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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2022

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 1/400th 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 October 27, 2022 was 74,711,507.

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX

ITEM

    

    

PAGE

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 (audited)

2

Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2022 and 2021

3

Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the three and nine months ended September 30, 2022 and 2021

4

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2022 and 2021

5

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2022 and 2021

7

Notes to Consolidated Financial Statements (unaudited)

9

Review Report of Independent Registered Public Accounting Firm

53

Item 2.

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

54

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

84

Item 4.

Controls and Procedures

86

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

87

Item 1A.

Risk Factors

87

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 6.

Exhibits

88

Signatures

89

Table of Contents

Glossary of Acronyms and Defined Terms

2021 Form 10-K

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

2031 Notes

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

Access

Access National Corporation and its 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 820

ASC 820, Fair Value Measurements and Disclosures

ASU

Accounting Standards Update

ATM

Automated teller machine

AUB

Atlantic Union Bankshares Corporation

AUBAP

Atlantic Union Bankshares Corporation trading symbol

the Bank

Atlantic Union Bank (formerly, Union Bank & Trust)

BOLI

Bank owned life insurance

bps

Basis points

BVAL

Bloomberg Valuation Service

CAA

Consolidated Appropriations Act, 2021

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

CECL

Current expected credit losses

CODM

Chief operating decision maker

the Company

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

COVID-19

COVID-19 global pandemic

CSP

Cary Street Partners Financial LLC

depositary shares

Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share)

DHFB

Dixon, Hubard, Feinour & Brown, Inc.

EPS

Earnings per common share

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

Financial Accounting Standards Board

FCMs

Futures Commission Merchants

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FRB

Federal Reserve Bank of Richmond

FHLB

Federal Home Loan Bank of Atlanta

FHLMC

Federal Home Loan Mortgage Corporation

FNB

FNB Corporation

FNMA

Federal National Mortgage Association

FOMC

Federal Open Markets Committee

FR Y9-C

Consolidated financial statements for a U.S. bank holding company, a savings and loan holding company, a U.S. intermediate holding company, and a securities holding company

FTE

Fully taxable equivalent

GAAP or U.S. GAAP

Accounting principles generally accepted in the United States

GNMA

Government National Mortgage Association

HTM

Held to maturity

ICE

Intercontinental Exchange Data Services

Table of Contents

the Joint Guidance

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

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

LHFI

Loans held for investment

LHFS

Loans held for sale

LIBOR

London Interbank Offered Rate

MBS

Mortgage-Backed Securities

MFC

Middleburg Financial Corporation

NASDAQ

National Association of Securities Dealers Automated Quotation exchange

NM

Not meaningful

NOW

Negotiable order of withdrawal

NPA

Nonperforming assets

OCI

Other comprehensive income

OREO

Other real estate owned

OTC

Over-the-counter

PD/LGD

Probability of default/loss given default

PPP

Paycheck Protection Program

Quarterly Report

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

Repurchase Program

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

ROU asset

Right of Use Asset

RPAs

Risk Participation Agreements

RUC

Reserve for unfunded commitments

RVI

Residual value insurance

SBA

Small Business Administration

SEC

Securities and Exchange Commission

Series A preferred stock

6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share

SOFR

Secured Overnight Financing Rate

SSFA

Simplified supervisory formula approach

TDR

Troubled debt restructuring

Topic 606

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

Topic 848

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

VFG

Virginia Financial Group, Inc.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

(Dollars in thousands, except share data)

September 30,

December 31,

2022

    

2021

ASSETS

(unaudited)

(audited)

Cash and cash equivalents:

Cash and due from banks

$

177,969

$

180,963

Interest-bearing deposits in other banks

211,785

618,714

Federal funds sold

1,188

2,824

Total cash and cash equivalents

390,942

802,501

Securities available for sale, at fair value

2,717,323

3,481,650

Securities held to maturity, at carrying value

841,349

628,000

Restricted stock, at cost

82,050

76,825

Loans held for sale, at fair value

12,889

20,861

Loans held for investment, net of deferred fees and costs

13,918,720

13,195,843

Less: allowance for loan and lease losses

108,009

99,787

Total loans held for investment, net

13,810,711

13,096,056

Premises and equipment, net

126,374

134,808

Goodwill

925,211

935,560

Amortizable intangibles, net

29,142

43,312

Bank owned life insurance

437,988

431,517

Other assets

576,252

413,706

Total assets

$

19,950,231

$

20,064,796

LIABILITIES

Noninterest-bearing demand deposits

$

5,290,938

$

5,207,324

Interest-bearing deposits

11,255,278

11,403,744

Total deposits

16,546,216

16,611,068

Securities sold under agreements to repurchase

146,182

117,870

Other short-term borrowings

133,800

Long-term borrowings

389,576

388,724

Other liabilities

453,307

237,063

Total liabilities

17,669,081

17,354,725

Commitments and contingencies (Note 7)

STOCKHOLDERS' EQUITY

Preferred stock, $10.00 par value

173

173

Common stock, $1.33 par value

98,845

100,101

Additional paid-in capital

1,769,858

1,807,368

Retained earnings

874,393

783,794

Accumulated other comprehensive (loss) income

(462,119)

18,635

Total stockholders' equity

2,281,150

2,710,071

Total liabilities and stockholders' equity

$

19,950,231

$

20,064,796

Common shares outstanding

74,703,774

75,663,648

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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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2022

    

2021

    

2022

    

2021

Interest and dividend income:

Interest and fees on loans

$

144,673

$

124,999

$

382,139

$

383,575

Interest on deposits in other banks

941

291

1,229

454

Interest and dividends on securities:

Taxable

14,750

11,230

43,110

32,102

Nontaxable

10,792

9,859

31,889

28,773

Total interest and dividend income

171,156

146,379

458,367

444,904

Interest expense:

Interest on deposits

15,386

5,837

25,966

22,203

Interest on short-term borrowings

1,229

22

1,805

91

Interest on long-term borrowings

3,826

3,032

10,183

9,676

Total interest expense

20,441

8,891

37,954

31,970

Net interest income

150,715

137,488

420,413

412,934

Provision for credit losses

6,412

(18,850)

12,771

(59,888)

Net interest income after provision for credit losses

144,303

156,338

407,642

472,822

Noninterest income:

Service charges on deposit accounts

6,784

7,198

22,421

19,314

Other service charges, commissions and fees

1,770

1,534

5,134

4,970

Interchange fees

2,461

2,203

6,539

6,252

Fiduciary and asset management fees

4,134

7,029

18,329

20,323

Mortgage banking income

1,390

4,818

6,707

17,692

Bank owned life insurance income

3,445

2,727

8,858

8,202

Loan-related interest rate swap fees

2,050

1,102

8,510

4,176

Other operating income

3,550

3,327

17,525

8,459

Total noninterest income

25,584

29,938

94,023

89,388

Noninterest expenses:

