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

Quarterly report pursuant to Section 13 or 15(d)

BORROWINGS

BORROWINGS

9 Months Ended

Sep. 30, 2018

Short-term Borrowings

The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit. Also included in total short-term borrowings are securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold. Total short-term borrowings consist of the following as of September 30, 2018 and December 31, 2017 (dollars in thousands):



	September 30, 2018			December 31, 2017
Securities sold under agreements to repurchase	$	40,624		$	49,152
Federal funds purchased	90,000			—
FHLB	926,250			745,000
Total short-term borrowings	$	1,056,874		$	794,152

Maximum month-end outstanding balance	$	1,056,874		$	794,152
Average outstanding balance during the period	972,224			602,553
Average interest rate (during the period)	1.76		%	1.00		%
Average interest rate at end of period	2.10		%	1.32		%

The Bank maintains federal funds lines with several correspondent banks, the remaining available balance of which was $292.0 million and $227.0 million at September 30, 2018 and December 31, 2017, respectively. The Company maintains an alternate line of credit at a correspondent bank, the available balance of which was $25.0 million at both September 30, 2018 and December 31, 2017. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with such covenants as of September 30, 2018. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $3.9 billion and $2.7 billion at September 30, 2018 and December 31, 2017, respectively.

Long-term Borrowings

In connection with several previous bank acquisitions, the Company issued and acquired trust preferred capital notes of $58.5 million and $32.0 million, respectively. In connection with the acquisition of Xenith on January 1, 2018, the Company acquired trust preferred capital notes totaling $55.0 million with a fair value discount of $9.9 million. The remaining fair value discount on all acquired trust preferred capital notes was $15.8 million at September 30, 2018. The trust preferred capital notes currently qualify for Tier 1 capital of the Company for regulatory purposes. Our trust preferred capital notes consist of the following as of September 30, 2018:



	Trust Preferred Capital Securities ⁽¹⁾		Investment ⁽¹⁾		Spread to 3-Month LIBOR		Rate ⁽²⁾		Maturity
Trust Preferred Capital Note - Statutory Trust I	$	22,500,000	$	696,000	2.75	%	5.15	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II	36,000,000		1,114,000		1.40	%	3.80	%	6/15/2036
VFG Limited Liability Trust I Indenture	20,000,000		619,000		2.73	%	5.13	%	3/18/2034
FNB Statutory Trust II Indenture	12,000,000		372,000		3.10	%	5.50	%	6/26/2033
Gateway Capital Statutory Trust I	8,000,000		248,000		3.10	%	5.50	%	9/17/2033
Gateway Capital Statutory Trust II	7,000,000		217,000		2.65	%	5.05	%	6/17/2034
Gateway Capital Statutory Trust III	15,000,000		464,000		1.50	%	3.90	%	5/30/2036
Gateway Capital Statutory Trust IV	25,000,000		774,000		1.55	%	3.95	%	7/30/2037
Total	$	145,500,000	$	4,504,000

(1) 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.

(2) Rate as of September 30, 2018.

During the fourth quarter of 2016, the Company issued $150.0 million of fixed-to-floating rate subordinated notes with an initial fixed interest rate of 5.00% through December 15, 2021. The interest rate then changes to a floating rate of LIBOR plus 3.175% through its maturity date on December 15, 2026. In connection with the acquisition of Xenith on January 1, 2018, the Company acquired $8.5 million of subordinated notes with a fair value premium of $259,000, which was $180,000 at September 30, 2018. The acquired subordinated notes have a fixed interest rate of 6.75% and a maturity date of June 30, 2025. At September 30, 2018 and December 31, 2017, the contractual principal reported for subordinated notes was $158.5 million and $150.0 million, respectively; remaining issuance discount as of September 30, 2018 and December 31, 2017 is $1.6 million and $1.8 million, respectively. The subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with the acquired subordinated notes and is considered to be in compliance with these covenants as of September 30, 2018.

On August 23, 2012, the Company modified its fixed rate FHLB advances to floating rate advances, which resulted in reducing the Company’s FHLB borrowing costs. In connection with this modification, the Company incurred a prepayment penalty of $19.6 million on the original advances, which is included as a component of long-term borrowings on the Company’s Consolidated Balance Sheet. In accordance with ASC 470-50, Modifications and Extinguishments, the Company is amortizing this prepayment penalty over the term of the modified advances using the effective rate method. The amortization expense is included as a component of interest expense on long-term borrowings on the Company’s Consolidated Statements of Income. Amortization expense for the three and nine months ended September 30, 2018 and 2017 was $498,000 and $1,469,000 and $486,000 and $1,433,000, respectively.

As of September 30, 2018, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):



Long-term Type	Spread to 3-Month LIBOR		Interest Rate ⁽¹⁾		Maturity Date	Advance Amount
Adjustable Rate Credit	0.44	%	2.84	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	2.85	%	11/23/2022	65,000
Adjustable Rate Credit	0.45	%	2.85	%	11/23/2022	10,000
Adjustable Rate Credit	0.45	%	2.85	%	11/23/2022	10,000
Fixed Rate Hybrid	—		0.99	%	10/19/2018	30,000
Fixed Rate Hybrid	—		2.37	%	10/10/2019	25,000
Fixed Rate Hybrid	—		1.58	%	5/18/2020	20,000
						$	215,000
(1)Interest rates calculated using non-rounded numbers.

As of December 31, 2017, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):



Long-term Type	Spread to 3-Month LIBOR		Interest Rate ⁽¹⁾		Maturity Date	Advance Amount

Adjustable Rate Credit	0.44	%	2.13	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	2.15	%	11/23/2022	65,000
Adjustable Rate Credit	0.45	%	2.15	%	11/23/2022	10,000
Adjustable Rate Credit	0.45	%	2.15	%	11/23/2022	10,000
Fixed Rate	—		3.75	%	7/30/2018	5,000
Fixed Rate	—		3.97	%	7/30/2018	5,000
Fixed Rate Hybrid	—		0.99	%	10/19/2018	30,000
Fixed Rate Hybrid	—		1.58	%	5/18/2020	20,000
						$	200,000
(1)Interest rates calculated using non-rounded numbers.

For information on the carrying value of loans and securities pledged as collateral on FHLB advances as of September 30, 2018 and December 31, 2017, refer to Note 7 "Commitments and Contingencies."

As of September 30, 2018, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):



	Trust Preferred Capital Notes		Subordinated Debt		FHLB Advances		Fair Value Premium (Discount) ⁽¹⁾			Prepayment Penalty			Total Long-term Borrowings
For the remaining three months of 2018	$	—	$	—	$	30,000	$	(212	)	$	(501	)	$	29,287
2019	—		—		25,000		(862		)	(2,018		)	22,120
2020	—		—		20,000		(936		)	(2,074		)	16,990
2021	—		—		—		(1,006		)	(2,119		)	(3,125		)
2022	—		—		140,000		(1,029		)	(1,707		)	137,264
Thereafter	150,004		158,500		—		(13,272		)	—			295,232
Total long-term borrowings	$	150,004	$	158,500	$	215,000	$	(17,317	)	$	(8,419	)	$	497,768

(1) Includes discount on issued subordinated notes.