Atlantic Union Bankshares Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

SECURITIES

SECURITIES

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of September 30, 2018 and December 31, 2017 are summarized as follows (dollars in thousands):



	Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value
September 30, 2018
Obligations of states and political subdivisions	$	566,268	$	3,380	$	(6,175	)	$	563,473
Corporate and other bonds ⁽¹⁾	163,117		382		(2,007		)	161,492
Mortgage-backed securities	1,170,410		798		(24,295		)	1,146,913
Other securities	11,447		—		(184		)	11,263
Total AFS securities	$	1,911,242	$	4,560	$	(32,661	)	$	1,883,141

December 31, 2017
Obligations of states and political subdivisions	$	295,546	$	6,842	$	(564	)	$	301,824
Corporate and other bonds	113,625		1,131		(876		)	113,880
Mortgage-backed securities	552,431		2,596		(6,169		)	548,858
Other securities	9,737		—		(77		)	9,660
Total AFS securities	$	971,339	$	10,569	$	(7,686	)	$	974,222

(1) Other bonds includes asset-backed securities.

The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2018 and December 31, 2017 (dollars in thousands). 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
September 30, 2018
Obligations of states and political subdivisions	$	377,882	$	(5,814	)	$	7,674	$	(361	)	$	385,556	$	(6,175	)
Mortgage-backed securities	794,067		(14,057		)	245,879		(10,237		)	1,039,946		(24,294		)
Corporate bonds and other securities	89,225		(1,003		)	38,557		(1,189		)	127,782		(2,192		)
Total AFS securities	$	1,261,174	$	(20,874	)	$	292,110	$	(11,787	)	$	1,553,284	$	(32,661	)

December 31, 2017
Obligations of states and political subdivisions	$	25,790	$	(132	)	$	16,934	$	(432	)	$	42,724	$	(564	)
Mortgage-backed securities	298,439		(3,267		)	136,298		(2,902		)	434,737		(6,169		)
Corporate bonds and other securities	10,976		(99		)	44,408		(854		)	55,384		(953		)
Total AFS securities	$	335,205	$	(3,498	)	$	197,640	$	(4,188	)	$	532,845	$	(7,686	)

As of September 30, 2018, there were $292.1 million, or 108 issues, of individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $11.8 million. As of December 31, 2017, there were $197.6 million, or 71 issues, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $4.2 million. The Company has determined that these securities are temporarily impaired at September 30, 2018 and December 31, 2017 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 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 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 ratings downgrades for a limited number of securities brought about by the impact of the credit crisis 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 and other bonds. This category's unrealized losses are the result of interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of these 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 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 AFS securities as of September 30, 2018 and December 31, 2017, 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, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	40,367	$	40,342	$	25,179	$	25,326
Due after one year through five years	213,662		209,552		145,276		145,980
Due after five years through ten years	273,207		271,360		223,210		226,251
Due after ten years	1,384,006		1,361,887		577,674		576,665
Total AFS securities	$	1,911,242	$	1,883,141	$	971,339	$	974,222

Refer to Note 7 "Commitments and Contingencies" for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, 2018 and December 31, 2017.

Held to Maturity

During the second quarter of 2018, the Company adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 825): Targeted Improvements to Accounting for Hedging Activities.” As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. These securities had a carrying value of $187.4 million on the date of the transfer.

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

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of September 30, 2018 and December 31, 2017 are summarized as follows (dollars in thousands):



	Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value
September 30, 2018
Obligations of states and political subdivisions	$	235,333	$	25	$	(2,648	)	$	232,710

December 31, 2017
Obligations of states and political subdivisions	$	199,639	$	4,014	$	(170	)	$	203,483

(1) The carrying value includes $125,000 as of September 30, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from AFS securities, net of any accretion.

The following table shows the gross unrealized losses and fair value of the Company’s HTM securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2018 and December 31, 2017 (dollars in thousands). 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
September 30, 2018
Obligations of states and political subdivisions	$	213,882	$	(2,648	)	$	—	$	—		$	213,882	$	(2,648	)

December 31, 2017
Obligations of states and political subdivisions	$	18,896	$	(139	)	$	1,084	$	(31	)	$	19,980	$	(170	)

As of September 30, 2018, there were no issues of individual HTM securities that had been in a continuous loss position for more than 12 months. As of December 31, 2017, there was $1.1 million, or two issues, of individual HTM securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $31,000. These securities were municipal bonds with minimal credit exposure. For this reason, the Company has determined that these securities in a loss position were temporarily impaired as of December 31, 2017. Because the Company does not intend to sell these investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell the investments before recovery of their amortized cost bases, 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 HTM securities as of September 30, 2018 and December 31, 2017, 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, 2018				December 31, 2017
	Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value
Due in one year or less	$	—	$	—	$	3,221	$	3,230
Due after one year through five years	3,917		3,889		44,289		44,601
Due after five years through ten years	3,500		3,479		79,114		80,532
Due after ten years	227,916		225,342		73,015		75,120
Total HTM securities	$	235,333	$	232,710	$	199,639	$	203,483

Refer to Note 7 "Commitments and Contingencies" for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of September 30, 2018 and December 31, 2017.

Marketable Equity Securities

In connection with the Shore Premier sale, the Company received 1,250,000 shares of the purchasing company's common stock. For a limited time the purchasing company has agreed to pay additional cash consideration to the Company to the extent any sales of its common stock by the Company are at prices lower than agreed upon value at the time of entry into the agreement. The fair value of the common stock is evaluated quarterly and amounts that fall below the original purchase price are recorded as a miscellaneous receivable on the Company's Consolidated Balance Sheets. At September 30, 2018, the fair value of the purchasing company's common stock was $27.4 million and was included as "Marketable Equity Securities" in the Company's Consolidated Balance Sheet. Refer to Note 1 "Accounting Policies" and Note 8 "Derivatives" for more information regarding the Shore Premier sale.

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At September 30, 2018 and December 31, 2017, 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 the Bank's outstanding capital at both September 30, 2018 and December 31, 2017. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $52.6 million and $27.6 million for September 30, 2018 and December 31, 2017 and FHLB stock in the amount of $59.8 million and $47.7 million as of September 30, 2018 and December 31, 2017, respectively.

Other-Than-Temporary-Impairment

During each quarter, 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 assessment for the three and nine months ended September 30, 2018, and in accordance with accounting guidance, no OTTI was recognized.

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, 2018 and 2017 (dollars in thousands).



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Realized gains (losses):
Gross realized gains	$	97	$	2,890
Gross realized losses	—		(2,668		)
Net realized gains	$	97	$	222

Proceeds from sales of securities	$	27,593	$	337,109



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Realized gains (losses):
Gross realized gains	$	296		$	958
Gross realized losses	(112		)	(176		)
Net realized gains	$	184		$	782

Proceeds from sales of securities	$	39,284		$	91,911