Salaries and benefits

56,600

53,534

170,203

156,959

Occupancy expenses

6,408

7,251

19,685

21,705

Furniture and equipment expenses

3,673

4,040

10,860

11,919

Technology and data processing

8,273

7,534

23,930

21,657

Professional services

3,504

3,792

12,274

13,161

Marketing and advertising expense

2,343

2,548

7,008

7,330

FDIC assessment premiums and other insurance

3,094

2,172

8,344

6,798

Franchise and other taxes

4,507

4,432

13,506

13,303

Loan-related expenses

1,575

1,503

5,218

5,289

Amortization of intangible assets

2,480

3,381

8,434

10,679

Loss on debt extinguishment

14,695

Other expenses

7,466

5,156

24,550

15,756

Total noninterest expenses

99,923

95,343

304,012

299,251

Income from continuing operations before income taxes

69,964

90,933

197,653

262,959

Income tax expense

11,894

16,368

33,667

46,821

Net income

58,070

74,565

163,986

216,138

Dividends on preferred stock

2,967

2,967

8,901

8,901

Net income available to common shareholders

$

55,103

$

71,598

$

155,085

$

207,237

Basic earnings per common share

$

0.74

$

0.94

$

2.07

$

2.66

Diluted earnings per common share

$

0.74

$

0.94

$

2.07

$

2.66

Dividends declared per common share

$

0.30

$

0.28

$

0.86

$

0.81

Basic weighted average number of common shares outstanding

74,703,699

76,309,355

75,029,000

77,988,151

Diluted weighted average number of common shares outstanding

74,705,054

76,322,736

75,034,084

78,007,543

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Dollars in thousands)

Three Months Ended

 

Nine Months Ended

September 30, 

 

September 30, 

    

2022

    

2021

 

2022

    

2021

Net income

$

58,070

$

74,565

$

163,986

$

216,138

Other comprehensive (loss) income:

 

 

 

  

 

Cash flow hedges:

 

 

 

  

 

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

 

(24,142)

 

(545)

 

(59,027)

 

634

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

 

 

 

 

(47)

AFS securities:

 

 

 

 

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

 

(121,841)

 

(23,242)

 

(422,183)

 

(42,549)

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

 

 

(7)

 

2

 

(69)

HTM securities:

 

 

 

 

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

 

(4)

 

(5)

 

(14)

 

(15)

Bank owned life insurance:

 

 

 

Reclassification adjustment for losses included in net income (4)

 

151

 

150

 

468

 

454

Other comprehensive (loss) income:

 

(145,836)

 

(23,649)

 

(480,754)

 

(41,592)

Comprehensive (loss) income

$

(87,766)

$

50,916

$

(316,768)

$

174,546

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

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

(3) 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)

NINE MONTHS ENDED SEPTEMBER 30, 2022

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

  

  

  

  

  

Accumulated

  

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2021

$

100,101

$

173

$

1,807,368

$

783,794

$

18,635

$

2,710,071

Net Income

 

43,690

 

43,690

Other comprehensive loss (net of taxes of $49,701)

 

(210,118)

 

(210,118)

Dividends on common stock ($0.28 per share)

 

(21,163)

 

(21,163)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

Stock purchased under stock repurchase plan (629,691 shares)

(837)

(24,181)

(25,018)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (291,723 shares)

 

387

1,044

1,431

Stock-based compensation expense

 

2,409

 

2,409

Balance - March 31, 2022

$

99,651

$

173

$

1,786,640

$

803,354

$

(191,483)

$

2,498,335

Net Income

 

62,226

 

62,226

Other comprehensive loss (net of taxes of $33,214)

 

(124,800)

 

(124,800)

Dividends on common stock ($0.28 per share)

 

(20,912)

 

(20,912)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

Stock purchased under stock repurchase plan (649,208 shares)

(863)

(22,350)

(23,213)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (25,955 shares)

 

34

(154)

 

(120)

Stock-based compensation expense

2,927

2,927

Balance - June 30, 2022

$

98,822

$

173

$

1,767,063

$

841,701

$

(316,283)

$

2,391,476

Net Income

 

58,070

 

58,070

Other comprehensive loss (net of taxes of $38,806)

 

(145,836)

 

(145,836)

Dividends on common stock ($0.30 per share)

 

(22,411)

 

(22,411)

Dividends on preferred stock ($171.88 per share)

 

(2,967)

 

(2,967)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (17,048 shares)

 

23

66

 

89

Stock-based compensation expense

2,729

2,729

Balance - September 30, 2022

$

98,845

$

173

$

1,769,858

$

874,393

$

(462,119)

$

2,281,150

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2021

(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, 2020

$

104,169

$

173

$

1,917,081

$

616,052

$

71,015

$

2,708,490

Net Income

 

56,189

 

56,189

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

 

  

(34,514)

 

(34,514)

Dividends on common stock ($0.25 per share)

 

  

(19,700)

 

(19,700)

Dividends on preferred stock ($171.88 per share)

(2,967)

(2,967)

Issuance of common stock under Equity Compensation Plans, stock issuance for services rendered, and vesting of restricted stock, net of shares held for taxes (243,884 shares)

 

324

(289)

 

35

Stock-based compensation expense

 

  

2,199

 

2,199

Balance - March 31, 2021

$

104,493

$

173

$

1,918,991

$

649,574

$

36,501

$

2,709,732

Net Income

 

85,384

 

85,384

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

16,571

16,571

Dividends on common stock ($0.28 per share)

(22,125)

(22,125)

Dividends on preferred stock ($171.88 per share)

(2,967)

(2,967)

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

(1,450)

(40,913)

(42,363)

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

48

663

711

Stock-based compensation expense

2,654

2,654

Balance - June 30, 2021

$

103,091

$

173

$

1,881,395

$

709,866

$

53,072

$

2,747,597

Net Income

 

74,565

74,565

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

(23,649)

(23,649)

Dividends on common stock ($0.28 per share)

(21,300)

(21,300)

Dividends on preferred stock ($171.88 per share)

(2,967)

(2,967)

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

(3,045)

(79,592)

(82,637)

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

16

175

191

Stock-based compensation expense

2,639

2,639

Balance - September 30, 2021

$

100,062

$

173

$

1,804,617

$

760,164

$

29,423

$

2,694,439

See accompanying notes to consolidated financial statements.

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ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Dollars in thousands)

    

2022

    

2021

Operating activities:

 

  

 

  

Net income

$

163,986

$

216,138

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

 

  

 

  

Depreciation of premises and equipment

 

10,652

 

11,992

Writedown of ROU assets, foreclosed properties, and equipment

 

4,768

 

1,119

Amortization, net

 

23,838

 

24,397

Amortization (accretion) related to acquisitions, net

 

2,271

 

(1,792)

Provision for credit losses

 

12,771

 

(59,888)

Gain on sale of DHFB

 

(9,082)

 

BOLI income

(8,858)

(8,202)

Originations and purchases of LHFS

 

(263,162)

 

(491,895)

Proceeds from sales of LHFS

270,853

550,683

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

(507)

638

Losses on debt extinguishment

14,695

Stock-based compensation expenses

 

8,065

 

7,492

Issuance of common stock for services

 

611

 

372

Net (increase) decrease in other assets

 

(6,489)

 

108,590

Net increase (decrease) in other liabilities

 

117,188

 

(134,336)

Net cash provided by operating activities

 

326,905

 

240,003

Investing activities:

 

  

 

  

Purchases of AFS securities, restricted stock, and other investments

 

(97,518)

 

(1,142,304)

Purchases of HTM securities

 

(225,026)

 

Proceeds from sales of AFS securities and restricted stock

 

29,719

 

45,436

Proceeds from maturities, calls and paydowns of AFS securities

 

281,542

 

