UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20293

UNION BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)



VIRGINIA	54-1598552
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1051 East Cary Street

Suite 1200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)
		Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



	Yes ¨ No x

The number of shares of common stock outstanding as of ~~November 1, 2017~~May 2, 2018 was ~~43,732,082.~~65,909,642.

UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX



ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2018 (unaudited) and December 31, ~~2016~~2017 (audited)	2

	Consolidated Statements of Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	3

	Consolidated Statements of Comprehensive Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	5

	Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	6

	Notes to Consolidated Financial Statements (unaudited)	78

	Report of Independent Registered Public Accounting Firm	4447

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4548

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7069

Item 4.	Controls and Procedures	72

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	73

Item 1A.	Risk Factors	7473

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7473

Item 6.	Exhibits	7574

	Signatures	7675

Glossary of Acronyms and Defined Terms



~~2016~~2017 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017
AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALL	–	Allowance for loan losses
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Union Bank & Trust
BOLI	–	Bank-owned life insurance
bps	–	Basis points
CECL	–	Current expected credit losses
the Company	–	Union Bankshares Corporation and its subsidiaries
DHFB	–	Dixon, Hubard, Feinour, & Brown, Inc.
Dodd-Frank Act	–	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS	–	Earnings per share
Exchange Act	–	Securities Exchange Act of 1934
FASB	–	Financial Accounting Standards Board
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
Federal Reserve Bank	–	Federal Reserve Bank of Richmond
FHLB	–	Federal Home Loan Bank of Atlanta
U.S. GAAP or GAAP	–	Accounting principles generally accepted in the United States
HELOC	–	Home equity line of credit
HTM	–	Held to maturity
IDC	–	Interactive Data Corporation
LIBOR	–	London Interbank Offered Rate
NPA	–	Nonperforming assets
~~ODCM~~OCI	–	~~Old Dominion Capital Management, Inc.~~Other comprehensive income
OREO	–	Other real estate owned
OTTI	–	Other than temporary impairment
PCI	–	Purchased credit impaired
ROA	–	Return on average assets
ROE	–	Return on average common equity
ROTCE	–	Return on average tangible common equity
SEC	–	Securities and Exchange Commission
~~StellarOne~~Tax Act	–	~~StellarOne Corporation~~Tax Cuts and Jobs Act
TDR	–	Troubled debt restructuring
UMG	–	Union Mortgage Group, Inc.
Xenith	–	Xenith Bankshares, Inc.

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	September 30, 2017		December 31, 2016			March 31, 2018			December 31, 2017
	(Unaudited)		(Audited)			(Unaudited)			(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	115,776	$	120,758		$	137,761		$	117,586
Interest-bearing deposits in other banks	60,294		58,030			196,456			81,291
Federal funds sold	891		449			8,246			496
Total cash and cash equivalents	176,961		179,237			342,463			199,373
Securities available for sale, at fair value	968,361		946,764			1,253,179			974,222
Securities held to maturity, at carrying value	204,801		201,526			198,733			199,639
Restricted stock, at cost	68,441		60,782			105,261			75,283
Loans held for sale, at fair value	30,896		36,487			27,727			40,662
Loans held for investment, net of deferred fees and costs	6,898,729		6,307,060			9,805,723			7,141,552
Less allowance for loan losses	37,162		37,192			40,629			38,208
Net loans held for investment	6,861,567		6,269,868			9,765,094			7,103,344
Premises and equipment, net	120,808		122,027			163,076			119,981
Other real estate owned, net of valuation allowance	8,764		10,084			10,099			6,636
Goodwill	298,191		298,191			724,106			298,528
Amortizable intangibles, net	16,017		20,602			50,092			14,803
Bank owned life insurance	181,451		179,318			258,381			182,854
Other assets	93,178		101,907			251,081			99,854
Total assets	$	9,029,436	$	8,426,793		$	13,149,292		$	9,315,179
LIABILITIES
Noninterest-bearing demand deposits	$	1,535,149	$	1,393,625		$	2,057,425		$	1,502,208
Interest-bearing deposits	5,346,677		4,985,864			7,620,530			5,489,510
Total deposits	6,881,826		6,379,489			9,677,955			6,991,718
Securities sold under agreements to repurchase	43,337		59,281			31,593			49,152
Other short-term borrowings	574,000		517,500			1,022,000			745,000
Long-term borrowings	434,750		413,308			481,433			425,262
Other liabilities	54,152		56,183			105,234			57,718
Total liabilities	7,988,065		7,425,761			11,318,215			8,268,850
Commitments and contingencies (Note 6)
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,729,229 shares and 43,609,317 shares, respectively.	57,708		57,506
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 65,895,421 shares and 43,743,318 shares, respectively.						87,091			57,744
Additional paid-in capital	608,884		605,397			1,373,997			610,001
Retained earnings	373,468		341,938			382,299			379,468
Accumulated other comprehensive income	1,311		(3,809		)	(12,310		)	(884		)
Total stockholders' equity	1,041,371		1,001,032			1,831,077			1,046,329
Total liabilities and stockholders' equity	$	9,029,436	$	8,426,793		$	13,149,292		$	9,315,179

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Interest and dividend income:
Interest and fees on loans	$	75,948	$	66,190	$	216,644	$	193,884	$	112,927	$	68,084
Interest on deposits in other banks	181		65		367		178		647		71
Interest and dividends on securities:
Taxable	5,175		4,732		15,081		13,558		7,072		4,923
Nontaxable	3,546		3,446		10,620		10,344		4,008		3,562
Total interest and dividend income	84,850		74,433		242,712		217,964		124,654		76,640

Interest expense:
Interest on deposits	7,234		4,552		18,410		12,945		11,212		5,077
Interest on short-term borrowings	1,871		765		4,221		2,098		4,249		950
Interest on long-term borrowings	4,547		2,088		13,316		6,386		5,446		4,046
Total interest expense	13,652		7,405		35,947		21,429		20,907		10,073

Net interest income	71,198		67,028		206,765		196,535		103,747		66,567
Provision for credit losses	3,050		2,472		7,345		7,376		3,500		2,122
Net interest income after provision for credit losses	68,148		64,556		199,420		189,159		100,247		64,445

Noninterest income:
Service charges on deposit accounts	5,153		4,965		14,945		14,454		5,894		4,516
Other service charges and fees	4,529		4,397		13,575		12,971		1,233		1,139
Interchange fees, net									4,489		3,582
Fiduciary and asset management fees	2,794		2,844		8,313		7,315		3,056		2,794
Mortgage banking income, net	2,305		3,207		7,123		8,324		2,041		2,025
Gains on securities transactions, net	184		—		782		145		213		481
Bank owned life insurance income	1,377		1,389		4,837		4,122		1,667		2,125
Loan-related interest rate swap fees	416		1,303		2,627		3,056		718		1,180
Other operating income	778		845		2,228		2,470		2,998		997
Total noninterest income	17,536		18,950		54,430		52,857		22,309		18,839

Noninterest expenses:
Salaries and benefits	29,769		30,493		92,499		87,061		42,329		32,168
Occupancy expenses	4,939		4,841		14,560		14,627		6,310		4,903
Furniture and equipment expenses	2,559		2,635		7,882		7,867		3,033		2,603
Printing, postage, and supplies	1,154		1,147		3,710		3,566		1,073		1,150
Communications expense	798		948		2,580		2,964		1,097		910
Technology and data processing	4,232		3,917		12,059		11,340		4,649		3,900
Professional services	1,985		1,895		5,734		6,432		2,597		1,658
Marketing and advertising expense	1,944		1,975		5,963		5,838		1,443		1,740
FDIC assessment premiums and other insurance	1,141		1,262		2,793		4,003		2,185		706
Other taxes	2,022		639		6,065		3,864		2,886		2,022
Loan-related expenses	1,349		1,531		3,959		3,638		1,471		1,329
OREO and credit-related expenses	1,139		503		2,023		1,965		1,532		541
Amortization of intangible assets	1,480		1,843		4,661		5,468		3,181		1,637
Training and other personnel costs	887		863		2,900		2,512		1,027		969
Merger-related costs	732		—		3,476		—		27,712		—
Other expenses	1,366		2,421		3,957		5,291		1,483		1,159
Total noninterest expenses	57,496		56,913		174,821		166,436		104,008		57,395

Income before income taxes	28,188		26,593		79,029		75,580		18,548		25,889
Income tax expense	7,530		6,192		21,292		18,881		1,909		6,765
Net income	$	20,658	$	20,401	$	57,737	$	56,699	$	16,639	$	19,124
Basic earnings per common share	$	0.47	$	0.47	$	1.32	$	1.29	$	0.25	$	0.44
Diluted earnings per common share	$	0.47	$	0.47	$	1.32	$	1.29	$	0.25	$	0.44
Dividends declared per common share	$	0.20	$	0.19	$	0.60	$	0.57	$	0.21	$	0.20
Basic weighted average number of common shares outstanding	43,706,635		43,565,937		43,685,045		43,853,548		65,554,630		43,654,498
Diluted weighted average number of common shares outstanding	43,792,058		43,754,915		43,767,502		43,967,725		65,636,262		43,725,923

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017

Net income	$	20,658		$	20,401		$	57,737		$	56,699		$	16,639		$	19,124
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges	41			(78		)	(766		)	(3,766		)	1,964			(31		)
Reclassification adjustment for losses (gains) included in net income (net of tax, $102 and $83 for the three months and $370 and $233 for the nine months ended September 30, 2017 and 2016, respectively)	189			154			688			433
Reclassification adjustment for losses (gains) included in net income (net of tax, $66 and $97 for the three months ended March 31, 2018 and 2017, respectively)													249			180
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $1,470 and $604 for the three months and $3,195 and $4,227 for the nine months ended September 30, 2017 and 2016, respectively)	(2,729		)	1,121			5,935			7,851
Reclassification adjustment for losses (gains) included in net income (net of tax, $64 and $0 for the three months and $274 and $51 for the nine months ended September 30, 2017 and 2016, respectively)	(119		)	—			(508		)	(95		)
Unrealized holding gains (losses) arising during period (net of tax, $3,506 and $1,958 for the three months ended March 31, 2018 and 2017, respectively)													(13,191		)	3,637
Reclassification adjustment for losses (gains) included in net income (net of tax, $45 and $168 for the three months ended March 31, 2018 and 2017, respectively)													(168		)	(313		)
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $88 and $128 for the three months and $273 and $439 for the nine months ended September 30, 2017 and 2016, respectively)	(163		)	(237		)	(507		)	(816		)
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $80 and $99 for the three months ended March 31, 2018 and 2017, respectively)													(299		)	(184		)
Bank owned life insurance:
Reclassification adjustment for losses included in net income	84			—			278			—			19			109
Other comprehensive income (loss)	(2,697		)	960			5,120			3,607			(11,426		)	3,398
Comprehensive income	$	17,961		$	21,361		$	62,857		$	60,306		$	5,213		$	22,522

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2018 AND 2017 ~~AND 2016~~

(Dollars in thousands, except share and per share amounts)

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total

Balance - December 31, 2015 $ 59,159
$ 631,822
$ 298,134
$ 6,252
$ 995,367
Net income - 2016

56,699

56,699
Other comprehensive income (net of taxes of $3,970)

3,607
3,607
Issuance of common stock in regard to acquisition (17,232 shares) 23
430
453
Dividends on common stock ($0.57 per share)

(24,957 )
(24,957 )
Stock purchased under stock repurchase plan (1,411,131 shares) (1,876 ) (31,300 )

(33,176 )
Issuance of common stock under Equity Compensation Plans (54,044 shares) 72
681

