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, 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 September 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):



	Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value
September 30, 2016
Obligations of states and political subdivisions	$	266,291	$	13,147	$	(215	)	$	279,223
Corporate bonds	122,130		1,196		(1,579		)	121,747
Mortgage-backed securities	529,228		11,877		(509		)	540,596
Other securities	13,385		33		—			13,418
Total available for sale securities	$	931,034	$	26,253	$	(2,303	)	$	954,984

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 available for sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2016 and December 31, 2015. 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, 2016
Obligations of states and political subdivisions	$	11,640	$	(209	)	$	655	$	(6	)	$	12,295	$	(215	)
Mortgage-backed securities	37,739		(156		)	43,430		(353		)	81,169		(509		)
Corporate bonds and other securities	5,059		(16		)	41,000		(1,563		)	46,059		(1,579		)
Total available for sale	$	54,438	$	(381	)	$	85,085	$	(1,922	)	$	139,523	$	(2,303	)

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 September 30, 2016, there were $85.1 million, or 28 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.9 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. 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 as of September 30, 2016 and December 31, 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 available for sale securities as of September 30, 2016 and December 31, 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.



	September 30, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	16,667	$	16,860	$	8,380	$	8,370
Due after one year through five years	109,700		113,093		65,326		66,996
Due after five years through ten years	314,903		324,270		296,864		301,920
Due after ten years	489,764		500,761		520,706		526,006
Total securities available for sale	$	931,034	$	954,984	$	891,276	$	903,292

The following table presents the estimated fair value of 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 September 30, 2016 and December 31, 2015 (dollars in thousands):



	September 30, 2016		December 31, 2015
Public deposits	$	183,841	$	184,635
Repurchase agreements	116,844		126,120
Other purposes (1)	23,326		26,546
Total pledged securities	$	324,011	$	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 $5.6 million as of September 30, 2016 and $6.8 million as of December 31, 2015.

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 September 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):



	Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value
September 30, 2016
Obligations of states and political subdivisions	$	200,839	$	8,959	$	(81	)	$	209,717

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

(1) The carrying value includes $5.6 million as of September 30, 2016 and $6.8 million as of December 31, 2015 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.

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 as of September 30, 2016 and December 31, 2015. 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, 2016
Obligations of states and political subdivisions	$	—	$	—		$	661	$	(81	)	$	661	$	(81	)

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

As of September 30, 2016, there was $661,000, 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 and consisted of a municipal obligation. The Company has determined that these securities in a loss position are temporarily impaired as of September 30, 2016 and December 31, 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 September 30, 2016 and December 31, 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.



	September 30, 2016				December 31, 2015
	Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value
Due in one year or less	$	850	$	850	$	1,488	$	1,491
Due after one year through five years	25,918		26,561		4,294		4,348
Due after five years through ten years	48,243		50,017		44,736		45,501
Due after ten years	125,828		132,289		154,856		158,097
Total securities held to maturity	$	200,839	$	209,717	$	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 September 30, 2016 and December 31, 2015 (dollars in thousands):



	September 30, 2016		December 31, 2015
Public deposits	$	209,717	$	207,140
Total pledged securities	$	209,717	$	207,140

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, 2016 and December 31, 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 September 30, 2016 and December 31, 2015. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million for both September 30, 2016 and December 31, 2015 and FHLB stock in the amount of $39.4 million and $28.0 million as of September 30, 2016 and December 31, 2015, 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, 2016, and in accordance with the guidance, no OTTI was recognized. For 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 quarter ended March 31, 2016, the municipal security was sold. As a result, the Company recognized an additional loss on sale of the previously written down security.

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 during the three and nine months ended September 30, 2016 and 2015 (dollars in thousands). The Company did not sell any investment securities that are held to maturity.



	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Realized gains (losses):
Gross realized gains	$	—	$	242
Gross realized losses	—		(97		)
Net realized gains	$	—	$	145

Proceeds from sales of securities	$	2,848	$	18,272



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
Realized gains (losses):
Gross realized gains	$	75	$	759
Gross realized losses	—		(87		)
Net realized gains	$	75	$	672

Proceeds from sales of securities	$	5,771	$	63,928

- Definition

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

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