,873,405	$	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 June 30, 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 June 30, 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.

-12-

Table of Contents

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of June 30, 2021 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

Value

Gains

(Losses)

Fair Value

June 30, 2021

U.S. government and agency securities

2,657

—

(10)

2,647

Obligations of states and political subdivisions

533,733

70,091

—

603,824

Commercial mortgage-backed securities

Agency

5,049

(47)

5,005

Non-agency

—

Total commercial mortgage-backed securities

5,049

(47)

5,005

Total held-to-maturity securities

541,439

70,094

(57)

611,476

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 June 30, 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.

-13-

Table of Contents

The following table presents the amortized cost of HTM securities as of June 30, 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
June 30, 2021
Credit Rating:
AAA/AA/A	$	—	$	529,301	$	—	$	529,301
Not Rated - Agency⁽¹⁾		2,657		—		5,049		7,706
Not Rated - Non-Agency		—		4,432		—		4,432
Total	$	2,657	$	533,733	$	5,049	$	541,439
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 June 30, 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).


	June 30, 2021				December 31, 2020
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Due in one year or less	$	440	$	443	$	1,443	$	1,460
Due after one year through five years		8,459		8,711		8,577		8,893
Due after five years through ten years		1,672		1,722		1,744		1,805
Due after ten years		530,868		600,600		533,087		607,607
Total HTM securities	$	541,439	$	611,476	$	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 June 30, 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 June 30, 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 June 30, 2021 and December 31, 2020. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $67.0 million for June 30, 2021 and December 31, 2020 and FHLB stock in the amount of $9.8 million and $27.8 million as of June 30, 2021 and December 31, 2020, respectively.

-14-

Table of Contents

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and six months ended June 30, 2021 and 2020 (dollars in thousands):


	Three Months Ended		Six Months Ended
	June 30, 2021		June 30, 2021
Realized gains (losses):
Gross realized gains	$	—	$	138
Gross realized losses		—		(60)
Net realized gains	$	—	$	78

Proceeds from sales of securities	$	—	$	45,436


	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
Realized gains (losses):
Gross realized gains	$	10,339	$	12,503
Gross realized losses		—		(228)
Net realized gains	$	10,339	$	12,275

Proceeds from sales of securities	$	107,570	$	228,271

-15-

Table of Contents

3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The information included below reflects the impact of the CARES Act, as amended by the CAA, and the Joint Guidance. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2020 Form 10-K for information about COVID-19 and related legislative and regulatory developments.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consist of the following at June 30, 2021 and December 31, 2020 (dollars in thousands):


	June 30, 2021		December 31, 2020
Construction and Land Development	$	838,722	$	925,798
Commercial Real Estate - Owner Occupied		2,069,658		2,128,909
Commercial Real Estate - Non-Owner Occupied		3,712,607		3,657,562
Multifamily Real Estate		860,081		814,745
Commercial & Industrial⁽¹⁾		2,990,622		3,263,460
Residential 1-4 Family - Commercial		637,485		671,949
Residential 1-4 Family - Consumer		823,355		822,866
Residential 1-4 Family - Revolving		559,014		596,996
Auto		411,073		401,324
Consumer		195,036		247,730
Other Commercial⁽²⁾		600,276		489,975
Total loans held for investment, net of deferred fees and costs⁽³⁾		13,697,929		14,021,314
Allowance for loan and lease losses		(118,261)		(160,540)
Total loans held for investment, net	$	13,579,668	$	13,860,774

⁽¹⁾ Commercial & industrial loans include approximately $842.0 million and $1.2 billion in loans from the PPP at June 30, 2021 and December 31, 2020, respectively.

⁽²⁾ Other commercial loans include approximately $17.4 million and $11.3 million in loans from the PPP at June 30, 2021 and December 31, 2020, respectively.

⁽³⁾Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $73.7 million and $69.7 million as of June 30, 2021 and December 31, 2020, respectively.