753
Issuance of common stock for services rendered (14,576 shares) 19
360

379
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (35,515 shares) 47
(492 )

(445 )
Stock-based compensation expense
2,284

2,284
Balance - September 30, 2016 $ 57,444
$ 603,785
$ 329,876
$ 9,859
$ 1,000,964

Balance - December 31, 2016 $ 57,506
$ 605,397
$ 341,938
$ (3,809 ) $ 1,001,032
Net income - 2017

57,737

57,737
Other comprehensive income (net of taxes of $3,018)

5,120
5,120
Dividends on common stock ($0.60 per share)

(26,207 )
(26,207 )
Issuance of common stock under Equity Compensation Plans (58,421 shares) 78
891

969
Issuance of common stock for services rendered (16,529 shares) 22
539

561
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (76,505 shares) 102
(1,415 )

(1,313 )
Stock-based compensation expense
3,472

3,472
Balance - September 30, 2017 $ 57,708
$ 608,884
$ 373,468
$ 1,311
$ 1,041,371



	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total

Balance - December 31, 2016	$	57,506	$	605,397		$	341,938		$	(3,809	)	$	1,001,032
Net income - 2017						19,124						19,124
Other comprehensive income (net of taxes of $1,788)									3,398			3,398
Dividends on common stock ($0.20 per share)						(8,727		)				(8,727		)
Issuance of common stock under Equity Compensation Plans (29,008 shares)	39		489									528
Issuance of common stock for services rendered (4,856 shares)	6		170									176
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (58,679 shares)	78		(1,126		)							(1,048		)
Stock-based compensation expense			1,148									1,148
Balance - March 31, 2017	$	57,629	$	606,078		$	352,335		$	(411	)	$	1,015,631

Balance - December 31, 2017	$	57,744	$	610,001		$	379,468		$	(884	)	$	1,046,329
Net income - 2018						16,639						16,639
Other comprehensive income (net of taxes of $3,565)									(11,426		)	(11,426		)
Issuance of common stock in regard to acquisition (21,922,077 shares)⁽¹⁾	29,156		765,653									794,809
Dividends on common stock ($0.21 per share)						(13,808		)				(13,808		)
Issuance of common stock under Equity Compensation Plans (68,495 shares)	91		836									927
Issuance of common stock for services rendered (4,914 shares)	7		177									184
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (69,562 shares)	93		(2,363		)							(2,270		)
Cancellation of warrants			(1,530		)							(1,530		)
Stock-based compensation expense			1,223									1,223
Balance - March 31, 2018	$	87,091	$	1,373,997		$	382,299		$	(12,310	)	$	1,831,077

(1) Includes conversion of Xenith warrants to Union warrants.

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2018 AND 2017 ~~AND 2016~~

(Dollars in thousands)

2017 2016
Operating activities:

Net income $ 57,737
$ 56,699
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:

Depreciation of premises and equipment 8,307
7,617
Writedown of OREO 845
879
Amortization, net 10,500
10,241
Amortization (accretion) related to acquisition, net (158 ) 1,400
Provision for credit losses 7,345
7,376
Gains on securities transactions, net (782 ) (145 )
BOLI income (3,999 ) (4,122 )
Decrease (increase) in loans held for sale, net 5,591
(10,784 )
Losses (gains) on sales of other real estate owned, net 32
(278 )
Losses on sales of premises, net 51
97
Stock-based compensation expenses 3,472
2,284
Issuance of common stock for services 561
379
Net decrease (increase) in other assets 4,952
(11,169 )
Net increase in other liabilities 909
11,192
Net cash and cash equivalents provided by (used in) operating activities 95,363
71,666
Investing activities:

Purchases of securities available for sale and restricted stock (205,965 ) (159,863 )
Purchases of securities held to maturity (7,836 ) —
Proceeds from sales of securities available for sale and restricted stock 91,911
18,272
Proceeds from maturities, calls and paydowns of securities available for sale 88,675
83,942
Proceeds from maturities, calls and paydowns of securities held to maturity 818
1,841
Net increase in loans held for investment (594,967 ) (479,346 )
Net increase in premises and equipment (7,139 ) (5,102 )
Proceeds from BOLI settlements 2,497
—
Proceeds from sales of other real estate owned 1,028
4,982
Cash paid in acquisition —
(4,077 )
Cash acquired in acquisitions —
207
Net cash and cash equivalents provided by (used in) investing activities (630,978 ) (539,144 )
Financing activities:

Net increase in noninterest-bearing deposits 141,524
69,331
Net increase in interest-bearing deposits 360,813
225,239
Net increase in short-term borrowings 40,556
276,748
Cash paid for contingent consideration (3,003 ) —
Proceeds from issuance of long-term debt 20,000
—
Repayments of long-term debt —
(32,500 )
Cash dividends paid - common stock (26,207 ) (24,957 )
Repurchase of common stock —
(33,176 )
Issuance of common stock 969
753
Vesting of restricted stock, net of shares held for taxes (1,313 ) (445 )
Net cash and cash equivalents provided by (used in) financing activities 533,339
480,993
Increase (decrease) in cash and cash equivalents (2,276 ) 13,515
Cash and cash equivalents at beginning of the period 179,237
142,660
Cash and cash equivalents at end of the period $ 176,961
$ 156,175
Supplemental Disclosure of Cash Flow Information

Cash payments for:

Interest $ 33,947
$ 21,812
Income taxes 19,600
19,800
Supplemental schedule of noncash investing and financing activities

Transfers between loans and other real estate owned $ 585
$ 865
Issuance of common stock in exchange for net assets in acquisition —
453



	2018			2017
Operating activities:
Net income	$	16,639		$	19,124
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Depreciation of premises and equipment	3,480			2,645
Writedown of OREO	759			238
Amortization, net	3,776			3,396
Amortization (accretion) related to acquisition, net	(2,691		)	144
Provision for credit losses	3,500			2,122
Gains on securities transactions, net	(213		)	(481		)
BOLI income	(1,667		)	(2,125		)
Decrease (increase) in loans held for sale, net	12,935			16,511
Gains on sales of other real estate owned, net	(21		)	(36		)
Losses (gains) on sales of premises, net	(153		)	26
Stock-based compensation expenses	1,223			1,148
Issuance of common stock for services	184			176
Net decrease (increase) in other assets	(18,216		)	2,241
Net increase in other liabilities	16,228			5,347
Net cash and cash equivalents provided by (used in) operating activities	35,763			50,476
Investing activities:
Purchases of securities available for sale and restricted stock	(154,512		)	(53,782		)
Purchases of securities held to maturity	—			(4,878		)
Proceeds from sales of securities available for sale and restricted stock	115,850			21,306
Proceeds from maturities, calls and paydowns of securities available for sale	33,909			26,167
Proceeds from maturities, calls and paydowns of securities held to maturity	—			1,001
Net increase in loans held for investment	(201,369		)	(246,258		)
Net increase in premises and equipment	(902		)	(3,156		)
Proceeds from sales of other real estate owned	1,157			206
Cash paid in acquisition	(6,170		)	—
Cash acquired in acquisitions	174,218			—
Net cash and cash equivalents provided by (used in) investing activities	(37,819		)	(259,394		)
Financing activities:
Net increase in noninterest-bearing deposits	43,846			97,174
Net increase in interest-bearing deposits	93,540			137,532
Net increase (decrease) in short-term borrowings	24,441			(9,694		)
Cash paid for contingent consideration	—			(2,265		)
Cash dividends paid - common stock	(13,808		)	(8,727		)
Cancellation of warrants	(1,530		)	—
Issuance of common stock	927			528
Vesting of restricted stock, net of shares held for taxes	(2,270		)	(1,048		)
Net cash and cash equivalents provided by (used in) financing activities	145,146			213,500
Increase (decrease) in cash and cash equivalents	143,090			4,582
Cash and cash equivalents at beginning of the period	199,373			179,237
Cash and cash equivalents at end of the period	$	342,463		$	183,819

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(Dollars in thousands)



	2018			2017
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	18,011		$	8,141
Income taxes	—			—

Supplemental schedule of noncash investing and financing activities
Transfers between loans and OREO	(54		)	(71		)
Issuance of common stock in exchange for net assets in acquisition	794,809			—

Transactions related to acquisitions
Assets acquired	3,249,420			—
Liabilities assumed	2,874,018			—

See accompanying notes to consolidated financial statements.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1. ACCOUNTING POLICIES

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s ~~2016~~2017 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

~~Loans~~Business Combinations

~~The~~On January 1, 2018, the Company ~~originates commercial and consumer loans to customers. A substantial portion~~completed the acquisition of Xenith, a bank holding company based in Richmond, Virginia, for a purchase price of approximately $801.0 million. Under the terms of the ~~loan portfolio is represented by commercial and residential real estate loans (including acquisition and development loans and residential construction loans) throughout its market area. The ability~~merger agreement, Xenith’s common stockholders received 0.9354 shares of the Company’s ~~debtors to honor their contracts on such loans is dependent upon~~common stock in exchange for each share of Xenith’s common stock, resulting in the ~~real estate and general economic conditions in those markets, as well as other factors.~~

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

~~Below is a summary~~Company issuing 21,922,077 shares of the Company's ~~loan segments:~~

~~Construction and Land Development~~ – construction loans generally made to commercial and residential builders for specific construction projects. The successful repayment of these types of loans is generally dependent upon (a) a commitment for permanent financing fromcommon stock. In addition, the Company ~~or (b) from~~paid $6.2 million in exchange for Xenith's outstanding options.

In connection with the ~~sale~~acquisition, the Company recorded $425.6 million in goodwill and $38.5 million of amortizable assets, which relate to core deposit intangibles. The goodwill is not expected to be deductible for tax purposes. The Company currently estimates that these intangibles assets will be amortized over 10 years using sum-of-years digits. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the constructed property. These loans carry more risk than both types of commercial real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. As in commercial real estate term lending, the Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.

Also, included in this category are loans generally made to residential home builders to support their lot and home inventory needs. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk as compared to other commercial lending. This class of lending manages risks related to residential real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s ability to manage inventory and run projects. The Company manages this risk by lending to experienced builders and developers by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations with any particular customer or geographic region.

~~Commercial Real Estate – Owner Occupied~~ – term loans made to support owner occupied real estate properties that rely upon the successful operation of the business occupying the property for repayment. General market conditions and economic activity may affect these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry.

~~Commercial Real Estate – Non-Owner Occupied~~ – term loans typically made to borrowers to support income producing properties that rely upon the successful operation of the property for repayment. General market conditions and economic activity may impact the performance of these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, and hotel as well as avoiding concentrations to any one business or industry.acquisition.

~~Residential 1-4 Family~~ – loans generally made to both commercial and residential borrowers. Residential 1-4 Family loan portfolios carry risks associated with the creditworthiness of the borrower or the tenant and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.

~~Multifamily Real Estate~~ – loans made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.

~~Commercial & Industrial~~ – loans generally made to support the Company’s borrowers’ need for equipment/vehicle purchases and short-term or seasonal cash flow needs. Repayment relies upon the successful operation of the business. This type of lending carries a lower level of commercial credit risk as compared to other commercial lending. The Company manages this risk by using general underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry.

~~HELOC~~ – the consumer HELOC portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, using experienced underwriting, requiring standards for appraisers, and not making subprime loans.

~~Auto~~ – the consumer indirect auto lending portfolio generally carries certain risks associated with the values of the collateral that management must mitigate. The Company focuses its indirect auto lending on one to two year old used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future. This type of lending places reliance on computer-based loan approval systems to supplement other underwriting standards.