392,129

Proceeds from maturities, calls and paydowns of HTM securities

 

8,223

 

6,642

Net (increase) decrease in LHFI

(717,591)

891,240

Net increase in premises and equipment

 

(3,054)

 

(9,221)

Proceeds from BOLI settlements

2,876

4,843

Purchases of BOLI policies

(100,000)

Proceeds from sales of foreclosed properties and former bank premises

 

5,965

 

8,632

Net cash (used in) provided by investing activities

 

(714,864)

 

97,397

Financing activities:

 

  

 

  

Net increase in noninterest-bearing deposits

 

83,614

 

960,135

Net decrease in interest-bearing deposits

 

(148,497)

 

(60,716)

Net increase (decrease) in short-term borrowings

 

162,112

 

(255,707)

Repayments of long-term debt

(214,695)

Cash dividends paid - common stock

 

(64,486)

 

(63,125)

Cash dividends paid - preferred stock

(8,901)

(8,901)

Repurchase of common stock

(48,231)

(125,000)

Issuance of common stock

 

3,849

 

2,955

Vesting of restricted stock, net of shares held for taxes

 

(3,060)

 

(2,390)

Net cash (used in) provided by financing activities

 

(23,600)

 

232,556

(Decrease) increase in cash and cash equivalents

 

(411,559)

569,956

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

 

802,501

 

493,294

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

$

390,942

$

1,063,250

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Dollars in thousands)

    

2022

    

2021

Supplemental Disclosure of Cash Flow Information

 

  

 

  

Cash payments for:

 

  

 

  

Interest

$

34,099

$

30,749

Income taxes

 

1,224

 

1,260

Supplemental schedule of noncash investing and financing activities

 

  

 

  

Transfers from loans to foreclosed properties

 

404

 

14

Transfers from bank premises to OREO

1,109

See accompanying notes to consolidated financial statements.

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has 114 branches and approximately 130 ATMs located throughout Virginia, and in portions of Maryland and North Carolina as of September 30, 2022. Certain non-bank financial services affiliates of Atlantic Union Bank include: Atlantic Union Equipment Finance, Inc., which provides equipment financing; Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

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

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

The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s 2021 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, subject to meeting certain criteria, for applying current

GAAP to contract modifications and hedging relationships, for contracts that reference LIBOR or other reference rates

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.

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, short-term money market investments, other interest-bearing deposits, and federal funds sold.

Restricted cash is disclosed in Note 7 “Commitments and Contingencies” in Part I, Item I of this Quarterly Report and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other banks in the Company’s Consolidated Balance Sheets. In addition, the Company is required to maintain reserve balances with the FRB based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions. The reserve requirement is still at zero percent as of September 30, 2022.

Accrued Interest Receivable

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $48.1 million and $43.3 million on LHFI, $6.6 million and $7.0 million on HTM securities, and $13.3 million and $14.5 million on AFS securities at September 30, 2022 and December 31, 2021, respectively, and is included in “Other assets” on the Company’s Consolidated Balance Sheets. The

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Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended September 30, 2022 and September 30, 2021, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

Segment Reporting

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

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2. SECURITIES

Available for Sale

The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with no securities past due or on non-accrual as of September 30, 2022 and December 31, 2021.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of September 30, 2022 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

    

Cost

    

Gains

    

(Losses)

    

Fair Value

September 30, 2022

 

  

 

  

 

  

  

U.S. government and agency securities

$

70,399

$

$

(8,763)

$

61,636

Obligations of states and political subdivisions

 

961,722

 

7

 

(197,186)

 

764,543

Corporate and other bonds (1)

 

246,411

 

 

(15,323)

 

231,088

Commercial MBS

 

 

Agency

247,854

 

84

 

(36,739)

211,199

Non-agency

101,460

 

 

(4,085)

97,375

Total commercial MBS

349,314

 

84

 

(40,824)

308,574

Residential MBS

Agency

1,520,401

 

68

 

(238,966)

1,281,503

Non-agency

75,130

 

 

(6,805)

68,325

Total residential MBS

1,595,531

 

68

 

(245,771)

1,349,828

Other securities

 

1,654

 

 

 

1,654

Total AFS securities

$

3,225,031

$

159

$

(507,867)

$

2,717,323

(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, 2021 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

    

Cost

    

Gains

    

(Losses)

    

Fair Value

December 31, 2021

U.S. government and agency securities

$

73,830

$

179

$

(160)

$

73,849

Obligations of states and political subdivisions

971,126

39,343

(2,073)

1,008,396

Corporate and other bonds (1)

 

150,201

 

3,353

 

(178)

 

153,376

Commercial MBS

 

 

Agency

361,806

6,761

(4,215)

364,352

Non-agency

107,087

139

(421)

106,805

Total commercial MBS

468,893

6,900

(4,636)

471,157

Residential MBS

Agency

1,691,651

15,180

(24,337)

1,682,494

Non-agency

91,443

243

(948)

90,738

Total residential MBS

1,783,094

15,423

(25,285)

1,773,232

Other securities

 

1,640

 

 

 

1,640

Total AFS securities

$

3,448,784

$

65,198

$

(32,332)

$

3,481,650

(1) Other bonds include asset-backed securities

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Table of Contents

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

Less than 12 months

More than 12 months

Total

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

Value

Losses

Value(2)

Losses

Value

Losses

September 30, 2022

 

 

 

 

 

 

U.S. government and agency securities

$

58,670

$

(8,726)

$

2,896

$

(37)

$

61,566

$

(8,763)

Obligations of states and political subdivisions

601,039

(120,853)

159,773

(76,333)

760,812

(197,186)

Corporate and other bonds(1)

 

219,904

 

(14,111)

 

8,788

 

(1,212)

 

228,692

 

(15,323)

Commercial MBS

 

Agency

113,687

(15,734)

92,435

(21,005)

206,122

(36,739)

Non-agency

76,779

(2,877)

20,596

(1,208)

97,375

(4,085)

Total commercial MBS

190,466

(18,611)

113,031

(22,213)

303,497

(40,824)

Residential MBS

Agency

606,805

(88,065)

668,275

(150,901)

1,275,080

(238,966)

Non-agency

56,490

(5,356)

11,724

(1,449)

68,214

(6,805)

Total residential MBS

663,295

(93,421)

679,999

(152,350)

1,343,294

(245,771)

Total AFS securities

$

1,733,374

$

(255,722)

$

964,487

$

(252,145)

$

2,697,861

$

(507,867)

December 31, 2021

 

  

 

  

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

64,474

$

(115)

$

3,900

$

(45)

$

68,374

$

(160)

Obligations of states and political subdivisions

249,701

(2,020)

2,123

(53)

251,824

(2,073)

Corporate and other bonds(1)

 

21,134

 

(177)

 

703

 

(1)

 

21,837

 

(178)

Commercial MBS

 

 

 

 

 

 

Agency

175,588

(4,053)

3,172

(162)

178,760

(4,215)

Non-agency

33,759

(313)

11,029

(108)

44,788

(421)

Total commercial MBS

209,347

(4,366)

14,201

(270)

223,548

(4,636)

Residential MBS

Agency

1,140,701

(21,147)

106,104

(3,190)

1,246,805

(24,337)

Non-agency

48,392

(584)

12,716

(364)

61,108

(948)

Total residential MBS

1,189,093

(21,731)

118,820

(3,554)