-16-

Table of Contents

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

834,743

798

310

186

2,685

838,722

Commercial Real Estate - Owner Occupied

2,056,955

1,450

2,008

2,276

6,969

2,069,658

Commercial Real Estate - Non-Owner Occupied

3,707,175

1,501

827

3,026

3,712,607

Multifamily Real Estate

859,812

156

—

113

860,081

Commercial & Industrial

2,984,945

948

1,733

1,088

1,908

2,990,622

Residential 1-4 Family - Commercial

631,251

710

565

759

4,200

637,485

Residential 1-4 Family - Consumer

805,385

764

992

2,725

13,489

823,355

Residential 1-4 Family - Revolving

553,130

919

678

561

3,726

559,014

Auto

409,228

1,333

165

168

179

411,073

Consumer

193,934

545

297

156

104

195,036

Other Commercial

599,901

375

—

600,276

Total loans held for investment

13,636,459

9,499

6,826

8,746

36,399

13,697,929

% of total loans

99.55

0.07

0.05

0.06

0.27

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	%

-17-

Table of Contents

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 June 30, 2021 (dollars in thousands):

Nonaccrual

January 1, 2021

June 30, 2021

Nonaccrual With No ALLL

90 Days and still Accruing

Construction and Land Development

3,072

2,685

1,985

186

Commercial Real Estate - Owner Occupied

7,128

6,969

1,994

2,276

Commercial Real Estate - Non-Owner Occupied

2,317

3,026

—

827

Multifamily Real Estate

113

—

Commercial & Industrial

2,107

1,908

1,088

Residential 1-4 Family - Commercial

9,993

4,200

1,736

759

Residential 1-4 Family - Consumer

12,600

13,489

1,069

2,725

Residential 1-4 Family - Revolving

4,629

3,726

561

Auto

500

179

—

168

Consumer

104

—

156

Total loans held for investment

42,448

36,399

6,845

8,746

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 and six months ended June 30, 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.

-18-

Table of Contents

Troubled Debt Restructurings

As of June 30, 2021, the Company has TDRs totaling $19.3 million with an estimated $800,000 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 and six months ended June 30, 2021 and June 30, 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 June 30, 2021 and December 31, 2020 (dollars in thousands):


	June 30, 2021					December 31, 2020
	No. of	Recorded		Outstanding		No. of	Recorded		Outstanding
	Loans	Investment		Commitment		Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	208	$	—	4	$	215	$	—
Commercial Real Estate - Owner Occupied	4		1,009		—	6		2,033		176
Commercial Real Estate - Non-Owner Occupied	1		1,089		—	1		1,089		—
Commercial & Industrial	2		434		—	4		727		—
Residential 1-4 Family - Commercial	—		—		—	3		245		—
Residential 1-4 Family - Consumer	80		9,641		—	77		8,943		—
Residential 1-4 Family - Revolving	3		271		3	3		277		—
Consumer	3		26		—	3		22		—
Other Commercial	1		375		—	1		410		—
Total performing	98	$	13,053	$	3	102	$	13,961	$	176
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	832	$	—	1	$	20	$	—
Commercial Real Estate - Non-Owner Occupied	1		123		—	1		134		—
Commercial & Industrial	4		402		—	3		237		—
Residential 1-4 Family - Commercial	3		399		—	4		1,296		—
Residential 1-4 Family - Consumer	24		4,373		—	23		4,865		—
Residential 1-4 Family - Revolving	3		102		—	3		103		—
Total nonperforming	37	$	6,231	$	—	35	$	6,655	$	—
Total performing and nonperforming	135	$	19,284	$	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 and six months ended June 30, 2021 and 2020, 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.

-19-

Table of Contents

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


	Three Months Ended June 30, 2021			Six Months Ended June 30, 2021
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—	—	$	—

Term modification, at a market rate
Residential 1-4 Family - Consumer	—	$	—	2	$	104
Total loan term extended at a market rate	—	$	—	2	$	104

Term modification, below market rate
Residential 1-4 Family - Consumer	3	$	1,382	11	$	1,824
Consumer	—		—	1		15
Total loan term extended at a below market rate	3	$	1,382	12	$	1,839

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	3	$	1,382	15	$	1,988

The following table shows, by class and modification type, TDRs that occurred during the three and six months ended June 30, 2020 (dollars in thousands):


	Three Months Ended June 30, 2020			Six Months Ended June 30, 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	4	$	353	4	$	353
Residential 1-4 Family - Consumer	3		326	3		326
Consumer	1		10	1		10
Total loan term extended at a market rate	8	$	689	8	$	689

Term modification, below market rate
Construction and Land Development	—	$	—	1	$	35
Residential 1-4 Family - Consumer	3		172	13		1,937
Residential 1-4 Family - Revolving	1		52	1		52
Total loan term extended at a below market rate	4	$	224	15	$	2,024

Interest rate modification, below market rate
Total interest only at below market rate of interest	—	$	—	—	$	—