~~Consumer and all other~~ – portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Also included in this category are loans that generally support small business lines of credit and agricultural lending, neither of which are a material source of business for the Company.

Affordable Housing Entities

The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and March 31, 2017, the Company recognized amortization of ~~$229,000~~$235,000 and ~~$643,000,~~$223,000, respectively, and tax credits of ~~$240,000~~$283,000 and ~~$724,000,~~$309,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. ~~For the three and nine months ended September 30, 2016, the Company recognized amortization of $185,000 and $445,000, respectively, and tax credits of $265,000 and $685,000, respectively.~~ The carrying value of the Company’s investments in these qualified affordable housing projects was ~~$9.1~~$11.6 million and ~~$9.9~~$11.0 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company's recorded liability totaled ~~$4.0~~$8.3 million and ~~$7.1~~$7.3 million, respectively, for the related unfunded commitments, which are expected to be paid from ~~the second half of 2017 through~~2018 to 2019.

Adoption of New Accounting Standards

~~In March 2016,~~On January 1, 2018, the ~~FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to~~

~~Employee Share-Based Payment Accounting~~.” This ASU simplifies several aspects of the accounting for employee share based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted ~~this standard in the first quarter of 2017. The adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.~~

~~Recent Accounting Pronouncements~~

~~In May 2014, the FASB issued~~ ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” and all subsequent amendments to the ASU (“Topic 606”).” This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The original guidance has been amended through subsequent accounting standard updates that resulted in technical corrections, improvements, and a one-year deferral of the effective date to January 1, 2018. The guidance, as amended, is applicable to all entities and ~~once effective, will replace~~replaces a significant ~~portions~~portion of existing industry and transaction-specific revenue recognition rules with a more ~~principles-~~

~~based~~principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. ~~Entities can elect to adopt~~The Company adopted this ASU using the ~~guidance either on a full or~~ modified retrospective basis. Full retrospective adoption will require a cumulative effect adjustment to retained earnings as of the beginning of the earliest comparative period presented. Modified retrospective adoption will requireapproach, which requires a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The ~~Company plans to adopt this guidance on the effective date, January 1, 2018 via the modified retrospective approach. The Company performed its assessment of the~~ adoption of ~~this~~ ASU ~~and the related subsequent technical corrections issued. Based on the completed contracts reviewed thus far, the adoption of this accounting guidance is~~No. 2016-09 did not ~~expected to~~ have a material impact on the ~~Company's~~Company’s consolidated financial ~~statements.~~results but did result in expanded disclosures related to noninterest income and enhanced qualitative disclosures on the revenues within the scope of the new guidance. Refer to Note 11 “Revenue" for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606.

On January 1, 2018, the Company adopted ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to, among other things: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in

instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements and resulted in enhancements to the financial instrument disclosures.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets, but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, and lease executory costs for all entities. For lessors, ~~the standard~~this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently working to identify the complete lease population, including potential embedded leases. The adoption of this standard is expected to result in additional assets and liabilities, as the Company will be required to recognize operating leases on the Consolidated Balance Sheet. Other implementation matters to be addressed include, but are not limited to, the determination of effects on the financial and capital ratios and the quantification of the impacts that this accounting guidance will have on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and ~~required~~requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The CECL model will replace the Company's current accounting for PCI and impaired loans. The guidance also amends the AFS debt securities OTTI model. The amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently assessing the requirements and necessary changes to the existing credit loss estimation methods and identifying a complete set of data requirements and sources. The Company is currently evaluating the impact ASU No. 2016-13 will have on its consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.~~” This ~~ASU clarifies the definition of a business that appears~~guidance may result in ASC 805, Business Combinations. Amendments narrow the definition and provide a framework for making judgments whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company has concluded the adoption of ASU 2017-01 will not have a material ~~impact on its consolidated financial statements.~~

~~In January 2017, the FASB issued ASU No. 2017-03, “~~Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings (SEC Update).” This ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. ASU 2017-03 is effective upon issuance. The Company has concluded the adoption of ASU 2017-03 will not have a material impact on its consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~” This ASU simplifies accounting for goodwill impairments by eliminating step two (the implied fair value to carrying value of goodwill) from the existing goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has concluded the adoption of ASU 2017-04 will not have a material impact on its consolidated financial statements.

~~In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales~~

~~of Nonfinancial Assets.~~” This ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2018. The Company concluded that ASU 2017-05 will not have a material impact on its consolidated financial statements.

~~In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.~~”This ASU focuses on the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. The Company has concluded the adoption of ASU 2017-08 will not have a material impact on its consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.~~”~~This ASU relates to~~ changes in the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effectiveCompany's accounting for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company has concluded the adoption of ASU 2017-09 will not have a material impactcredit losses on ~~its consolidated~~ financial ~~statements.~~instruments.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU relates to any entity that elects to apply hedge accounting in accordance with current GAAP. The amendment simplifies the application of the hedge accounting guidance and improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The targeted improvements in ASU No. 2017-12 will allow the Company a one-time transfer of certain debt securities from HTM to AFS. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company plans to early adopt this standard in the second quarter of 2018 using the modified retrospective approach. As part of this adoption, the Company plans to make the 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. The Company plans to transfer HTM securities with a carrying amount of approximately $200 million, which will result in an impact to accumulated other comprehensive income. The consolidated financial statements for the quarter ended June 30, 2018, will also include a cumulative effect adjustment to the opening balance of retained earnings to reflect the application of the new guidance related to the fair value hedges. The Company is ~~currently assessing~~in the ~~impact~~process of developing the required disclosures, which will be included in its second quarter 2018 Quarterly Report on Form 10-Q.

In February 2018, the FASB issued ASU ~~2017-12~~No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”This ASU allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act and requires certain disclosures about the stranded tax effects. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company plans to adopt this guidance in 2018 via the retrospective approach applying the effect of the change to the date of the enacted Tax Act, which was December 22, 2017. The Company has concluded the adoption of ASU No. 2018-02 will not have a material impact on its consolidated financial statements.

2. ACQUISITIONS

On January 1, 2018, the Company completed its acquisition of Xenith, a bank holding company based in Richmond, Virginia. Xenith's common stockholders received 0.9354 shares of the Company's common stock in exchange for each share of Xenith's common stock, resulting in the Company issuing 21,922,077 shares of the Company's common stock at a fair value of $794.8 million. In addition, the Company paid $6.2 million in exchange for Xenith's outstanding stock options.

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 350, Intangibles-Goodwill and Other. The following table provides a preliminary assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):



Purchase Price:
Fair value of shares of Union common stock issued & warrants converted			$	794,809
Cash paid for Xenith options			6,170
Total purchase price			$	800,979

Fair value of assets acquired:
Cash and cash equivalents	$	174,218
Securities available for sale	295,782
Restricted stock, at cost	27,569
Net loans	2,458,981
Premises and equipment	45,520
OREO	5,412
Core deposit intangibles	38,470
Other assets	203,468
Total assets	$	3,249,420

Fair value of liabilities assumed:
Deposits	$	2,549,683
Other short-term borrowings	235,000
Borrowings	55,542
Other liabilities	33,793
Total liabilities	$	2,874,018

Net assets acquired			$	375,402
Preliminary goodwill			$	425,577

The acquired loans were recorded at fair value at the acquisition date without carryover of Xenith’s previously established allowance for loan losses. The fair value of the loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans), and past due status. For valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). If new information is obtained about facts and circumstances about expected cash flows that existed as of the acquisition date, management will adjust fair values in accordance with accounting for business combinations.

The acquired loans were divided into loans with evidence of credit quality deterioration which are accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, (acquired impaired) and loans that

do not meet these criteria, which are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, (acquired performing). The fair values of the acquired performing loans were $2.4 billion and the fair values of the acquired impaired loans were $68.5 million. The gross contractually required principal and interest payments receivable for acquired performing loans was $2.7 billion. The best estimate of contractual cash flows not expected to be collected related to the acquired performing loans is $22.2 million.

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):



Contractually required principal and interest payments	$	97,123
Nonaccretable difference	(16,422		)
Cash flows expected to be collected	80,701
Accretable difference	(12,225		)
Fair value of loans acquired with a deterioration of credit quality	$	68,476

The following table presents certain pro forma information as if Xenith had been acquired on January 1, 2017. These results combine the historical results of Xenith in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2017. In particular, no adjustments have been made to eliminate the amount of Xenith’s provision for credit losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, 2017. Pro forma adjustments below include the net impact of accretion for 2017 and the elimination of merger-related costs for 2018. The Company expects to achieve further operating cost savings and other business synergies, including branch closures, as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):



	Pro forma for the three months ended
	March 31,
	2018		2017
	(unaudited)		(unaudited)
Total revenues ⁽¹⁾	$	126,056	$	116,733
Net income	$	38,875	$	25,921
Earnings per share	$	0.59	$	0.40

(1) Includes net interest income and noninterest income.

Merger-related costs associated with the acquisition of Xenith were $27.7 million for the three months ended March 31, 2018; no merger-related costs were incurred for the three months ended March 31, 2017. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.

2.3. SECURITIES

Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are summarized as follows (dollars in thousands):


	Amortized		Gross Unrealized					Estimated		Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value		Cost		Gains		(Losses)			Fair Value
September 30, 2017
March 31, 2018
Obligations of states and political subdivisions	$	285,921	$	7,582	$	(1,304	)	$	292,199	$	365,816	$	3,002	$	(4,179	)	$	364,639
Corporate bonds	114,997		1,241		(816		)	115,422		122,903		1,175		(938		)	123,140
Mortgage-backed securities	546,038		4,119		(3,253		)	546,904		767,366		1,807		(14,761		)	754,412
Other securities	13,890		—		(54		)	13,836		11,120		—		(132		)	10,988
Total available for sale securities	$	960,846	$	12,942	$	(5,427	)	$	968,361	$	1,267,205	$	5,984	$	(20,010	)	$	1,253,179

December 31, 2016
December 31, 2017
Obligations of states and political subdivisions	$	274,007	$	4,962	$	(3,079	)	$	275,890	$	295,546	$	6,842	$	(564	)	$	301,824
Corporate bonds	123,674		892		(2,786		)	121,780		113,625		1,131		(876		)	113,880
Mortgage-backed securities	536,031		4,626		(5,371		)	535,286		552,431		2,596		(6,169		)	548,858
Other securities	13,885		—		(77		)	13,808		9,737		—		(77		)	9,660
Total available for sale securities	$	947,597	$	10,480	$	(11,313	)	$	946,764	$	971,339	$	10,569	$	(7,686	)	$	974,222

The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s available for sale securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. 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					Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2017
March 31, 2018
Obligations of states and political subdivisions	$	55,319	$	(700	)	$	9,338	$	(604	)	$	64,657	$	(1,304	)	$	150,366	$	(3,288	)	$	16,413	$	(891	)	$	166,779	$	(4,179	)
Mortgage-backed securities	283,466		(2,708		)	42,481		(545		)	325,947		(3,253		)	531,141		(10,089		)	139,217		(4,672		)	670,358		(14,761		)
Corporate bonds and other securities	21,128		(353		)	32,674		(517		)	53,802		(870		)	21,775		(156		)	37,591		(914		)	59,366		(1,070		)
Total available for sale securities	$	359,913	$	(3,761	)	$	84,493	$	(1,666	)	$	444,406	$	(5,427	)	$	703,282	$	(13,533	)	$	193,221	$	(6,477	)	$	896,503	$	(20,010	)

