Atlantic Union Bankshares Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

SECURITIES

SECURITIES

12 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of December 31, 2016 and 2015 are summarized as follows (dollars in thousands):



	Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value
December 31, 2016
Obligations of states and political subdivisions	$	274,007	$	4,962	$	(3,079	)	$	275,890
Corporate bonds	123,674		892		(2,786		)	121,780
Mortgage-backed securities	536,031		4,626		(5,371		)	535,286
Other securities	13,885		—		(77		)	13,808
Total available for sale securities	$	947,597	$	10,480	$	(11,313	)	$	946,764

December 31, 2015
Obligations of states and political subdivisions	$	257,740	$	10,479	$	(140	)	$	268,079
Corporate bonds	77,628		55		(1,704		)	75,979
Mortgage-backed securities	544,823		6,127		(2,779		)	548,171
Other securities	11,085		—		(22		)	11,063
Total available for sale securities	$	891,276	$	16,661	$	(4,645	)	$	903,292

The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.



	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2016
Obligations of states and political subdivisions	$	108,440	$	(3,007	)	$	588	$	(72	)	$	109,028	$	(3,079	)
Mortgage-backed securities	316,469		(4,979		)	42,096		(392		)	358,565		(5,371		)
Corporate bonds and other securities	47,388		(1,537		)	40,468		(1,326		)	87,856		(2,863		)
Total available for sale	$	472,297	$	(9,523	)	$	83,152	$	(1,790	)	$	555,449	$	(11,313	)
December 31, 2015
Obligations of states and political subdivisions	$	8,114	$	(70	)	$	4,950	$	(70	)	$	13,064	$	(140	)
Mortgage-backed securities	287,113		(2,442		)	21,660		(337		)	308,773		(2,779		)
Corporate bonds and other securities	36,157		(751		)	19,558		(975		)	55,715		(1,726		)
Total available for sale	$	331,384	$	(3,263	)	$	46,168	$	(1,382	)	$	377,552	$	(4,645	)

As of December 31, 2016, there were $83.2 million, or 30 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. Additionally, these securities had an unrealized loss of $1.8 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2015, there were $46.2 million, or 20 issues, of individual securities that had been in a continuous loss position for more than 12 months. Additionally, these securities had an unrealized loss of $1.4 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities. The Company has determined that these securities are temporarily impaired at December 31, 2016 and 2015 for the reasons set out below:

Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the

decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the

investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized

cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired.

Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government

guarantee.

Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate

fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less

than the cost basis of each investment. Because 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, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and

ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the

Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the

issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell

any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider

these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of securities as of December 31, 2016 and 2015, 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.



	December 31, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	21,403	$	21,517	$	8,380	$	8,370
Due after one year through five years	108,198		109,778		65,326		66,996
Due after five years through ten years	300,552		301,888		296,864		301,920
Due after ten years	517,444		513,581		520,706		526,006
Total securities available for sale	$	947,597	$	946,764	$	891,276	$	903,292

The following table presents available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of December 31, 2016 and 2015 (dollars in thousands):



	December 31, 2016		December 31, 2015
	Estimated Fair Value		Estimated Fair Value
Public deposits	$	210,546	$	184,635
Repurchase agreements	108,208		126,120
Other purposes ⁽¹⁾	23,350		26,546
Total pledged securities	$	342,104	$	337,301

(1) The "Other purposes" category consists of borrowings, derivatives, and accounts held at the Bank.

Held to Maturity

During the second quarter of 2015, the Company transferred securities, which it intends and has the ability to hold until maturity, with a fair value of $201.8 million on the date of transfer, from securities available for sale to securities held to maturity. The Company transferred these securities to held to maturity to reduce the impact of price volatility on capital and in consideration of changes to the regulatory environment. The securities included net pre-tax unrealized gains of $8.1 million at the date of transfer with a remaining balance of $5.2 million and $6.8 million as of December 31, 2016 and 2015, respectively.

The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains/(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 securities held to maturity as of December 31, 2016 and 2015 are summarized as follows (dollars in thousands):



	Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value
December 31, 2016
Obligations of states and political subdivisions	$	201,526	$	1,617	$	(828	)	$	202,315

December 31, 2015
Obligations of states and political subdivisions	$	205,374	$	5,748	$	(1,685	)	$	209,437

(1) The carrying value includes $5.2 million and $6.8 million of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion, as of December 31, 2016 and 2015, respectively.

The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.



	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2016
Obligations of states and political subdivisions	$	92,841	$	(747	)	$	648	$	(81	)	$	93,489	$	(828	)

December 31, 2015
Obligations of states and political subdivisions	$	7,056	$	(1,685	)	$	—	$	—		$	7,056	$	(1,685	)

As of December 31, 2016, there was $648,000, or 1 issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 months. This security had an unrealized loss of $81,000. The Company has determined that the securities in a loss position are temporarily impaired as of December 31, 2016 and 2015 for the reasons set out below:

Obligations of states and political subdivisions. This category’s unrealized losses are primarily the result of interest rate

fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and

political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less

than the cost basis of each investment. Because 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, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of held to maturity securities as of December 31, 2016 and 2015, 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.



	December 31, 2016				December 31, 2015
	Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value
Due in one year or less	$	4,403	$	4,440	$	1,488	$	1,491
Due after one year through five years	28,383		28,763		4,294		4,348
Due after five years through ten years	51,730		51,522		44,736		45,501
Due after ten years	117,010		117,590		154,856		158,097
Total securities held to maturity	$	201,526	$	202,315	$	205,374	$	209,437

The following table presents the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of December 31, 2016 and 2015 (dollars in thousands):



	December 31, 2016		December 31, 2015
	Estimated		Estimated
	Fair Value		Fair Value
Public deposits	$	197,889	$	207,140
Total pledged securities	$	197,889	$	207,140

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and the FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At December 31, 2016 and 2015, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both December 31, 2016 and 2015. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million for both periods December 31, 2016 and 2015 and FHLB stock in the amount of $37.0 million and $28.0 million as of December 31, 2016 and 2015, respectively.

Other-Than-Temporary Impairment

During each quarter and at year end the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessments during the year ended December 31, 2016, and in accordance with the guidance, no OTTI was recognized.

During the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000. During the first quarter of 2016, the municipal was sold. As a result, the Company recognized an additional loss on sale of the previously written down security.

During 2014, a trust preferred security with OTTI recorded in a prior period was called at a premium. As a result, the Company recognized a gain on the call of the previously written down security of $400,000 related to the previous OTTI charge.

Realized Gains and Losses

The following table presents the gross realized gains and losses on the sale of securities available for sale and the proceeds from the sale of securities available for sale during the years ended December 31, 2016, 2015, and 2014 (dollars in thousands). The Company did not sell any investment securities that are held to maturity.



	2016			2015			2014
Realized gains (losses):
Gross realized gains	$	302		$	1,597		$	1,757
Gross realized losses	(97		)	(111		)	(62		)
Net realized gains	$	205		$	1,486		$	1,695
Proceeds from sales of securities	$	69,516		$	101,154		$	289,389

- Definition

The entire disclosure for investments in certain debt and equity securities.

+ References + Details