1,307,913

(25,285)

Total AFS securities

$

1,733,749

$

(28,409)

$

139,747

$

(3,923)

$

1,873,496

$

(32,332)

(1) Other bonds include asset-backed securities

(2) Comprised of 302 and 33 individual securities as of September 30, 2022 and December 31, 2021, respectively

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at September 30, 2022 and December 31, 2021 and concluded no impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

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

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Table of Contents

The following table presents the amortized cost and estimated fair value of AFS securities as of September 30, 2022 and December 31, 2021, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2022

December 31, 2021

    

Amortized

    

Estimated

    

Amortized

    

Estimated

Cost

Fair Value

Cost

Fair Value

Due in one year or less

$

31,089

$

30,799

$

18,247

$

18,317

Due after one year through five years

 

165,998

 

160,945

 

180,080

 

183,981

Due after five years through ten years

 

338,619

 

308,149

 

324,615

 

331,215

Due after ten years

 

2,689,325

 

2,217,430

 

2,925,842

 

2,948,137

Total AFS securities

$

3,225,031

$

2,717,323

$

3,448,784

$

3,481,650

Refer to Note 7 "Commitments and Contingencies" in Part I, Item I of this Quarterly Report for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, 2022 and December 31, 2021.

Held to Maturity

The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities. The Company’s HTM securities were substantially all current at September 30, 2022 and December 31, 2021.

The Company reports HTM securities on the Company’s Consolidated Balance Sheets at carrying value. Carrying value is amortized cost, which includes any unamortized unrealized gains and losses recognized in AOCI prior to reclassifying the securities from AFS securities to HTM securities. Investment securities transferred into the HTM category from the AFS category are recorded at fair value at the date of transfer. The unrealized holding gains or losses at the date of transfer are retained in AOCI and in the carrying value of the HTM securities. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of September 30, 2022 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

Fair Value

September 30, 2022

 

  

 

  

 

  

  

U.S. government and agency securities

$

690

$

$

(39)

$

651

Obligations of states and political subdivisions

724,330

176

(64,366)

660,140

Commercial Agency MBS

29,096

(4,360)

24,736

Residential MBS

Agency

43,080

(6,732)

36,348

Non-agency

44,153

(548)

43,605

Total residential MBS

87,233

(7,280)

79,953

Total HTM securities

$

841,349

$

176

$

(76,045)

$

765,480

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

Carrying

Gross Unrealized

Estimated

    

Value

    

Gains

    

(Losses)

    

Fair Value

December 31, 2021

 

  

 

  

 

  

 

  

U.S. government and agency securities

$

2,604

$

$

(29)

$

2,575

Obligations of states and political subdivisions

620,873

65,982

(121)

686,734

Commercial Agency MBS

4,523

(58)

4,465

Total HTM securities

$

628,000

$

65,982

$

(208)

$

693,774

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Table of Contents

Credit Quality Indicators & Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at September 30, 2022 and December 31, 2021. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.

The following table presents the amortized cost of HTM securities as of September 30, 2022 and December 31, 2021 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

September 30, 2022

Credit Rating:

 

 

AAA/AA/A

$

$

700,138

$

2,764

$

702,902

BBB/BB/B

1,192

1,192

Not Rated - Agency(1)

690

72,176

72,866

Not Rated - Non-Agency(2)

 

23,000

41,389

64,389

Total

$

690

$

724,330

$

116,329

$

841,349

December 31, 2021

Credit Rating:

 

 

AAA/AA/A

$

$

620,873

$

$

620,873

Not Rated - Agency(1)

2,604

4,523

7,127

Total

$

2,604

$

620,873

$

4,523

$

628,000

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

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

The following table presents the amortized cost and estimated fair value of HTM securities as of September 30, 2022 and December 31, 2021, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2022

December 31, 2021

    

Carrying

    

Estimated

    

Carrying

    

Estimated

Value

Fair Value

Value

Fair Value

Due in one year or less

$

25,025

$

25,016

$

3,034

$

3,027

Due after one year through five years

 

35,709

 

35,656

 

5,852

 

6,065

Due after five years through ten years

 

15,798

 

15,587

 

14,019

 

15,984

Due after ten years

 

764,817

 

689,221

 

605,095

 

668,698

Total HTM securities

$

841,349

$

765,480

$

628,000

$

693,774

Refer to Note 7 "Commitments and Contingencies" in Part I, Item I of this Quarterly Report for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of September 30, 2022 and December 31, 2021.

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the FRB 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. Restricted stock consists of FRB stock in the amount of $67.0 million for September 30, 2022 and December 31, 2021 and FHLB stock in the amount of $15.0 million and $9.8 million as of September 30, 2022 and December 31, 2021, respectively.

-14-

Table of Contents

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

    

Three Months Ended

    

Nine Months Ended

September 30, 2022

September 30, 2022

Realized gains (losses)(1):

 

  

 

  

Gross realized gains

$

$

Gross realized losses

 

 

(2)

Net realized gains

$

$

(2)

Proceeds from sales of securities

$

17,250

$

29,719

    

Three Months Ended

    

Nine Months Ended

September 30, 2021

September 30, 2021

Realized gains (losses)(1):

 

  

 

  

Gross realized gains

$

9

$

147

Gross realized losses

 

 

(60)

Net realized gains

$

9

$

87

Proceeds from sales of securities

$

$

45,436

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

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Table of Contents

3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The information included below reflects the impact of the CARES Act, as amended by the CAA, and the Joint Guidance. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K for information about COVID-19 and related legislative and regulatory developments.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consisted of the following at September 30, 2022 and December 31, 2021 (dollars in thousands):

September 30, 2022

    

December 31, 2021

Construction and Land Development

$

1,068,201

$

862,236

Commercial Real Estate - Owner Occupied

 

1,953,872

 

1,995,409

Commercial Real Estate - Non-Owner Occupied

 

3,900,325

 

3,789,377

Multifamily Real Estate

 

774,970

 

778,626

Commercial & Industrial(1)

 

2,709,047

 

2,542,243

Residential 1-4 Family - Commercial

 

542,612

 

607,337

Residential 1-4 Family - Consumer

 

891,353

 

816,524

Residential 1-4 Family - Revolving

 

588,452

 

560,796

Auto

 

561,277

 

461,052

Consumer

 

172,776

 

176,992

Other Commercial(2)

 

755,835

 

605,251

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

13,918,720

13,195,843

Allowance for loan and lease losses

(108,009)

(99,787)

Total LHFI, net

$

13,810,711

$

13,096,056

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

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

(3) Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $45.7 million and $49.3 million as of September 30, 2022 and December 31, 2021, respectively.