December 31, 2016
December 31, 2017
Obligations of states and political subdivisions	$	108,440	$	(3,007	)	$	588	$	(72	)	$	109,028	$	(3,079	)	$	25,790	$	(132	)	$	16,934	$	(432	)	$	42,724	$	(564	)
Mortgage-backed securities	316,469		(4,979		)	42,096		(392		)	358,565		(5,371		)	298,439		(3,267		)	136,298		(2,902		)	434,737		(6,169		)
Corporate bonds and other securities	47,388		(1,537		)	40,468		(1,326		)	87,856		(2,863		)	10,976		(99		)	44,408		(854		)	55,384		(953		)
Total available for sale securities	$	472,297	$	(9,523	)	$	83,152	$	(1,790	)	$	555,449	$	(11,313	)	$	335,205	$	(3,498	)	$	197,640	$	(4,188	)	$	532,845	$	(7,686	)

As of ~~September 30, 2017,~~March 31, 2018, there were ~~$84.5~~$193.2 million, or 3674 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 ~~months. These securities~~months and had an aggregate unrealized loss of ~~$1.7 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds.~~$6.5 million. As of December 31, ~~2016,~~2017, there were ~~$83.2~~$197.6 million, or 3071 issues, of individual securities that had been in a continuous loss position for more than 12 ~~months. These securities~~months and had an aggregate unrealized loss of ~~$1.8 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds.~~$4.2 million. The Company has determined that these securities are temporarily impaired ~~as of September 30, 2017~~at March 31, 2018 and December 31, ~~2016~~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 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 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 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 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 available for sale securities as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~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, 2017				December 31, 2016				March 31, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	23,387	$	23,510	$	21,403	$	21,517	$	30,048	$	30,097	$	25,179	$	25,326
Due after one year through five years	128,261		130,107		108,198		109,778		201,580		199,198		145,276		145,980
Due after five years through ten years	267,492		271,830		300,552		301,888		228,924		228,561		223,210		226,251
Due after ten years	541,706		542,914		517,444		513,581		806,653		795,323		577,674		576,665
Total securities available for sale	$	960,846	$	968,361	$	947,597	$	946,764	$	1,267,205	$	1,253,179	$	971,339	$	974,222

For information regarding 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, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, see Note 67 “Commitments and Contingencies.”

Held to Maturity

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 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 securities held to maturity as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are summarized as follows (dollars in thousands):


	Carrying		Gross Unrealized					Estimated		Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value		Value ⁽¹⁾		Gains		(Losses)			Fair Value
September 30, 2017
March 31, 2018
Obligations of states and political subdivisions	$	204,801	$	5,111	$	(77	)	$	209,835	$	198,733	$	1,540	$	(369	)	$	199,904

December 31, 2016
December 31, 2017
Obligations of states and political subdivisions	$	201,526	$	1,617	$	(828	)	$	202,315	$	199,639	$	4,014	$	(170	)	$	203,483

(1) The carrying value includes ~~$4.0~~$3.2 million as of ~~September 30, 2017~~March 31, 2018 and ~~$5.2~~$3.6 million as of December 31, ~~2016~~2017 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 (dollars 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, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. 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					Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2017
March 31, 2018
Obligations of states and political subdivisions	$	5,130	$	(53	)	$	638	$	(24	)	$	5,768	$	(77	)	$	57,691	$	(302	)	$	2,629	$	(67	)	$	60,320	$	(369	)

December 31, 2016
December 31, 2017
Obligations of states and political subdivisions	$	92,841	$	(747	)	$	648	$	(81	)	$	93,489	$	(828	)	$	18,896	$	(139	)	$	1,084	$	(31	)	$	19,980	$	(170	)

As of ~~September 30, 2017,~~March 31, 2018, there was ~~$638,000,~~$2.6 million, or ~~one issue,~~four issues, of an individual held to maturity ~~security~~securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of ~~$24,000.~~$67,000. As of December 31, ~~2016,~~2017, there was ~~$648,000,~~$1.1 million, or ~~one issue,~~two issues, of an individual held to maturity ~~security~~securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of ~~$81,000. This security is a~~$31,000. These securities are municipal ~~bond~~bonds with minimal credit ~~exposure and is credit enhanced with a guarantee from the local school board.~~exposure. For this reason, the Company has determined that ~~this security~~these securities in a loss position iswere temporarily impaired as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. Because the Company does not intend to sell ~~this investment~~these investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell the ~~investment~~investments before recovery of ~~its~~their amortized cost ~~basis,~~bases, which may be maturity, the Company does not consider ~~this investment~~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, 2017~~March 31, 2018 and December 31, ~~2016,~~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, 2017				December 31, 2016				March 31, 2018				December 31, 2017
	Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value		Carrying Value ⁽¹⁾		Estimated Fair Value
Due in one year or less	$	5,879	$	5,902	$	4,403	$	4,440	$	6,764	$	6,780	$	3,221	$	3,230
Due after one year through five years	41,196		41,959		28,383		28,763		48,016		48,265		44,289		44,601
Due after five years through ten years	65,893		67,444		51,730		51,522		78,816		79,099		79,114		80,532
Due after ten years	91,833		94,530		117,010		117,590		65,137		65,760		73,015		75,120
Total securities held to maturity	$	204,801	$	209,835	$	201,526	$	202,315	$	198,733	$	199,904	$	199,639	$	203,483

For information regarding 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, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, see Note 67 “Commitments and Contingencies.”

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, 2017~~March 31, 2018 and December 31, ~~2016,~~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 ~~its~~the Bank's outstanding capital at both ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $42.0 million and $27.6 million ~~and $23.8 million~~ for ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 and FHLB stock in the amount of ~~$40.9~~$63.2 million and ~~$37.0~~$47.7 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~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, 2017,~~March 31, 2018, and in accordance with ~~the~~accounting 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 and the proceeds from the sale of securities during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (dollars in thousands).

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


	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Realized gains (losses):
Gross realized gains	$	—	$	242		$	697		$	481
Gross realized losses	—		(97		)	(484		)	—
Net realized gains	$	—	$	145		$	213		$	481

Proceeds from sales of securities	$	2,848	$	18,272		$	115,850		$	21,306

3.4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Construction and Land Development	$	841,738	$	751,131	$	1,249,196	$	948,791
Commercial Real Estate - Owner Occupied	903,523		857,805		1,279,155		943,933
Commercial Real Estate - Non-Owner Occupied	1,748,039		1,564,295		2,230,463		1,713,659
Multifamily Real Estate	368,686		334,276		547,520		357,079
Commercial & Industrial	554,522		551,526		1,125,733		612,023
Residential 1-4 Family	1,083,112		1,029,547
Residential 1-4 Family - Commercial					714,660		612,395
Residential 1-4 Family - Mortgage					604,354		485,690
Auto	276,572		262,071		288,089		282,474
HELOC	535,446		526,884		642,084		537,521
Consumer and all other	587,091		429,525
Consumer					839,699		408,667
Other Commercial					284,770		239,320
Total loans held for investment, net ⁽¹⁾	$	6,898,729	$	6,307,060	$	9,805,723	$	7,141,552

(1) Loans, as presented, are net of deferred fees and costs totaling ~~$335,000~~$2.7 million and ~~$1.8~~$1.3 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

The following table shows the aging of the Company’s loan portfolio, by segment, at ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	7,221	$	100	$	54	$	3,026	$	5,671	$	825,666	$	841,738	$	403	$	1,291	$	322	$	10,202	$	6,391	$	1,230,587	$	1,249,196
Commercial Real Estate - Owner Occupied	1,707		689		679		17,668		2,205		880,575		903,523		4,985		777		—		25,826		2,539		1,245,028		1,279,155
Commercial Real Estate - Non-Owner Occupied	909		571		298		14,376		2,701		1,729,184		1,748,039		1,867		—		—		19,594		2,089		2,206,913		2,230,463
Multifamily Real Estate	—		—		—		77		—		368,609		368,686		—		—		—		3,380		—		544,140		547,520
Commercial & Industrial	1,558		255		101		625		1,252		550,731		554,522		2,608		1,254		200		2,890		1,969		1,116,812		1,125,733
Residential 1-4 Family	5,633		1,439		2,360		14,077		6,163		1,053,440		1,083,112
Residential 1-4 Family - Commercial															3,707		960		113		14,826		1,512		693,542		714,660
Residential 1-4 Family - Mortgage															6,210		1,397		1,148		20,517		7,929		567,153		604,354
Auto	2,415		293		143		—		174		273,547		276,572		2,167		193		170		14		394		285,151		288,089
HELOC	1,400		628		709		982		1,791		529,936		535,446		3,564		1,346		306		1,884		2,072		632,912		642,084
Consumer and all other	3,469		1,445		188		210		165		581,614		587,091
Consumer and all other⁽¹⁾															4,179		2,074		371		3,728		243		1,113,874		1,124,469
Total loans held for investment	$	24,312	$	5,420	$	4,532	$	51,041	$	20,122	$	6,793,302	$	6,898,729	$	29,690	$	9,292	$	2,630	$	102,861	$	25,138	$	9,636,112	$	9,805,723

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, ~~2016~~2017 (dollars in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	1,162	$	232	$	76	$	2,922	$	2,037	$	744,702	$	751,131	$	1,248	$	898	$	1,340	$	2,838	$	5,610	$	936,857	$	948,791
Commercial Real Estate - Owner Occupied	1,842		109		35		18,343		794		836,682		857,805		444		81		—		14,790		2,708		925,910		943,933
Commercial Real Estate - Non-Owner Occupied	2,369		—		—		17,303		—		1,544,623		1,564,295		187		84		194		6,610		2,992		1,703,592		1,713,659
Multifamily Real Estate	147		—		—		2,066		—		332,063		334,276		—		—		—		80		—		356,999		357,079
Commercial & Industrial	759		858		9		1,074		124		548,702		551,526		1,147		109		214		408		316		609,829		612,023
Residential 1-4 Family	7,038		534		2,048		16,200		5,279		998,448		1,029,547
Residential 1-4 Family - Commercial															1,682		700		579		9,414		1,085		598,935		612,395
Residential 1-4 Family - Mortgage															3,838		2,541		546		3,733		6,269		468,763		485,690
Auto	2,570		317		111		—		169		258,904		262,071		3,541		185		40		—		413		278,295		282,474
HELOC	1,836		1,140		635		1,161		1,279		520,833		526,884		2,382		717		217		950		2,075		531,180		537,521
Consumer and all other	2,522		1,431		91		223		291		424,967		429,525
Consumer and all other⁽¹⁾															2,404		2,052		402		198		275		642,656		647,987
Total loans held for investment	$	20,245	$	4,621	$	3,005	$	59,292	$	9,973	$	6,209,924	$	6,307,060	$	16,873	$	7,367	$	3,532	$	39,021	$	21,743	$	7,053,016	$	7,141,552

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the PCI loan portfolios, by segment and their delinquency status, at ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


	30-89 Days Past Due		Greater than 90 Days		Current		Total		30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	62	$	—	$	2,964	$	3,026	$	54	$	1,909	$	8,239	$	10,202
Commercial Real Estate - Owner Occupied	463		643		16,562		17,668		438		4,995		20,393		25,826
Commercial Real Estate - Non-Owner Occupied	318		1,032		13,026		14,376		180		1,558		17,856		19,594
Multifamily Real Estate	—		—		77		77		—		—		3,380		3,380
Commercial & Industrial	—		—		625		625		38		120		2,732		2,890
Residential 1-4 Family	949		1,125		12,003		14,077
Residential 1-4 Family - Commercial									383		1,454		12,989		14,826
Residential 1-4 Family - Mortgage									1,673		4,076		14,768		20,517
Auto									—		—		14		14
HELOC	132		128		722		982		83		645		1,156		1,884
Consumer and all other	34		—		176		210
Consumer and all other⁽¹⁾									7		220		3,501		3,728
Total	$	1,958	$	2,928	$	46,155	$	51,041	$	2,856	$	14,977	$	85,028	$	102,861

