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

Quarterly report pursuant to Section 13 or 15(d)

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Litigation Matters

In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized on the Company’s Consolidated Balance Sheet. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on the balance sheet. The Company considers historical loss rates, current economic conditions, risk ratings, and past due status among other factors in the consideration of whether credit losses are inherent in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates. As of September 30, 2018 and December 31, 2017, the Company's reserves for off-balance sheet credit risk and indemnification were $1.5 million and $795,000, respectively.

Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

The following table presents the balances of commitments and contingencies (dollars in thousands):



	September 30, 2018		December 31, 2017
Commitments with off-balance sheet risk:
Commitments to extend credit ⁽¹⁾	$	3,021,820	$	2,192,812
Standby letters of credit	174,714		127,435
Total commitments with off-balance sheet risk	$	3,196,534	$	2,320,247

(1) Includes unfunded overdraft protection.

The Company must maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. For the final weekly reporting period in the period ended September 30, 2018, the aggregate amount of daily average required reserves was approximately $40.5 million and was satisfied by deposits maintained with the Federal Reserve Bank.

As of September 30, 2018, the Company had approximately $26.9 million in deposits in other financial institutions, of which $13.4 million served as collateral for cash flow and loan swap derivatives. The Company had approximately $11.7 million in deposits in other financial institutions that were uninsured at September 30, 2018. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. Refer to Note 8 “Derivatives” for additional information.

As part of the Company's liquidity management strategy, it pledges collateral to secure various financing and other activities that occur during the normal course of business. The following tables present the types of collateral pledged, at September 30, 2018 and December 31, 2017 (dollars in thousands):



	Pledged Assets as of September 30, 2018
	Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	414,740	$	7,367	$	—	$	422,107
Repurchase agreements	—		68,229		—		—		68,229
FHLB advances	—		546		—		3,250,648		3,251,194
Derivatives	13,436		2,175		—		—		15,611
Other purposes	—		24,197		—		—		24,197
Total pledged assets	$	13,436	$	509,887	$	7,367	$	3,250,648	$	3,781,338

(1) Balance represents market value.

(2) Balance represents book value.



	Pledged Assets as of December 31, 2017
	Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	242,472	$	197,482	$	—	$	439,954
Repurchase agreements	—		77,942		—		—		77,942
FHLB advances	—		878		—		2,390,509		2,391,387
Derivatives	23,870		3,656		—		—		27,526
Other purposes	—		15,043		—		—		15,043
Total pledged assets	$	23,870	$	339,991	$	197,482	$	2,390,509	$	2,951,852

(1) Balance represents market value.

(2) Balance represents book value.