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Table of Contents

The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 2022 (dollars in thousands):

    

    

    

    

Greater than

    

    

30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

$

1,067,438

$

120

$

107

$

115

$

421

$

1,068,201

Commercial Real Estate - Owner Occupied

 

1,937,372

 

7,337

 

763

 

3,517

 

4,883

 

1,953,872

Commercial Real Estate - Non-Owner Occupied

 

3,897,324

 

 

457

 

621

 

1,923

 

3,900,325

Multifamily Real Estate

 

774,970

 

 

 

 

 

774,970

Commercial & Industrial

 

2,702,308

 

796

 

3,128

 

526

 

2,289

 

2,709,047

Residential 1-4 Family - Commercial

 

538,835

 

1,410

 

97

 

308

 

1,962

 

542,612

Residential 1-4 Family - Consumer

 

876,980

 

1,123

 

1,449

 

680

 

11,121

 

891,353

Residential 1-4 Family - Revolving

 

581,418

 

1,115

 

1,081

 

1,255

 

3,583

 

588,452

Auto

 

558,678

 

1,876

 

257

 

148

 

318

 

561,277

Consumer

 

172,180

 

409

 

101

 

86

 

 

172,776

Other Commercial

755,740

95

755,835

Total LHFI

$

13,863,243

$

14,186

$

7,440

$

7,351

$

26,500

$

13,918,720

% of total loans

99.61

%

0.10

%

0.05

%

0.05

%

0.19

%

100.00

%

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

$

857,883

$

1,357

$

$

299

$

2,697

$

862,236

Commercial Real Estate - Owner Occupied

 

1,987,133

 

1,230

 

152

 

1,257

 

5,637

 

1,995,409

Commercial Real Estate - Non-Owner Occupied

 

3,783,211

 

1,965

 

127

 

433

 

3,641

 

3,789,377

Multifamily Real Estate

 

778,429

 

84

 

 

 

113

 

778,626

Commercial & Industrial

 

2,536,100

 

1,161

 

1,438

 

1,897

 

1,647

 

2,542,243

Residential 1-4 Family - Commercial

 

601,946

 

1,844

 

272

 

990

 

2,285

 

607,337

Residential 1-4 Family - Consumer

 

795,821

 

3,368

 

2,925

 

3,013

 

11,397

 

816,524

Residential 1-4 Family - Revolving

 

554,652

 

1,493

 

363

 

882

 

3,406

 

560,796

Auto

 

458,473

 

1,866

 

249

 

241

 

223

 

461,052

Consumer

 

175,943

 

689

 

186

 

120

 

54

 

176,992

Other Commercial

605,214

37

605,251

Total LHFI

$

13,134,805

$

15,094

$

5,712

$

9,132

$

31,100

$

13,195,843

% of total loans

99.54

%

0.11

%

0.04

%

0.07

%

0.24

%

100.00

%

-17-

Table of Contents

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

September 30, 2022

Nonaccrual

Nonaccrual With No ALLL

90 Days Past due and still Accruing

Construction and Land Development

$

421

$

$

115

Commercial Real Estate - Owner Occupied

4,883

932

3,517

Commercial Real Estate - Non-Owner Occupied

1,923

621

Commercial & Industrial

2,289

1

526

Residential 1-4 Family - Commercial

1,962

308

Residential 1-4 Family - Consumer

11,121

680

Residential 1-4 Family - Revolving

3,583

1,255

Auto

318

148

Consumer

86

Other Commercial

95

Total LHFI

$

26,500

$

933

$

7,351

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

December 31, 2021

Nonaccrual

Nonaccrual With No ALLL

90 Days Past due and still Accruing

Construction and Land Development

$

2,697

$

1,985

$

299

Commercial Real Estate - Owner Occupied

5,637

970

1,257

Commercial Real Estate - Non-Owner Occupied

3,641

1,089

433

Multifamily Real Estate

113

Commercial & Industrial

1,647

1

1,897

Residential 1-4 Family - Commercial

2,285

990

Residential 1-4 Family - Consumer

11,397

3,013

Residential 1-4 Family - Revolving

3,406

882

Auto

223

241

Consumer

54

120

Total LHFI

$

31,100

$

4,045

$

9,132

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2022 and 2021. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

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Table of Contents

Troubled Debt Restructurings

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

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

The following table 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 September 30, 2022 and December 31, 2021 (dollars in thousands):

September 30, 2022

December 31, 2021

    

No. of

    

Recorded

    

Outstanding

    

No. of

    

Recorded

    

Outstanding

Loans

Investment

Commitment

Loans

Investment

Commitment

Performing

 

  

 

  

 

  

 

  

 

  

 

  

Construction and Land Development

 

3

$

159

$

 

4

$

201

$

Commercial Real Estate - Owner Occupied

 

2

 

1,000

 

 

3

 

572

 

Commercial & Industrial

 

1

 

100

 

 

 

 

Residential 1-4 Family - Commercial

 

1

 

1,334

 

 

 

 

Residential 1-4 Family - Consumer

 

81

 

7,470

 

 

75

 

9,021

 

Residential 1-4 Family - Revolving

 

3

 

257

 

5

 

3

 

265

 

4

Consumer

 

1

 

13

 

 

2

 

15

 

Other Commercial

1

239

Total performing

 

92

$

10,333

$

5

 

88

$

10,313

$

4

Nonperforming

 

  

 

  

 

  

 

  

 

  

 

  

Commercial Real Estate - Owner Occupied

 

1

$

16

$

 

2

$

830

$

Commercial Real Estate - Non-Owner Occupied

2

242

3

1,357

Commercial & Industrial

 

2

 

481

 

 

3

 

729

 

Residential 1-4 Family - Commercial

 

3

 

371

 

 

3

 

388

 

Residential 1-4 Family - Consumer

 

24

 

4,092

 

 

24

 

4,239

 

Residential 1-4 Family - Revolving

 

3

 

96

 

 

3

 

99

 

Total nonperforming

 

35

$

5,298

$

 

38

$

7,642

$

Total performing and nonperforming

 

127

$

15,631

$

5

 

126

$

17,955

$

4

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 nine months ended September 30, 2022 and 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.

-19-

Table of Contents

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

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

    

    

Recorded

    

    

Recorded

    

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Modified to interest only, at a market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Commercial

$

1

$

1,334

Total interest only at market rate of interest

 

$

 

1

$

1,334

 

Term modification, at a market rate

 

  

 

  

 

  

 

  

 

Commercial Real Estate - Owner Occupied

 

$

 

1

$

766

 

Total loan term extended at a market rate

 

$

 

1

$

766

 

Term modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Consumer

 

7

$

665

 

17

$

1,166

 

Total loan term extended at a below market rate

 

7

$

665

 

17

$

1,166

 

Total

 

7

$

665

 

19

$

3,266

 

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

    

    

Recorded

    

    

Recorded

    

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Modified to interest only, at a market rate

 

  

 

  

 

  

 

  

 

Total interest only at market rate of interest

 

$

 

$

 

Term modification, at a market rate

 

  

 

  

 

  

 

  

 

Commercial Real Estate - Non-Owner Occupied

 

1

$

157

1

$

157

 

Residential 1-4 Family - Consumer

 

 

2

102

 

Total loan term extended at a market rate

 

1

$

157

 

3

$

259

 

Term modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Consumer

 

$

 

11

$

1,813

 

Consumer

1

15

Total loan term extended at a below market rate

 

$

 

12

$

1,828

 

Interest rate modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Commercial

 

$

 

1

$

45

 

Total interest only at below market rate of interest

 

$

 

1

$

45

 

Total

 

1

$

157

 

16

$

2,132

 

-20-

Table of Contents

Allowance for Loan and Lease Losses

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

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

The following tables show the ALLL activity by loan segment for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Balance at beginning of period

$

77,413

$

26,771

$

104,184

$

77,902

$

21,885

$

99,787

Loans charged-off

 

(1,086)

 

(715)

 

(1,801)

 

 

(2,852)

 

(2,415)

 