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, ~~2016~~2017 (dollars in thousands):


	30-89 Days Past Due		Greater than 90 Days		Current		Total		30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	—	$	84	$	2,838	$	2,922	$	8	$	57	$	2,773	$	2,838
Commercial Real Estate - Owner Occupied	271		519		17,553		18,343		381		478		13,931		14,790
Commercial Real Estate - Non-Owner Occupied	409		126		16,768		17,303		188		233		6,189		6,610
Multifamily Real Estate	—		—		2,066		2,066		—		—		80		80
Commercial & Industrial	44		56		974		1,074		—		—		408		408
Residential 1-4 Family	1,298		945		13,957		16,200
Residential 1-4 Family - Commercial									433		351		8,630		9,414
Residential 1-4 Family - Mortgage									343		626		2,764		3,733
HELOC	175		121		865		1,161		291		214		445		950
Consumer and all other	—		—		223		223
Consumer and all other⁽¹⁾									—		—		198		198
Total	$	2,197	$	1,851	$	55,244	$	59,292	$	1,644	$	1,959	$	35,418	$	39,021

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans, by segment at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	September 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans without a specific allowance
Construction and Land Development	$	13,889	$	13,981	$	—	$	13,877	$	14,353	$	—	$	11,652	$	11,831	$	—	$	16,035	$	16,214	$	—
Commercial Real Estate - Owner Occupied	5,238		5,378		—		5,886		6,042		—		15,966		16,347		—		5,427		5,527		—
Commercial Real Estate - Non-Owner Occupied	5,548		5,636		—		1,399		1,399		—		7,545		7,727		—		6,017		6,103		—
Commercial & Industrial	1,632		1,880		—		648		890		—		2,313		2,649		—		1,681		1,933		—
Residential 1-4 Family	9,510		10,523		—		8,496		9,518		—
Residential 1-4 Family - Commercial													5,459		6,254		—		4,098		4,879		—
Residential 1-4 Family - Mortgage													12,910		13,238		—		9,512		9,786
HELOC	1,651		1,741		—		1,017		1,094		—		3,497		3,788		—		2,056		2,144		—
Consumer and all other	521		631		—		230		427		—
Consumer and all other⁽¹⁾													585		753		—		567		734		—
Total impaired loans without a specific allowance	$	37,989	$	39,770	$	—	$	31,553	$	33,723	$	—	$	59,927	$	62,587	$	—	$	45,393	$	47,320	$	—

Loans with a specific allowance
Construction and Land Development	$	1,347	$	1,444	$	113	$	1,395	$	1,404	$	107	$	526	$	572	$	78	$	1,536	$	1,573	$	122
Commercial Real Estate - Owner Occupied	2,118		2,132		157		646		646		4		820		830		74		1,161		1,161		94
Commercial Real Estate - Non-Owner Occupied	2,032		2,032		42		2,809		2,809		474		83		83		1		—		—		—
Commercial & Industrial	2,511		2,562		909		857		880		14		2,074		2,113		60		1,295		1,319		128
Residential 1-4 Family	4,421		4,543		249		3,335		3,535		200
Residential 1-4 Family - Commercial													909		921		30		1,062		1,068		35
Residential 1-4 Family - Mortgage													3,279		3,532		88		1,953		2,070		36
Auto	174		235		1		169		235		1		740		900		3		413		577		2
HELOC	766		800		56		323		433		15		936		1,053		167		464		535		51
Consumer and all other	242		310		43		62		298		1
Consumer and all other⁽¹⁾													159		298		1		204		309		35
Total impaired loans with a specific allowance	$	13,611	$	14,058	$	1,570	$	9,596	$	10,240	$	816	$	9,526	$	10,302	$	502	$	8,088	$	8,612	$	503
Total impaired loans	$	51,600	$	53,828	$	1,570	$	41,149	$	43,963	$	816	$	69,453	$	72,889	$	502	$	53,481	$	55,932	$	503

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following tables show the average recorded investment and interest income recognized for the Company’s impaired loans, excluding PCI loans, by segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (dollars in thousands):


	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017				Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
	Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized		Average Investment		Interest Income Recognized
Construction and Land Development	$	15,654	$	128	$	15,378	$	368	$	12,326	$	74	$	17,179	$	139
Commercial Real Estate - Owner Occupied	7,354		62		7,407		245		17,112		160		6,793		64
Commercial Real Estate - Non-Owner Occupied	7,597		57		7,584		185		7,904		61		11,540		108
Commercial & Industrial	4,139		36		4,203		121		4,933		45		6,830		36
Residential 1-4 Family	14,218		94		14,358		261
Residential 1-4 Family - Commercial									6,618		56		5,251		43
Residential 1-4 Family - Mortgage									16,529		77		7,796		30
Auto	192		—		223		2		836		5		477		1
HELOC	2,460		7		2,492		29		4,784		32		2,366		4
Consumer and all other	800		8		690		20
Consumer and all other⁽¹⁾									764		7		303		—
Total impaired loans	$	52,414	$	392	$	52,335	$	1,231	$	71,806	$	517	$	58,535	$	425

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2016
Average
Investment Interest Income
Recognized Average
Investment Interest Income
Recognized
Construction and Land Development $ 28,195
$ 464
$ 27,645
$ 1,346
Commercial Real Estate - Owner Occupied 7,691
72
7,862
230
Commercial Real Estate - Non-Owner Occupied 3,777
33
3,759
98
Commercial & Industrial 4,628
42
4,964
134
Residential 1-4 Family 13,106
89
13,439
267
Auto 271
—
289
4
HELOC 2,118
7
2,185
35
Consumer and all other 453
—
620
6
Total impaired loans $ 60,239
$ 707
$ 60,763
$ 2,120

The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for loan loss methodology and are included in the preceding impaired loan tables. For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2018, the recorded investment in TDRs prior to modifications was not materially impacted by the modification.

The following table provides a summary, by segment, of TDRs that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	September 30, 2017					December 31, 2016					March 31, 2018					December 31, 2017
	No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment		No. of Loans	Recorded Investment		Outstanding Commitment
Performing
Construction and Land Development	7	$	2,841	$	—	8	$	3,793	$	—	3	$	1,658	$	—	7	$	2,803	$	—
Commercial Real Estate - Owner Occupied	7	2,934		—		7	3,106		—		8	3,010		—		5	2,221		—
Commercial Real Estate - Non-Owner Occupied	3	2,196		—		2	2,390		—		2	571		—		2	715		—
Commercial & Industrial	12	2,112		—		3	533		—		4	876		—		12	2,057		—
Residential 1-4 Family	34	5,941		—		28	4,145		—
Consumer and all other	1	495		—		—	—		—
Residential 1-4 Family - Commercial											17	1,189		—		16	1,048		—
Residential 1-4 Family - Mortgage											27	5,478		—		24	5,194		—
HELOC											1	20		—		1	20		—
Consumer and all other ⁽¹⁾											1	490		—		1	495		—
Total performing	64	$	16,519	$	—	48	$	13,967	$	—	63	$	13,292	$	—	68	$	14,553	$	—

Nonperforming
Construction and Land Development	5	$	400	$	—	2	$	215	$	—	3	$	1,175	$	—	2	$	702	$	—
Commercial Real Estate - Owner Occupied	2	142		—		2	156		—		2	128		—		2	134		—
Commercial & Industrial	5	1,062		—		1	116		—		10	1,116		—		2	108		—
Residential 1-4 Family	8	1,095		—		8	948		—
Consumer and all other	1	26		—		—	—		—
Residential 1-4 Family - Commercial											5	535		—		5	558		—
Residential 1-4 Family - Mortgage											7	1,249		—		7	1,264		—
HELOC											1	60		—		1	59		—
Consumer and all other ⁽¹⁾											1	21		—		1	24		—
Total nonperforming	21	$	2,725	$	—	13	$	1,435	$	—	29	$	4,284	$	—	20	$	2,849	$	—

Total performing and nonperforming	85	$	19,244	$	—	61	$	15,402	$	—	92	$	17,576	$	—	88	$	17,402	$	—

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. The following table shows, by segment and modification type, TDRs that occurred during the three months ended March 31, 2018 and 2017 and TDRs that were identified by the Company as going into default during the period shown that were restructured in the prior twelve-month period (dollars in thousands):

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017

No. of
Loans

Recorded
Investment

No. of
Loans

Recorded
Investment
Construction and Land Development —
$ —
2
$ 198
Commercial Real Estate - Owner Occupied —
—
1
469
Commercial & Industrial 1
350
1
350
Residential 1-4 Family 2
187
4
605
Total 3
$ 537
8
$ 1,622

During the three and nine months ended September 30, 2016, the Company identified one loan, totaling approximately $23,000, that went into default that had been restructured in the twelve-month period prior to the time of default. This loan was a commercial real estate - owner occupied loan that had a term modification at a market rate.

~~The following table shows, by segment and modification type, TDRs that occurred during the three and nine months ended September 30, 2017 (dollars in thousands):~~

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017

No. of
Loans

Recorded
Investment at
Period End

No. of
Loans

Recorded
Investment at
Period End
Modified to interest only, at a market rate
Commercial & Industrial 3
$ 936
8
$ 1,596
Total interest only at market rate of interest 3
$ 936
8
$ 1,596

Term modification, at a market rate

Construction and Land Development 1
$ 160
4
$ 1,150
Commercial Real Estate - Owner Occupied 1
380
1
380
Commercial Real Estate - Non-Owner Occupied 1
571
3
2,196
Commercial & Industrial —
—
4
969
Residential 1-4 Family 3
1,647
8
2,574
Consumer and all other 1
26
2
522
Total loan term extended at a market rate 7
$ 2,784
22
$ 7,791

Term modification, below market rate
Commercial Real Estate - Owner Occupied —
$ —
1
$ 841
Commercial & Industrial —
—
3
179
Residential 1-4 Family 1
40
8
1,143
Total loan term extended at a below market rate 1
$ 40
12
$ 2,163

Total 11
$ 3,760
42
$ 11,550

~~The following table shows, by segment and modification type, TDRs that occurred during the three and nine months ended September 30, 2016 (dollars in thousands):~~


	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016			All Restructurings						Restructurings with Payment Default
	No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		Three Months Ended March 31, 2018			Three Months Ended March 31, 2017			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
							No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End		No. of Loans	Recorded Investment at Period End
Modified to interest only, at a market rate
Commercial & Industrial							—	$	—	5	$	661	—	$	—	—	$	—
Total interest only at market rate of interest							—	$	—	5	$	661	—	$	—	—	$	—

Term modification, at a market rate
Construction and Land Development	—	$	—	1	$	1,177	—	$	—	—	$	—	2	$	1,015	—	$	—
Commercial Real Estate - Owner Occupied	—	—		2	739		3	811		—	—		—	—		—	—
Commercial Real Estate - Non-Owner Occupied							—	—		2	1,637		—	—		—	—
Commercial & Industrial	1	457		1	457		—	—		2	836		—	—		—	—
Residential 1-4 Family	—	—		2	474
Residential 1-4 Family - Commercial							1	152		1	207		1	60		—	—
Residential 1-4 Family - Mortgage							1	140		2	173		—	—		—	—
Total loan term extended at a market rate	1	$	457	6	$	2,847	5	$	1,103	7	$	2,853	3	$	1,075	—	$	—