Total	12	$	913	23	$	2,713

-20-

Table of Contents

Allowance for Loan and Lease Losses

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

●

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

●

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

The following tables show the ALLL activity by loan segment for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Commercial

Consumer

Total

Commercial

Consumer

Total

Balance at beginning of period

106,432

36,479

142,911

117,403

43,137

160,540

Loans charged-off

(891)

(1,054)

(1,945)

(2,865)

(2,721)

(5,586)

Recoveries credited to allowance

1,042

834

1,876

2,648

1,697

4,345

Provision charged to operations

(16,746)

(7,835)

(24,581)

(27,349)

(13,689)

(41,038)

Balance at end of period

89,837

28,424

118,261

89,837

28,424

118,261


	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	77,843	$	63,200	$	141,043	$	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		(1,590)		(3,087)		(4,677)		(4,558)		(7,270)		(11,828)
Recoveries credited to allowance		708		703		1,411		1,862		1,709		3,571
Provision charged to operations		34,993		(2,793)		32,200		77,525		10,931		88,456
Balance at end of period	$	111,954	$	58,023	$	169,977	$	111,954	$	58,023	$	169,977

-21-

Table of Contents

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer loan segments. For classes of loans within the Commercial segment, 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.

-22-

Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of June 30, 2021 (dollars in thousands):