(5,267)

Recoveries credited to allowance

 

605

 

609

 

1,214

 

1,723

 

2,022

 

3,745

Provision charged to operations

 

6,969

 

(2,557)

 

4,412

 

 

7,128

 

2,616

 

9,744

Balance at end of period

$

83,901

$

24,108

$

108,009

 

$

83,901

$

24,108

$

108,009

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Balance at beginning of period

$

89,837

$

28,424

$

118,261

 

$

117,403

$

43,137

$

160,540

Loans charged-off

 

(967)

 

(1,299)

 

(2,266)

 

 

(3,832)

 

(4,020)

 

(7,852)

Recoveries credited to allowance

 

1,281

 

872

 

2,153

 

 

3,929

 

2,569

 

6,498

Provision charged to operations

 

(15,173)

 

(1,177)

 

(16,350)

 

 

(42,522)

 

(14,866)

 

(57,388)

Balance at end of period

$

74,978

$

26,820

$

101,798

$

74,978

$

26,820

$

101,798

-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 ACL. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

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 September 30, 2022 (dollars in thousands):

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

278,751

$

522,332

$

139,003

$

16,527

$

35,327

$

36,153

$

22,434

$

1,050,527

Watch

855

3,842

120

2,736

7,553

Special Mention

921

1,491

338

174

2,924

Substandard

1,261

2,359

40

214

1,345

1,978

7,197

Total Construction and Land Development

$

280,933

$

527,037

$

139,381

$

20,583

$

36,792

$

41,041

$

22,434

$

1,068,201

Commercial Real Estate - Owner Occupied

Pass

$

193,743

$

204,645

$

256,490

$

290,697

$

233,459

$

663,420

$

15,089

$

1,857,543

Watch

1,069

178

2,463

8,293

12,375

26,383

1,149

51,910

Special Mention

641

1,479

914

18,816

42

21,892

Substandard

2,826

4,370

1,610

13,256

465

22,527

Total Commercial Real Estate - Owner Occupied

$

195,453

$

207,649

$

258,953

$

304,839

$

248,358

$

721,875

$

16,745

$

1,953,872

Commercial Real Estate - Non-Owner Occupied

Pass

$

339,274

$

671,073

$

397,814

$

508,462

$

375,951

$

1,392,787

$

31,971

$

3,717,332

Watch

2,151

818

26,793

40,466

27,259

97,487

Special Mention

234

6,084

2,609

18,771

27,698

Substandard

10,501

22,797

18,930

5,580

57,808

Total Commercial Real Estate - Non-Owner Occupied

$

339,508

$

673,224

$

409,133

$

564,136

$

437,956

$

1,444,397

$

31,971

$

3,900,325

Commercial & Industrial

Pass

$

529,915

$

576,070

$

321,669

$

191,789

$

86,424

$

144,362

$

746,107

$

2,596,336

Watch

1,401

794

17,955

5,204

12,546

2,283

22,057

62,240

Special Mention

182

416

2,500

373

2,031

20,174

25,676

Substandard

98

536

112

3,912

14,253

1,375

4,509

24,795

Total Commercial & Industrial

$

531,414

$

577,582

$

340,152

$

203,405

$

113,596

$

150,051

$

792,847

$

2,709,047

Multifamily Real Estate

Pass

$

84,683

$

79,629

$

216,676

$

62,386

$

76,761

$

247,444

$

2,225

$

769,804

Watch

4,209

446

423

5,078

Special Mention

88

88

Total Multifamily Real Estate

$

84,683

$

79,629

$

216,676

$

66,595

$

77,207

$

247,955

$

2,225

$

774,970

Residential 1-4 Family - Commercial

Pass

$

35,383

$

91,966

$

79,004

$

53,298

$

38,421

$

208,616

$

949

$

507,637

Watch

1,344

545

8,561

2,985

5,093

114

18,642

Special Mention

1,495

71

4,800

2,717

9,083

Substandard

2,464

478

4,009

299

7,250

Total Residential 1-4 Family - Commercial

$

35,383

$

93,310

$

81,044

$

64,394

$

46,684

$

220,435

$

1,362

$

542,612

Other Commercial

Pass

$

168,290

$

216,249

$

156,770

$

118,283

$

3,683

$

70,833

$

13,209

$

747,317

Watch

5,367

3,056

8,423

Substandard

95

95

Total Other Commercial

$

173,657

$

216,249

$

156,770

$

118,283

$

3,683

$

73,889

$

13,304

$

755,835

Total Commercial

Pass

$

1,630,039

$

2,361,964

$

1,567,426

$

1,241,442

$

850,026

$

2,763,615

$

831,984

$

11,246,496

Watch

7,837

5,322

21,781

56,902

68,938

67,233

23,320

251,333

Special Mention

1,796

1,673

2,249

10,134

8,696

42,597

20,216

87,361

Substandard

1,359

5,721

10,653

33,757

36,616

26,198

5,368

119,672

Total Commercial

$

1,641,031

$

2,374,680

$

1,602,109

$

1,342,235

$

964,276

$

2,899,643

$

880,888

$

11,704,862

-23-

Table of Contents

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

December 31, 2021

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

430,764

$

218,672

$

39,937

$

40,128

$

11,299

$

50,908

$

22,996

$

814,704

Watch

395

185

12,923

129

349

4,026

18,007

Special Mention

735

735

Substandard

3,541

1

221

19,264

198

5,565

28,790

Total Construction and Land Development

$

434,700

$

218,858

$

53,081

$

59,521

$

11,846

$

61,234

$

22,996

$

862,236

Commercial Real Estate - Owner Occupied

Pass

$

222,079

$

279,165

$

321,503

$

263,422

$

179,994

$

555,540

$

19,705

$

1,841,408

Watch

185

18

7,959

10,875

14,648

57,466

702

91,853

Special Mention

932

11,826

610

1,052

19,480

507

34,407

Substandard

200

153

7,455

2,538

1,935

14,834

626

27,741

Total Commercial Real Estate - Owner Occupied

$

222,464

$

280,268

$

348,743

$

277,445

$

197,629

$

647,320

$

21,540

$

1,995,409

Commercial Real Estate - Non-Owner Occupied

Pass

$

642,386

$

421,063

$

520,035

$

377,176

$

374,949

$

1,102,193

$

36,568

$

3,474,370

Watch

2,152

841

35,721

39,356

18,242

101,797

14

198,123

Special Mention

10,609

25,691

20,119

12,741

4,775

73,935

Substandard

23,376

11,369

7,952

252

42,949

Total Commercial Real Estate - Non-Owner Occupied

$

644,538

$

432,513

$

604,823

$

448,020

$

405,932

$

1,216,717

$

36,834

$

3,789,377

Commercial & Industrial

Pass

$

770,662

$

450,478

$

287,926

$

110,710

$

38,395

$

170,857

$

619,583

$

2,448,611

Watch

1,233

9,641

2,766

31,635

1,370

4,405

17,220

68,270

Special Mention

206

935

8,477

1,023

564

561

3,249

15,015

Substandard

379

575

3,636

1,965

463

1,639

1,690

10,347

Total Commercial & Industrial

$

772,480

$

461,629

$

302,805

$

145,333

$

40,792