Term modification, below market rate
Residential 1-4 Family	—	$	—	1	$	36
Commercial & Industrial							—	$	—	2	$	128	—	$	—	—	$	—
Residential 1-4 Family - Commercial							—	—		2	87		—	—		—	—
Residential 1-4 Family - Mortgage							2	164		2	778		—	—		—	—
Total loan term extended at a below market rate	—	$	—	1	$	36	2	$	164	6	$	993	—	$	—	—	$	—

Interest rate modification, below market rate
Commercial & Industrial	—	$	—	1	$	125
Total interest only at below market rate of interest	—	$	—	1	$	125

Total	1	$	457	8	$	3,008	7	$	1,267	18	$	4,507	3	$	1,075	—	$	—

The following table shows the allowance for loan loss activity, balances for allowance for loan losses, and loan balances based on impairment methodology by segment for the ~~nine~~three months ended and as of ~~September 30, 2017.~~March 31, 2018. The table below includes the provision for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Allowance for loan losses												Allowance for loan losses
	Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period		Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period
Construction and Land Development	$	10,055	$	193	$	(2,115	)	$	535		$	8,668	$	9,709	$	226	$	(6	)	$	287		$	10,216
Commercial Real Estate - Owner Occupied	3,801		84		(46		)	(620		)	3,219		2,931		109		(125		)	1,057			3,972
Commercial Real Estate - Non-Owner Occupied	6,622		2		(1,181		)	1,825			7,268		7,544		4		(94		)	(353		)	7,101
Multifamily Real Estate	1,236		—		—			(136		)	1,100		1,092		5		—			290			1,387
Commercial & Industrial	4,627		451		(1,241		)	1,526			5,363		4,552		186		(206		)	1,162			5,694
Residential 1-4 Family	6,399		332		(815		)	(35		)	5,881
Residential 1-4 Family - Commercial													4,437		52		(10		)	(1,787		)	2,692
Residential 1-4 Family - Mortgage													1,524		153		(100		)	638			2,215
Auto	946		352		(761		)	398			935		975		88		(168		)	125			1,020
HELOC	1,328		240		(861		)	675			1,382		1,360		276		(84		)	(81		)	1,471
Consumer and all other	2,178		905		(2,929		)	3,192			3,346
Consumer and all other⁽¹⁾													4,084		381		(1,766		)	2,162			4,861
Total	$	37,192	$	2,559	$	(9,949	)	$	7,360		$	37,162	$	38,208	$	1,480	$	(2,559	)	$	3,500		$	40,629

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.


	Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total				Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	15,236	$	113	$	823,476	$	8,555	$	3,026	$	—	$	841,738	$	8,668	$	12,178	$	78	$	1,226,816	$	10,138	$	10,202	$	—	$	1,249,196	$	10,216
Commercial Real Estate - Owner Occupied	7,356		157		878,499		3,062		17,668		—		903,523		3,219		16,786		74		1,236,543		3,898		25,826		—		1,279,155		3,972
Commercial Real Estate - Non-Owner Occupied	7,580		42		1,726,083		7,226		14,376		—		1,748,039		7,268		7,628		1		2,203,241		7,100		19,594		—		2,230,463		7,101
Multifamily Real Estate	—		—		368,609		1,100		77		—		368,686		1,100		—		—		544,140		1,387		3,380		—		547,520		1,387
Commercial & Industrial	4,143		909		549,754		4,454		625		—		554,522		5,363		4,387		60		1,118,456		5,634		2,890		—		1,125,733		5,694
Residential 1-4 Family	13,931		249		1,055,104		5,632		14,077		—		1,083,112		5,881
Residential 1-4 Family - Commercial																	6,368		30		693,466		2,662		14,826		—		714,660		2,692
Residential 1-4 Family - Mortgage																	16,189		88		567,648		2,127		20,517		—		604,354		2,215
Auto	174		1		276,398		934		—		—		276,572		935		740		3		287,335		1,017		14		—		288,089		1,020
HELOC	2,417		56		532,047		1,326		982		—		535,446		1,382		4,433		167		635,767		1,304		1,884		—		642,084		1,471
Consumer and all other	763		43		586,118		3,303		210		—		587,091		3,346
Consumer and all other⁽¹⁾																	744		1		1,119,997		4,860		3,728		—		1,124,469		4,861
Total loans held for investment, net	$	51,600	$	1,570	$	6,796,088	$	35,592	$	51,041	$	—	$	6,898,729	$	37,162	$	69,453	$	502	$	9,633,409	$	40,127	$	102,861	$	—	$	9,805,723	$	40,629

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the allowance for loan loss activity, balances for allowance for loan losses, and loan balances based on impairment methodology by segment for the ~~nine~~three months ended and as of ~~September 30, 2016.~~March 31, 2017. In addition, a ~~$175,000~~$112,000 provision was recognized during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 for unfunded loan commitments for which the reserves are recorded as a component of “Other Liabilities” on the Company’s Consolidated Balance Sheets. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Allowance for loan losses												Allowance for loan losses
	Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period		Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period
Construction and Land Development	$	6,040	$	165	$	(869	)	$	5,464		$	10,800	$	10,055	$	37	$	(45	)	$	(496	)	$	9,551
Commercial Real Estate - Owner Occupied	4,614		112		(772		)	(770		)	3,184		3,801		20		—			(600		)	3,221
Commercial Real Estate - Non-Owner Occupied	6,929		3		(1		)	(813		)	6,118		6,622		—		—			640			7,262
Multifamily Real Estate	1,606		—		—			(658		)	948		1,236		—		—			198			1,434
Commercial & Industrial	3,163		422		(1,301		)	3,119			5,403		4,627		139		(241		)	754			5,279
Residential 1-4 Family	5,414		466		(741		)	518			5,657
Residential 1-4 Family - Commercial													3,698		91		(70		)	132			3,851
Residential 1-4 Family - Mortgage													2,701		37		(65		)	95			2,768
Auto	1,703		243		(815		)	(260		)	871		946		108		(248		)	139			945
HELOC	2,934		229		(1,272		)	(534		)	1,357		1,328		88		(194		)	47			1,269
Consumer and all other	1,644		382		(957		)	1,135			2,204
Consumer and all other⁽¹⁾													2,178		325		(770		)	1,101			2,834
Total	$	34,047	$	2,022	$	(6,728	)	$	7,201		$	36,542	$	37,192	$	845	$	(1,633	)	$	2,010		$	38,414

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.


	Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total				Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	27,241	$	123	$	745,984	$	10,677	$	3,205	$	—	$	776,430	$	10,800	$	17,301	$	729	$	750,210	$	8,822	$	2,776	$	—	$	770,287	$	9,551
Commercial Real Estate - Owner Occupied	7,612		5		830,466		3,179		19,064		—		857,142		3,184		6,759		3		845,601		3,218		18,199		—		870,559		3,221
Commercial Real Estate - Non-Owner Occupied	3,792		1		1,432,895		6,117		18,141		—		1,454,828		6,118		11,516		745		1,603,526		6,517		16,725		—		1,631,767		7,262
Multifamily Real Estate	—		—		337,234		948		2,079		—		339,313		948		—		—		351,711		1,434		2,058		—		353,769		1,434
Commercial & Industrial	3,448		642		505,264		4,761		1,145		—		509,857		5,403		6,100		617		569,734		4,662		733		—		576,567		5,279
Residential 1-4 Family	12,673		115		969,860		5,542		16,828		—		999,361		5,657
Residential 1-4 Family - Commercial																	5,120		112		563,502		3,739		11,946		—		580,568		3,851
Residential 1-4 Family - Mortgage																	7,664		281		465,243		2,487		3,964		—		476,871		2,768
Auto	231		1		254,957		870		—		—		255,188		871		393		1		271,073		944		—		—		271,466		945
HELOC	2,053		17		520,546		1,340		1,498		—		524,097		1,357		2,200		20		524,507		1,249		1,156		—		527,863		1,269
Consumer and all other	451		88		431,865		2,116		386		—		432,702		2,204
Consumer and all other⁽¹⁾																	302		7		493,814		2,827		213		—		494,329		2,834
Total loans held for investment, net	$	57,501	$	992	$	6,029,071	$	35,550	$	62,346	$	—	$	6,148,918	$	36,542	$	57,355	$	2,515	$	6,438,921	$	35,899	$	57,770	$	—	$	6,554,046	$	38,414

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The Company uses a risk rating system and past due status as the primary credit quality indicators for the loan categories. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for loan losses; on those loans without a risk rating, the Company uses past due status to determine risk level. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

•Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;

•Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

•Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

•Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

•Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater

degree of financial risk based on the type of business supporting the loan; or

•Loans that are not risk rated but that are 0 to 29 days past due.

Special Mention is determined by the following criteria:

•Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an

event occurring that may weaken the borrower’s ability to repay;

•Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if

not addressed could lead to inadequately protecting the Company’s credit position; or

•Loans that are not risk rated but that are 30 to 89 days past due.

Substandard is determined by the following criteria:

•Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity

of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt

with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected; or

•Loans that are not risk rated but that are 90 to 149 days past due.

Doubtful is determined by the following criteria:

•Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for

recovery, its classification as a loss is deferred until its more exact status is determined;

•Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as

bankable assets is not warranted; or

•Loans that are not risk rated but that are over 149 days past due.

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	768,206	$	57,190	$	13,201	$	115	$	838,712	$	1,160,775	$	67,489	$	10,730	$	—	$	1,238,994
Commercial Real Estate - Owner Occupied	834,265		47,019		4,571		—		885,855		1,180,445		57,927		14,957		—		1,253,329
Commercial Real Estate - Non-Owner Occupied	1,702,500		23,764		7,399		—		1,733,663		2,178,842		24,579		7,448		—		2,210,869
Multifamily Real Estate	361,175		7,434		—		—		368,609		532,643		11,497		—		—		544,140
Commercial & Industrial	534,594		16,400		2,903		—		553,897		1,076,460		42,852		3,531		—		1,122,843
Residential 1-4 Family	1,045,736		15,878		4,480		2,941		1,069,035
Residential 1-4 Family - Commercial											677,693		17,688		4,453		—		699,834
Residential 1-4 Family - Mortgage											563,869		11,893		8,075		—		583,837
Auto	273,446		2,910		143		73		276,572		284,933		2,552		579		11		288,075
HELOC	530,263		2,427		1,051		723		534,464		620,155		16,992		3,053		—		640,200
Consumer and all other	583,728		2,618		530		5		586,881
Consumer and all other⁽¹⁾											1,115,732		4,304		697		8		1,120,741
Total	$	6,633,913	$	175,640	$	34,278	$	3,857	$	6,847,688	$	9,391,547	$	257,773	$	53,523	$	19	$	9,702,862

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of December 31, ~~2016~~2017 (dollars in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	667,018	$	69,311	$	11,857	$	23	$	748,209	$	869,111	$	62,517	$	14,325	$	—	$	945,953
Commercial Real Estate - Owner Occupied	801,565		32,364		5,533		—		839,462		872,130		52,268		4,745		—		929,143
Commercial Real Estate - Non-Owner Occupied	1,505,153		37,631		4,208		—		1,546,992		1,681,314		19,899		5,836		—		1,707,049
Multifamily Real Estate	312,711		19,499		—		—		332,210		349,625		7,374		—		—		356,999
Commercial & Industrial	539,999		9,391		1,062		—		550,452		595,923		13,533		2,159		—		611,615
Residential 1-4 Family	986,973		18,518		4,813		3,043		1,013,347
Residential 1-4 Family - Commercial											587,169		12,117		3,650		45		602,981
Residential 1-4 Family - Mortgage											470,646		7,190		1,642		2,479		481,957
Auto	258,188		3,648		135		100		262,071		278,063		4,131		119		161		282,474
HELOC	519,928		4,225		969		601		525,723		531,358		3,867		857		489		536,571
Consumer and all other	425,520		3,491		40		251		429,302
Consumer and all other⁽¹⁾											645,187		1,758		781		63		647,789
Total	$	6,017,055	$	198,078	$	28,617	$	4,018	$	6,247,768	$	6,880,526	$	184,654	$	34,114	$	3,237	$	7,102,531