June 30, 2021

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

Construction and Land Development

Pass

169,737

284,804

136,881

79,204

19,754

54,558

14,405

759,343

Watch

2,991

3,168

27,862

1,201

339

6,870

—

42,431

Special Mention

—

629

132

—

1,102

—

1,863

Substandard

—

524

29,101

5,453

—

35,085

Total Construction and Land Development

172,728

287,972

165,896

109,638

20,100

67,983

14,405

838,722

Commercial Real Estate - Owner Occupied

Pass

107,413

282,904

318,170

275,683

214,996

634,229

24,428

1,857,823

Watch

113

13,848

16,318

16,499

14,099

47,956

675

109,508

Special Mention

—

960

29,741

1,493

1,121

38,305

2,157

73,777

Substandard

—

4,906

1,711

1,974

19,159

800

28,550

Total Commercial Real Estate - Owner Occupied

107,526

297,712

369,135

295,386

232,190

739,649

28,060

2,069,658

Commercial Real Estate - Non-Owner Occupied

Pass

225,833

436,594

457,142

373,263

390,212

1,096,953

53,293

3,033,290

Watch

12,557

8,991

104,690

65,828

39,917

205,843

384

438,210

Special Mention

—

693

70,587

42,248

18,436

42,236

218

174,418

Substandard

—

11,245

—

13,170

9,318

32,956

—

66,689

Total Commercial Real Estate - Non-Owner Occupied

238,390

457,523

632,419

494,509

457,883

1,377,988

53,895

3,712,607

Commercial & Industrial

Pass

735,552

814,028

302,050

161,183

49,690

187,496

610,304

2,860,303

Watch

193

12,537

24,828

19,606

5,032

5,377

24,102

91,675

Special Mention

637

1,205

5,865

3,388

975

1,573

11,454

25,097

Substandard

—

4,602

1,216

274

2,223

5,176

13,547

Total Commercial & Industrial

736,382

827,826

337,345

185,393

55,971

196,669

651,036

2,990,622

Multifamily Real Estate

Pass

36,278

142,330

131,106

145,985

101,098

259,262

7,236

823,295

Watch

—

4,367

465

—

24,438

29,312

Special Mention

—

2,273

634

4,361

—

7,361

Substandard

—

113

—

113

Total Multifamily Real Estate

36,278

144,603

136,107

150,811

101,098

283,906

7,278

860,081

Residential 1-4 Family - Commercial

Pass

56,120

100,940

75,069

54,133

66,745

236,341

1,233

590,581

Watch

—

2,153

3,813

8,760

3,667

9,597

195

28,185

Special Mention

163

—

450

426

6,124

—

7,163

Substandard

—

3,484

773

1,390

5,421

488

11,556

Total Residential 1-4 Family - Commercial

56,283

103,093

82,366

64,116

72,228

257,483

1,916

637,485

Other Commercial

Pass

147,863

206,752

108,972

6,247

26,650

53,072

16,252

565,808

Watch

—

597

1,273

5,071

800

7,741

Special Mention

—

204

26,144

26,352

Substandard

—

375

—

375

Total Other Commercial

147,863

206,752

108,972

6,844

27,927

58,722

43,196

600,276

Total Commercial

Pass

1,478,796

2,268,352

1,529,390

1,095,698

869,145

2,521,911

727,151

10,490,443

Watch

15,854

40,697

181,878

112,956

64,327

305,152

26,198

747,062

Special Mention

800

5,131

107,456

52,072

20,962

89,637

39,973

316,031

Substandard

—

11,301

13,516

45,971

12,963

65,700

6,464

155,915

Total Commercial

1,495,450

2,325,481

1,832,240

1,306,697

967,397

2,982,400

799,786

11,709,451

-23-

Table of Contents

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

-24-

Table of Contents

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of June 30, 2021 (dollars in thousands):


		June 30, 2021
		Term Loans Amortized Cost Basis by Origination Year


	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	129,493	$	198,964	$	68,060	$	45,005	$	55,929	$	307,923	$	11	$	805,385
30-59 Days Past Due		—		—		89		—		44		631		—		764
60-89 Days Past Due		—		—		117		—		307		568		—		992
90+ Days Past Due		—		161		194		20		—		2,350		—		2,725
Nonaccrual		—		—		85		908		887		11,609		—		13,489
Total Residential 1-4 Family - Consumer	$	129,493	$	199,125	$	68,545	$	45,933	$	57,167	$	323,081	$	11	$	823,355

Residential 1-4 Family - Revolving
Current	$	2,639	$	10,741	$	2,660	$	1,256	$	—	$	486	$	535,348	$	553,130
30-59 Days Past Due		—		—		—		—		—		—		919		919
60-89 Days Past Due		—		—		—		—		—		—		678		678
90+ Days Past Due		—		—		—		—		—		—		561		561
Nonaccrual		—		73		—		20		—		227		3,406		3,726
Total Residential 1-4 Family - Revolving	$	2,639	$	10,814	$	2,660	$	1,276	$	—	$	713	$	540,912	$	559,014

Consumer
Current	$	6,922	$	20,354	$	50,736	$	46,063	$	16,716	$	19,881	$	33,262	$	193,934
30-59 Days Past Due		—		21		104		154		51		201		14		545
60-89 Days Past Due		—		9		148		65		28		31		16		297
90+ Days Past Due		—		—		21		126		7		1		1		156
Nonaccrual		—		—		—		—		—		104		—		104
Total Consumer	$	6,922	$	20,384	$	51,009	$	46,408	$	16,802	$	20,218	$	33,293	$	195,036

Auto
Current	$	85,151	$	151,237	$	92,687	$	42,811	$	23,624	$	13,718	$	—	$	409,228
30-59 Days Past Due		30		419		387		184		166		147		—		1,333
60-89 Days Past Due		50		19		26		52		10		8		—		165
90+ Days Past Due		—		3		132		—		18		15		—		168
Nonaccrual		—		28		27		30		32		62		—		179
Total Auto	$	85,231	$	151,706	$	93,259	$	43,077	$	23,850	$	13,950	$	—	$	411,073

Total Consumer
Current	$	224,205	$	381,296	$	214,143	$	135,135	$	96,269	$	342,008	$	568,621	$	1,961,677
30-59 Days Past Due		30		440		580		338		261		979		933		3,561
60-89 Days Past Due		50		28		291		117		345		607		694		2,132
90+ Days Past Due		—		164		347		146		25		2,366		562		3,610
Nonaccrual		—		101		112		958		919		12,002		3,406		17,498
Total Consumer	$	224,285	$	382,029	$	215,473	$	136,694	$	97,819	$	357,962	$	574,216	$	1,988,478

The Company did not have any material revolving loans convert to term during the six months ended June 30, 2021.

-25-

Table of Contents

The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of December 31, 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.

-26-

Table of Contents

4. GOODWILL AND INTANGIBLE ASSETS

The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangibles are being amortized over the period of expected benefit, which ranges from 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.

COVID-19 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 2021 and 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 June 30, 2021 and concluded no impairment existed as of the balance sheet date. Amortization expense of intangibles for the three and six months ended June 30, 2021 and 2020 totaled $3.6 million and $7.3 million, and $4.2 million and $8.6 million, respectively.