$

177,462

$

641,742

$

2,542,243

Multifamily Real Estate

Pass

$

63,431

$

187,616

$

108,402

$

114,077

$

66,562

$

228,013

$

1,548

$

769,649

Watch

359

459

522

1,340

Special Mention

44

2,248

624

4,517

91

7,524

Substandard

113

113

Total Multifamily Real Estate

$

63,475

$

189,864

$

109,385

$

119,053

$

66,562

$

228,739

$

1,548

$

778,626

Residential 1-4 Family - Commercial

Pass

$

108,259

$

94,184

$

65,682

$

46,267

$

55,995

$

196,052

$

550

$

566,989

Watch

2,041

4,887

7,483

2,415

7,573

311

24,710

Special Mention

96

436

391

4,126

5,049

Substandard

93

3,494

536

1,291

4,876

299

10,589

Total Residential 1-4 Family - Commercial

$

108,352

$

96,321

$

74,063

$

54,722

$

60,092

$

212,627

$

1,160

$

607,337

Other Commercial

Pass

$

226,595

$

167,497

$

98,848

$

5,620

$

25,723

$

44,114

$

30,445

$

598,842

Watch

581

1,246

4,341

6,168

Special Mention

2

2

Substandard

239

239

Total Other Commercial

$

226,595

$

167,497

$

98,848

$

6,201

$

26,971

$

48,694

$

30,445

$

605,251

Total Commercial

Pass

$

2,464,176

$

1,818,675

$

1,442,333

$

957,400

$

752,917

$

2,347,677

$

731,395

$

10,514,573

Watch

3,965

12,726

64,615

90,518

38,270

180,130

18,247

408,471

Special Mention

250

14,820

46,618

26,705

14,750

29,768

3,756

136,667

Substandard

4,213

729

38,182

35,672

3,887

35,218

2,867

120,768

Total Commercial

$

2,472,604

$

1,846,950

$

1,591,748

$

1,110,295

$

809,824

$

2,592,793

$

756,265

$

11,180,479

-24-

Table of Contents

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of September 30, 2022 (dollars in thousands):

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Residential 1-4 Family - Consumer

Current

$

163,110

$

250,861

$

161,913

$

38,668

$

23,633

$

238,782

$

13

$

876,980

30-59 Days Past Due

90

142

174

717

1,123

60-89 Days Past Due

104

1,345

1,449

90+ Days Past Due

45

635

680

Nonaccrual

429

268

957

9,467

11,121

Total Residential 1-4 Family - Consumer

$

163,110

$

251,290

$

162,003

$

39,227

$

24,764

$

250,946

$

13

$

891,353

Residential 1-4 Family - Revolving

Current

$

58,864

$

14,630

$

5,825

$

1,715

$

826

$

478

$

499,080

$

581,418

30-59 Days Past Due

1,115

1,115

60-89 Days Past Due

1,081

1,081

90+ Days Past Due

1,255

1,255

Nonaccrual

149

57

14

3,363

3,583

Total Residential 1-4 Family - Revolving

$

58,864

$

14,779

$

5,882

$

1,715

$

840

$

478

$

505,894

$

588,452

Auto

Current

$

221,446

$

168,008

$

89,869

$

49,923

$

19,147

$

10,285

$

$

558,678

30-59 Days Past Due

310

653

292

375

119

127

1,876

60-89 Days Past Due

3

79

78

55

42

257

90+ Days Past Due

108

13

6

12

9

148

Nonaccrual

90

107

89

8

24

318

Total Auto

$

221,759

$

168,938

$

90,359

$

50,448

$

19,286

$

10,487

$

$

561,277

Consumer

Current

$

36,208

$

17,683

$

12,001

$

26,271

$

19,195

$

21,475

$

39,347

$

172,180

30-59 Days Past Due

10

6

40

150

109

51

43

409

60-89 Days Past Due

1

19

39

39

2

1

101

90+ Days Past Due

13

28

9

14

1

21

86

Total Consumer

$

36,218

$

17,703

$

12,088

$

26,469

$

19,357

$

21,529

$

39,412

$

172,776

Total Consumer

Current

$

479,628

$

451,182

$

269,608

$

116,577

$

62,801

$

271,020

$

538,440

$

2,189,256

30-59 Days Past Due

320

659

422

667

402

895

1,158

4,523

60-89 Days Past Due

3

80

97

198

39

1,389

1,082

2,888

90+ Days Past Due

121

41

60

26

645

1,276

2,169

Nonaccrual

668

164

357

979

9,491

3,363

15,022

Total Consumer

$

479,951

$

452,710

$

270,332

$

117,859

$

64,247

$

283,440

$

545,319

$

2,213,858

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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, 2021 (dollars in thousands):

December 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

$

248,904

$

174,459

$

47,905

$

33,809

$

44,179

$

246,554

$

11

$

795,821

30-59 Days Past Due

157

143

807

460

1,801

3,368

60-89 Days Past Due

624

107

2,194

2,925

90+ Days Past Due

46

20

304

2,643

3,013

Nonaccrual

444

117

884

1,330

8,622

11,397

Total Residential 1-4 Family - Consumer

$

249,348

$

174,616

$

48,211

$

36,144

$

46,380

$

261,814

$

11

$

816,524

Residential 1-4 Family - Revolving

Current

$

16,546

$

9,511

$

2,230

$

1,056

$

$

484

$

524,825

$

554,652

30-59 Days Past Due

1,493

1,493

60-89 Days Past Due

363

363

90+ Days Past Due

882

882

Nonaccrual

63

18

3,325

3,406

Total Residential 1-4 Family - Revolving

$

16,546

$

9,574

$

2,230

$

1,074

$

$

484

$

530,888

$

560,796

Auto

Current

$

207,229

$

123,848

$

72,427

$

31,745

$

16,020

$

7,204

$

$

458,473

30-59 Days Past Due

299

382

518

259

245

163

1,866

60-89 Days Past Due

45

29

95

33

36

11

249

90+ Days Past Due

55

101

42

20

23

241

Nonaccrual

81

55

27

27

33

223

Total Auto

$

207,628

$

124,441

$

73,137

$

32,084

$

16,351

$

7,411

$

$

461,052

Consumer

Current

$

25,084

$

16,059

$

38,594

$

30,890

$

12,853

$

16,929

$

35,534

$

175,943

30-59 Days Past Due

31

94

201

186

63

26

88

689

60-89 Days Past Due

11

13

62

60

34

6

186

90+ Days Past Due

1

4

33

72

8

2

120

Nonaccrual

54

54

Total Consumer

$

25,127

$

16,170

$

38,890

$

31,208

$

12,958

$

17,009

$

35,630

$

176,992

Total Consumer

Current

$

497,763

$

323,877

$

161,156

$

97,500

$

73,052

$

271,171

$

560,370

$

1,984,889

30-59 Days Past Due

330

633

862

1,252

768

1,990

1,581

7,416

60-89 Days Past Due

56

42

157

717

177

2,205

369

3,723

90+ Days Past Due

56

105

121

112

335

2,643

884

4,256

Nonaccrual

444

144

172

929

1,357

8,709

3,325

15,080

Total Consumer

$

498,649

$

324,801

$

162,468

$

100,510

$

75,689

$

286,718

$

566,529

$

2,015,364

The Company did not have any material revolving loans convert to term during the nine months ended September 30, 2022 or the year ended December 31, 2021.