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,460	$	1,311	$	255	$	—	$	3,026	$	1,410	$	6,498	$	2,294	$	—	$	10,202
Commercial Real Estate - Owner Occupied	5,521		8,237		3,910		—		17,668		6,788		11,261		7,777		—		25,826
Commercial Real Estate - Non-Owner Occupied	10,676		2,435		1,265		—		14,376		3,065		10,689		5,840		—		19,594
Multifamily Real Estate	—		77		—		—		77		—		81		3,299		—		3,380
Commercial & Industrial	94		309		222		—		625		1,707		842		341		—		2,890
Residential 1-4 Family	7,498		4,227		1,577		775		14,077
Residential 1-4 Family - Commercial											5,771		5,746		3,309		—		14,826
Residential 1-4 Family - Mortgage											2,712		10,142		7,455		208		20,517
Auto											—		14		—		—		14
HELOC	722		132		6		122		982		719		362		592		211		1,884
Consumer and all other	154		46		10		—		210
Consumer and all other⁽¹⁾											970		2,493		265		—		3,728
Total	$	26,125	$	16,774	$	7,245	$	897	$	51,041	$	23,142	$	48,128	$	31,172	$	419	$	102,861

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, ~~2016~~2017 (dollars in thousands):


	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,092	$	1,432	$	398	$	—	$	2,922	$	1,462	$	1,260	$	116	$	—	$	2,838
Commercial Real Estate - Owner Occupied	5,520		8,889		3,934		—		18,343		4,958		7,486		2,346		—		14,790
Commercial Real Estate - Non-Owner Occupied	10,927		4,638		1,738		—		17,303		3,920		1,394		1,296		—		6,610
Multifamily Real Estate	343		1,723		—		—		2,066		—		80		—		—		80
Commercial & Industrial	107		480		487		—		1,074		85		123		200		—		408
Residential 1-4 Family	8,557		4,455		2,672		516		16,200
Residential 1-4 Family - Commercial											5,234		2,877		1,303		—		9,414
Residential 1-4 Family - Mortgage											2,764		329		71		569		3,733
HELOC	857		183		7		114		1,161		446		291		94		119		950
Consumer and all other	166		37		20		—		223
Consumer and all other⁽¹⁾											148		41		9		—		198
Total	$	27,569	$	21,837	$	9,256	$	630	$	59,292	$	19,017	$	13,881	$	5,435	$	688	$	39,021

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows.

The following shows changes in the accretable yield for loans accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, for the periods presented (dollars in thousands):


	For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2017			2016			2018			2017
Balance at beginning of period	$	19,739		$	22,139		$	14,563		$	19,739
Additions							12,225			—
Accretion	(4,896		)	(4,232		)	(2,144		)	(1,511		)
Reclass of nonaccretable difference due to improvement in expected cash flows	2,175			3,580
Reclass of nonaccretable difference due to changes in expected cash flows							(35		)	1,680
Other, net ⁽¹⁾	(452		)	(1,149		)	293			(908		)
Balance at end of period	$	16,566		$	20,338		$	24,902		$	19,000

(1) This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate PCI loans, and discounted payoffs that occurred in the quarter.

The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, totaled ~~$51.0~~$102.9 million at ~~September 30, 2017~~March 31, 2018 and ~~$59.3~~$39.0 million at December 31, ~~2016.~~2017. The outstanding balance of the Company’s PCI loan portfolio totaled ~~$62.8~~$124.5 million at ~~September 30, 2017~~March 31, 2018 and ~~$73.6~~$47.9 million at December 31, ~~2016.~~2017. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, totaled ~~$942.0~~$2.9 billion at March 31, 2018 and $892.4 million ~~at September 30, 2017 and $1.1 billion~~ at December 31, ~~2016;~~2017; the remaining discount on these loans totaled ~~$14.6~~$44.8 million at ~~September 30, 2017~~March 31, 2018 and ~~$16.9~~$13.7 million at December 31, ~~2016.~~2017.

4.5. INTANGIBLE ASSETS

The Company’s intangible assets consist of core deposits, goodwill, and other intangibles arising from acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit ~~intangible assets~~intangibles are being amortized over the period of expected benefit, which ranges from 4 to 14 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 5 to 10 years, using a straight-line method. On January 1, 2018, the Company completed its acquisition of Xenith and acquired core deposit intangibles of $38.5 million and recorded goodwill in the amount of $425.6 million. See Note 2 "Acquisitions" for additional information.

In accordance with ASC 350, Intangibles-Goodwill and Other, the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. The Company performed its annual impairment testing in the second quarter of 2017 and determined that there was no impairment to its goodwill or intangible assets.

Amortization expense of ~~core deposit~~ intangibles for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 totaled ~~$1.4~~$3.2 million and ~~$4.3 million, respectively; and the three and nine months ended September 30, 2016 totaled $1.7 million and $5.3~~$1.6 million, respectively. ~~Amortization expense of other intangibles for the three and nine months ended September 30, 2017 totaled $120,000 and $360,000, respectively and $160,000 for the~~ ~~boththree and nine months ended September 30, 2016.~~As of ~~September 30, 2017,~~March 31, 2018, the estimated remaining amortization expense of intangibles is as follows (dollars in thousands):


For the remaining three months of 2017	$	1,420
For the year ending December 31, 2018	4,664
For the remaining nine months of 2018			$	8,787
For the year ending December 31, 2019	3,599		10,143
For the year ending December 31, 2020	2,509		8,291
For the year ending December 31, 2021	1,481		6,500
For the year ending December 31, 2022			4,927
Thereafter	2,344		11,444
Total estimated amortization expense	$	16,017	$	50,092

5.6. BORROWINGS

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, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Securities sold under agreements to repurchase	$	43,337		$	59,281		$	31,593		$	49,152
Other short-term borrowings ⁽¹⁾	574,000			517,500			1,022,000			745,000
Total short-term borrowings	$	617,337		$	576,781		$	1,053,593		$	794,152

Maximum month-end outstanding balance	$	696,529		$	678,262		$	1,207,206		$	794,152
Average outstanding balance during the period	606,441			590,074			1,133,603			602,553
Average interest rate (year-to-date)	0.93		%	0.49		%
Average interest rate (during the period)							1.52		%	1.00		%
Average interest rate at end of period	1.15		%	0.60		%	1.64		%	1.32		%

⁽¹⁾As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016 ,~~2017, all other short-term borrowings were FHLB advances.

The Bank maintains federal funds lines with several correspondent banks; the remaining available balance was ~~$185.0 million and $175.0~~$227.0 million at ~~September 30, 2017~~both March 31, 2018 and December 31, ~~2016, respectively.~~2017. The Company maintains an alternate line of credit at a correspondent bank; the available balance was $25.0 million at both ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~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 these covenants. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $3.9 billion and $2.7 billion ~~and $2.4 billion~~ at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

Long-term Borrowings

In connection with ~~two~~several previous bank acquisitions, ~~prior to 2006,~~ the Company issued and acquired trust preferred capital notes ~~to fund the cash portion~~ of ~~those acquisitions, collectively totaling~~ $58.5 ~~million.~~million and $32.0 million, respectively. In connection with the acquisition of ~~StellarOne,~~Xenith on January 1, 2018, the Company acquired trust preferred capital notes totaling ~~$32.0~~$55.0 million with a fair value discount of $9.9 million. The remaining fair value discount ~~of $6.5~~on all acquired trust preferred capital notes was $16.2 million at ~~September 30, 2017.~~March 31, 2018. The trust preferred capital notes currently qualify for Tier 1 capital of the Company for regulatory purposes.


	Trust Preferred Capital Securities ⁽¹⁾		Investment ⁽¹⁾		Spread to 3-Month LIBOR		Rate		Maturity	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	%	4.08	%	6/17/2034	$	22,500,000	$	696,000	2.75	%	5.06	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II	36,000,000		1,114,000		1.40	%	2.73	%	6/15/2036	36,000,000		1,114,000		1.40	%	3.71	%	6/15/2036
VFG Limited Liability Trust I Indenture	20,000,000		619,000		2.73	%	4.06	%	3/18/2034	20,000,000		619,000		2.73	%	5.04	%	3/18/2034
FNB Statutory Trust II Indenture	12,000,000		372,000		3.10	%	4.43	%	6/26/2033	12,000,000		372,000		3.10	%	5.41	%	6/26/2033
Gateway Capital Statutory Trust I										8,000,000		248,000		3.10	%	5.41	%	9/17/2033
Gateway Capital Statutory Trust II										7,000,000		217,000		2.65	%	4.96	%	6/17/2034
Gateway Capital Statutory Trust III										15,000,000		464,000		1.50	%	3.81	%	5/30/2036
Gateway Capital Statutory Trust IV										25,000,000		774,000		1.55	%	3.86	%	7/30/2037
Total	$	90,500,000	$	2,801,000						$	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 Consolidated Balance Sheets.

(2) Rate as of March 31, 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 inon 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 $233,000 at March 31, 2018. The acquired subordinated notes have a fixed interest rate of 6.75% and a maturity date of June 30, 2025. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the carrying value of ~~the~~all subordinated ~~debt~~notes was $158.5 million and $150.0 million, respectively, with a remaining issuance discount of $1.7 million and $1.8 million, respectively. The subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.

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 Sheets. 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,~~March 31, 2018 and 2017 was $481,000 and ~~2016 was $486,000 and $1.4 million and $474,000 and $1.4 million,~~$470,000, respectively.

In connection with ~~the StellarOne~~an acquisition in 2014, the Company assumed $70.0 million in long-term borrowings with the FHLB of which there is ~~$20.0~~$10.0 million remaining at ~~September 30, 2017~~March 31, 2018 that had a remaining fair value premium of ~~$223,000.~~$74,000.

As of March 31, 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	%	2.75	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	2.76	%	11/23/2022	65,000
Adjustable Rate Credit	0.45	%	2.76	%	11/23/2022	10,000
Adjustable Rate Credit	0.45	%	2.76	%	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.

As of ~~September 30,~~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 % 1.77 % 8/23/2022 $ 55,000
Adjustable Rate Credit 0.45 % 1.79 % 11/23/2022 65,000
Adjustable Rate Credit 0.45 % 1.79 % 11/23/2022 10,000
Adjustable Rate Credit 0.45 % 1.79 % 11/23/2022 10,000
Fixed Rate —
3.62 % 11/28/2017 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

$ 210,000
(1)Interest rates calculated using non-rounded numbers.