As of June 30, 2021, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):


For the remaining six months of 2021	$	6,605
2022		11,490
2023		9,688
2024		7,818
2025		6,221
Thereafter		8,095
Total estimated amortization expense	$	49,917

-27-

Table of Contents

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 June 30, 2021 and December 31, 2020, the carrying value of residual assets covered by residual value guarantees and RVI was $18.9 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 June 30, 2021 and December 31, 2020.

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


	June 30, 2021		December 31, 2020
Sales-type and direct financing leases:
Lease receivables, net of unearned income and deferred selling profit	$	166.8	$	141.2
Unguaranteed residual values, net of unearned income and deferred selling profit		6.3		4.8
Total net investment in sales-type and direct financing leases	$	173.1	$	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 if the Company is reasonably certain to exercise those options it would be included in the measurement of the operating ROU Assets and lease liabilities.

-28-

Table of Contents

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 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 June 30, 2021, 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):


	June 30, 2021						December 31, 2020
	Operating			Finance			Operating			Finance
Right-of-use-assets	$	45,277		$	6,965		$	48,051		$	7,425
Lease liabilities		55,151			10,055			58,901			10,621
Lease Term and Discount Rate of Operating leases:
Weighted-average remaining lease term (years)		6.98			7.58			7.27			8.08
Weighted-average discount rate ⁽¹⁾		2.60	%		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.


	Six months ended June 30,
	2021		2020
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Finance Leases	$	60	$	10
Operating Cash Flows from Operating Leases		5,988		6,893
Financing Cash Flows from Finance Leases		566		—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		2,164		3,183
Finance leases		—		10,549


	Three months ended June 30,				Six months ended June 30,
		2021		2020		2021		2020
Net Operating Lease Cost	$	2,532	$	2,928	$	5,081	$	5,847
Finance Lease Cost:
Amortization of right-of-use assets		230		77		459		77
Interest on lease liabilities		30		10		60		10
Total Lease Cost	$	2,792	$	3,015	$	5,600	$	5,934

-29-

Table of Contents

The maturities of lessor and lessee arrangements outstanding at June 30, 2021 are presented in the tables below (dollars in thousands):


	June 30, 2021
	Lessor		Lessee
		Sales-type and Direct Financing	Operating		Finance
For the remaining six months of 2021	$	18,792	$	5,928	$	634
2022		38,888		11,293		1,292
2023		36,922		10,154		1,325
2024		36,611		9,135		1,358
2025		24,815		6,810		1,392
Thereafter		25,420		17,503		4,516
Total undiscounted cash flows		181,448		60,823		10,517
Less: Adjustments ⁽¹⁾		14,695		5,672		462
Total ⁽²⁾	$	166,753	$	55,151	$	10,055

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

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

-30-

Table of Contents

6. BORROWINGS

Short-term Borrowings

The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of 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 June 30, 2021 and December 31, 2020 (dollars in thousands):


	June 30,			December 31,
	2021			2020
Securities sold under agreements to repurchase	$	89,749		$	100,888
Federal Funds Purchased		—			150,000
FHLB Advances		—			100,000
Total short-term borrowings	$	89,749		$	350,888

Average outstanding balance during the period	$	124,437		$	213,932
Average interest rate during the period		0.11	%		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 $997.0 million and $847.0 million at June 30, 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 June 30, 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 in compliance with such covenants as of June 30, 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 June 30, 2021 and December 31, 2020, respectively.

Long-term Borrowings

In response to the current interest 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 originally acquired as part of the Xenith acquisition.

-31-

Table of Contents

Total long-term borrowings consist of the following as of June 30, 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

2.90

6/17/2034

696

Trust Preferred Capital Note - Statutory Trust II

36,000

1.40

1.55

6/15/2036

1,114

VFG Limited Liability Trust I Indenture

20,000

2.73

2.88

3/18/2034

619

FNB Statutory Trust II Indenture

12,000

3.10

3.25

6/26/2033

372

Gateway Capital Statutory Trust I

8,000

3.10

3.25

9/17/2033

248

Gateway Capital Statutory Trust II

7,000

2.65

2.80

6/17/2034

217

Gateway Capital Statutory Trust III

15,000

1.50

1.65

5/30/2036

464

Gateway Capital Statutory Trust IV

25,000

1.55

1.70

7/30/2037

774

MFC Capital Trust II

5,000

2.85

3.00

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⁾

(14,829)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

290,330

⁽¹⁾Rate as of June 30, 2021.

⁽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 June 30, 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 are redeemable, at the Company’s option, on or after December 15, 2021, at which time 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.

-32-

Table of Contents

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