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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. In the normal course of business, the Company routinely monitors the impact of the changes in the financial markets and includes these assessments in the Company’s impairment process. The Company concluded there was no impairment to the Company’s goodwill or intangible assets as of the balance sheet date.

Effective June 30, 2022, the Company, the Bank, and CSP completed the sale of DHFB, which was formerly a subsidiary of the Bank, resulting in a reduction in both the Company’s goodwill of $10.3 million and intangible assets of $5.7 million.

In the third quarter of 2022, the Company moved from one reportable operating segment, the Bank, to two reportable operating segments, Wholesale Banking and Consumer Banking, which resulted in goodwill being allocated between the two reportable operating segments based on their relative fair values. The Company determined that there was no impairment to the Bank’s goodwill prior to reallocating goodwill.

The following table presents the Company’s goodwill and intangible assets by operating segment as of September 30, 2022 and December 31, 2021 (dollars in thousands):

Wholesale Banking

Consumer Banking

Corporate Other

Total

As of September 30, 2022

Goodwill

$

642,256

$

282,955

$

$

925,211

Intangible assets

1,704

27,438

29,142

As of December 31, 2021

Goodwill

$

642,256

$

293,304

$

$

935,560

Intangible assets

8,327

34,985

43,312

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

Amortization expense of intangibles for the three months ended September 30, 2022 and 2021 totaled $2.5 million and $3.4 million, respectively. Amortization expense of intangibles for the nine months ended September 30, 2022 and 2021 totaled $8.4 million and $10.7 million, respectively.

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

For the remaining three months of 2022

    

$

2,382

2023

8,518

2024

6,753

2025

5,154

2026

3,559

Thereafter

2,776

Total estimated amortization expense

$

29,142

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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 14 months to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components.

At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party RVI to reduce its residual asset risk. At September 30, 2022 and December 31, 2021, the carrying value of residual assets covered by residual value guarantees and RVI was $36.7 million and $23.0 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 in “Interest and fees on loans” on the Company’s Consolidated Statements of Income.

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

    

September 30, 2022

December 31, 2021

Sales-type and direct financing leases:

Lease receivables, net of unearned income and deferred selling profit

$

254,773

$

199,423

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

12,219

8,911

Total net investment in sales-type and direct financing leases

 

$

266,992

$

208,334

Lessee Arrangements

The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 23 years. 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.

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

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

    

September 30, 2022

December 31, 2021

Operating

Finance

Operating

Finance

ROU assets

$

31,821

$

5,817

$

40,653

$

6,506

Lease liabilities

44,145

8,593

50,742

9,477

Lease Term and Discount Rate of Operating leases:

 

Weighted-average remaining lease term (years)

 

6.44

6.33

6.75

7.08

Weighted-average discount rate (1)

 

2.63

%

1.17

%

2.57

%

1.17

%

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

Nine months ended September 30, 

 

2022

2021

Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$

79

$

89

Operating Cash Flows from Operating Leases

 

8,514

8,961

Financing Cash Flows from Finance Leases

885

851

ROU assets obtained in exchange for lease obligations:

Operating leases

$

1,268

$

2,412

Three months ended September 30, 

Nine months ended September 30, 

2022

2021

2022

2021

Net Operating Lease Cost

$

2,117

$

2,535

 

$

6,658

$

7,615

Finance Lease Cost:

Amortization of right-of-use assets

230

230

689

689

Interest on lease liabilities

25

29

 

79

89

Total Lease Cost

$

2,372

$

2,794

$

7,426

$

8,393

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

September 30, 2022

Lessor

Lessee

Sales-type and Direct Financing

Operating

Finance

For the remaining three months of 2022

    

$

16,842

$

2,806

$

329

2023

65,059

10,388

1,325

2024

 

62,282

9,441

1,358

2025

 

48,508

7,297

1,392

2026

 

36,606

4,826

1,427

Thereafter

 

50,030

13,642

3,088

Total undiscounted cash flows

 

279,327

48,400

8,919

Less: Adjustments (1)

 

24,554

4,255

326

Total (2)

$

254,773

$

44,145

$

8,593

(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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Table of Contents

6. BORROWINGS

Short-term Borrowings

The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold, advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit.

Total short-term borrowings consist of the following as of September 30, 2022 and December 31, 2021 (dollars in thousands):

    

September 30, 

December 31, 

 

2022

2021

 

Securities sold under agreements to repurchase

$

146,182

$

117,870

FHLB Advances

 

133,800

 

Total short-term borrowings

$

279,982

$

117,870

Average outstanding balance during the period

$

262,782

$

113,030

Average interest rate during the period

 

0.92

%  

 

0.10

%

Average interest rate at end of period

 

1.54

%  

 

0.07

%

The Bank maintains federal funds lines with several correspondent banks, the available balance was $1.0 billion and $997.0 million at September 30, 2022 and December 31, 2021 respectively. The Company maintains an alternate line of credit at a correspondent bank; the available balance was $25.0 million at both September 30, 2022 and December 31, 2021. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is in compliance with these covenants as of September 30, 2022 and December 31, 2021. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $5.9 billion and $6.0 billion at September 30, 2022 and December 31, 2021 respectively.

Long-term Borrowings

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

In connection with several previous bank acquisitions, the Company issued $58.5 million and acquired $92.0 million of trust preferred capital notes. The remaining fair value discount on all acquired trust preferred capital notes was $12.7 million and $13.3 million at September 30, 2022 and December 31, 2021, respectively.

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Table of Contents

Total long-term borrowings consist of the following as of September 30, 2022 (dollars in thousands):

Spread to

Principal

3-Month LIBOR

Rate (1)

Maturity

Investment (2)

Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$

22,500

 

2.75

%  

6.50

%  

6/17/2034

$

696

Trust Preferred Capital Note - Statutory Trust II

 

36,000

 

1.40

%  

5.15

%  

6/15/2036

 

1,114

VFG Limited Liability Trust I Indenture

 

20,000

 

2.73

%  

6.48

%  

3/18/2034

 

619

FNB Statutory Trust II Indenture

 

12,000

 

3.10

%  

6.85

%  

6/26/2033

 

372

Gateway Capital Statutory Trust I

 

8,000

 

3.10

%  

6.85

%  

9/17/2033

 

248

Gateway Capital Statutory Trust II

 

7,000

 

2.65

%  

6.40

%  

6/17/2034

 

217

Gateway Capital Statutory Trust III

 

15,000

 

1.50

%  

5.25

%  

5/30/2036

 

464

Gateway Capital Statutory Trust IV

 

25,000

 

1.55

%  

5.30

%  

7/30/2037

 

774

MFC Capital Trust II

 

5,000

 

2.85

%  

6.60

%  

1/23/2034

 

155

Total Trust Preferred Capital Securities

$

150,500

 

  

 

  

 

  

$

4,659

Subordinated Debt(3)(4)

2031 Subordinated Debt

250,000

-

%

2.875

%

12/15/2031

Total Subordinated Debt(5)

$

250,000

Fair Value Discount(6)

(15,583)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

$

389,576

(1) Rate as of September 30, 2022. 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 September 30, 2022 is $2.9 million.

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

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

(6) Remaining discounts of $12.7 million and $2.9 million on Trust Preferred Capital Securities and Subordinated Debt, respectively.

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Table of Contents

Total long-term borrowings consist of the following as of December 31, 2021 (dollars in thousands):

Spread to