~~As of December 31, 2016, 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		Spread to 3-Month LIBOR		Interest Rate ⁽¹⁾		Maturity Date	Advance Amount

Adjustable Rate Credit	0.44	%	1.44	%	8/23/2022	$	55,000	0.44	%	2.13	%	8/23/2022	$	55,000
Adjustable Rate Credit	0.45	%	1.45	%	11/23/2022	65,000		0.45	%	2.15	%	11/23/2022	65,000
Adjustable Rate Credit	0.45	%	1.45	%	11/23/2022	10,000		0.45	%	2.15	%	11/23/2022	10,000
Adjustable Rate Credit	0.45	%	1.45	%	11/23/2022	10,000		0.45	%	2.15	%	11/23/2022	10,000
Fixed Rate	—		3.62	%	11/28/2017	10,000		—		3.75	%	7/30/2018	5,000
Fixed Rate	—		3.75	%	7/30/2018	5,000		—		3.97	%	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	—		0.99	%	10/19/2018	30,000		—		1.58	%	5/18/2020	20,000
						$	190,000						$	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, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, refer to Note 67 "Commitments and Contingencies".

As of ~~September 30, 2017,~~March 31, 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)			Prepayment Penalty			Total Long-term Borrowings			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 2017	$	—	$	—	$	10,000	$	(21	)	$	(488	)	$	9,491
2018	—		—		40,000		(343		)	(1,970		)	37,687
For the remaining nine months of 2018																$	—	$	—	$	40,000	$	(559	)	$	(1,489	)	$	37,952
2019	—		—		—		(486		)	(2,018		)	(2,504		)	—		—		—		(862		)	(2,018		)	(2,880		)
2020	—		—		20,000		(501		)	(2,074		)	17,425			—		—		20,000		(935		)	(2,074		)	16,991
2021	—		—		—		(516		)	(2,119		)	(2,635		)	—		—		—		(1,006		)	(2,119		)	(3,125		)
2022																—		—		140,000		(1,029		)	(1,707		)	137,264
Thereafter	93,301		150,000		140,000		(6,308		)	(1,707		)	375,286			150,004		158,500		—		(13,273		)	—			295,231
Total Long-term borrowings	$	93,301	$	150,000	$	210,000	$	(8,175	)	$	(10,376	)	$	434,750
Total long-term borrowings																$	150,004	$	158,500	$	200,000	$	(17,664	)	$	(9,407	)	$	481,433

(1) Includes discount on issued subordinated notes.

6.7. COMMITMENTS AND CONTINGENCIES

Litigation Matters

On September 7, 2017, Paul Parshall, a purported shareholder of Xenith, filed a putative class action lawsuit (the “Parshall Lawsuit”) in the United States District Court for the Eastern District of Virginia against Xenith, its current directors, and the Company on behalf of all public shareholders of Xenith. The plaintiff in the action alleged that the Company’s registration statement on Form S-4 filed with the SEC, as amended, relating to the Pending Merger omitted certain material information in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and further that the individual defendants were liable for those omissions under Section 20(a) of the Exchange Act. The relief sought in the lawsuit included preliminary and permanent injunction to prevent the completion of the Pending Merger, rescission or rescissory damages if the Pending Merger were completed, costs and attorneys’ fees. On November 6, 2017, Mr. Parshall filed a notice of voluntary dismissal, terminating the Parshall Lawsuit without prejudice.

On September 19, 2017, Shannon Rowe, a purported shareholder of Xenith, filed a putative class action lawsuit (the “Rowe Lawsuit”), also in the United States District Court for the Eastern District of Virginia, against Xenith and its current directors. The Company is not named as a defendant in the Rowe Lawsuit. The allegations in the Rowe Lawsuit are similar to the allegations in the Parshall Lawsuit.

At this time, it is not possible to predict the outcome of the proceeding in the Rowe Lawsuit or its impact on Xenith, the Company, or the Pending Merger. The Company believes that the claims in the Rowe Lawsuit are without merit and has been advised that Xenith and the Xenith board of directors also believe that the claims in the Rowe Lawsuit are without merit and that Xenith and the Xenith board of directors intend to defend vigorously against them.

In ~~addition to the Rowe Lawsuit, in~~ the ordinary course of its operations, the Company and its subsidiaries are parties to various ~~other~~ legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such ~~other legal~~ proceedings, in the aggregate, will not have a material adverse effect on the business, ~~or the~~ 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 Sheets. 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 ~~both September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company's reserves for off-balance sheet credit risk and indemnification were ~~$1.1~~$1.6 million and $795,000, respectively, and are reported as a component of "Other Liabilities" on the Company's Consolidated Balance Sheets.

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, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Commitments with off-balance sheet risk:
Commitments to extend credit ⁽¹⁾	$	2,085,103	$	1,924,885	$	2,926,208	$	2,192,812
Standby letters of credit	119,977		84,212		155,826		127,435
Total commitments with off-balance sheet risk	$	2,205,080	$	2,009,097	$	3,082,034	$	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, 2017,~~March 31, 2018, the aggregate amount of daily average required reserves was approximately ~~$73.1~~$162.6 million and was satisfied by vault cash holdings and deposits maintained with the Federal Reserve Bank.

As of ~~September 30, 2017,~~March 31, 2018, the Company had approximately ~~$45.4~~$51.9 million in deposits in other financial institutions, of which ~~$23.8~~$13.3 million served as collateral for cash flow and loan swap derivatives. The Company had approximately ~~$20.3~~$36.4 million in deposits

in other financial institutions that were uninsured at ~~September 30, 2017.~~March 31, 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. See Note 78 “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, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	Pledged Assets as of September 30, 2017										Pledged Assets as of March 31, 2018
	Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total		Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	224,153	$	206,878	$	—	$	431,031	$	—	$	289,698	$	194,042	$	—	$	483,740
Repurchase agreements	—		88,257		—		—		88,257		—		74,441		—		—		74,441
FHLB advances	—		1,022		—		2,404,355		2,405,377		—		754		—		2,585,329		2,586,083
Derivatives	23,831		3,898		—		—		27,729		13,316		2,590		—		—		15,906
Other purposes	—		15,580		—		—		15,580		—		25,461		—		—		25,461
Total pledged assets	$	23,831	$	332,910	$	206,878	$	2,404,355	$	2,967,974	$	13,316	$	392,944	$	194,042	$	2,585,329	$	3,185,631

(1) Balance represents market value.

(2) Balance represents book value.


	Pledged Assets as of December 31, 2016										Pledged Assets as of December 31, 2017
	Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total		Cash		AFS Securities ⁽¹⁾		HTM Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	—	$	210,546	$	197,889	$	—	$	408,435	$	—	$	242,472	$	197,482	$	—	$	439,954
Repurchase agreements	—		108,208		—		—		108,208		—		77,942		—		—		77,942
FHLB advances	—		1,475		—		1,959,929		1,961,404		—		878		—		2,390,509		2,391,387
Derivatives	33,595		4,376		—		—		37,971		23,870		3,656		—		—		27,526
Other purposes	—		17,499		—		—		17,499		—		15,043		—		—		15,043
Total pledged assets	$	33,595	$	342,104	$	197,889	$	1,959,929	$	2,533,517	$	23,870	$	339,991	$	197,482	$	2,390,509	$	2,951,852

(1) Balance represents market value.

(2) Balance represents book value.

7.8. DERIVATIVES

The Company is exposed to economic risks arising from its business operations and uses derivatives primarily to manage risk associated with changing interest rates, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge). The remaining are classified as ~~free standing~~free-standing derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.

Cash Flow Hedges

The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate borrowings, such as trust preferred capital notes, FHLB borrowings, and prime commercial loans. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging a notional amount, equal to the principal amount of the borrowings, for fixed-rate interest based on benchmarked interest rates. The original terms and conditions of the interest rate swaps vary and range in length with a maximum hedging time through November 2022. Amounts receivable or payable are recognized as accrued under the terms of the agreements.

All swaps entered into with counterparties met the Company’s credit standards, and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the ~~contract~~contracts is not significant.

The Company assesses the effectiveness of each hedging relationship on a periodic basis using statistical regression analysis. The Company also measures the ineffectiveness of each hedging relationship using the change in variable cash flows method which compares the cumulative changes in cash flows of the hedging instrument relative to cumulative changes in the hedged item’s cash flows. In accordance with ASC 815, Derivatives and Hedging, the effective portions of the derivatives’ unrealized gains or losses are recorded as a component of other comprehensive income. Based on the Company’s assessment, its cash flow hedges are highly effective, but to the extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.

On June 13, 2016, the Company terminated three interest rate swaps designated as cash flow hedges prior to their respective maturity dates. The unrealized gain of $1.3 million within Accumulated Other Comprehensive Income will be reclassified into earnings over a three year period, the term of the hedged item, using the effective interest method. The estimated net amount of gains expected to be reclassified into earnings by ~~September 30, 2018~~March 31, 2019 is ~~$395,000.~~$405,000.

Fair Value Hedge

Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates. During the normal course of business, the Company enters into interest rate swaps to convert certain long-term fixed-rate loans to floating rates to hedge the Company’s exposure to interest rate risk. The Company pays a fixed interest rate to the counterparty and receives a floating rate from the same counterparty calculated on the aggregate notional amount. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the aggregate notional amount of the related hedged items totaled ~~$82.0~~$80.0 million and ~~$65.9~~$81.0 million, respectively, and the fair value of the related hedged items was an unrealized loss of ~~$597,000~~$3.1 million and ~~$890,000,~~$1.2 million, respectively.

The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging, and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded on the Company’s Consolidated Statements of Income. Statistical regression analysis is used to assess hedge effectiveness, both at inception of the hedging relationship and on an ongoing basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against the periodic changes in fair value of the asset being hedged due to changes in the hedged risk. The Company’s fair value hedges continue to be highly effective and had no material impact on the Consolidated Statements of Income, but if any ineffectiveness exists, portions of the unrealized gains or losses would be recorded in interest income or interest expense on the Company’s Consolidated Statements of Income.

Loan Swaps

During the normal course of business, the Company enters into interest rate swap loan relationships (“loan swaps”) with borrowers to meet their financing needs. Upon entering into the loan swaps, the Company enters into offsetting positions with a third party in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values as reported in “Other Assets” and “Other Liabilities” on the Company’s Consolidated Balance Sheets.

Interest Rate Lock Commitments

During the normal course of business, the Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (“rate lock commitments”). Rate lock commitments on mortgage loans that are intended to be sold in the secondary market are considered to be derivatives. The period of time between issuance of a loan

commitment, closing, and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. The correlation between the rate lock commitments and the best efforts contracts is high due to their similarity.

The market values of rate lock commitments and best efforts forward delivery commitments is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset, while taking into consideration the probability that the rate lock commitments will close. The fair value of the rate lock commitments is reported as a component of “Other Assets” on the Company’s Consolidated Balance Sheets; the fair value of the Company’s best efforts forward delivery commitments is recorded as a component of “Other Liabilities” on the Company’s Consolidated Balance Sheets. Any impact to income is recorded in current period earnings as a component of “Mortgage banking income, net” on the Company’s Consolidated Statements of Income.

The following table summarizes key elements of the Company’s derivative instruments as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):


	September 30, 2017							December 31, 2016							March 31, 2018							December 31, 2017
			Derivative ⁽²⁾							Derivative⁽²⁾							Derivative ⁽²⁾							Derivative⁽²⁾
	Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities		Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities		Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities		Notional or Contractual Amount ⁽¹⁾			Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Cash flow hedges	$	152,500		$	120	$	9,460	$	188,500		$	211	$	9,619	$	152,500		$	—	$	5,063	$	152,500		$	49	$	8,005
Fair value hedges	81,965			1,253		371		65,920			1,437		296		79,963			3,468		—		80,973			1,598		76
Derivatives not designated as accounting hedges:
Loan Swaps
Pay fixed - receive floating interest rate swaps	506,056			3,051		—		373,355			—		1,005		704,424			13,368		2,641		529,736			—		1,350
Pay floating - receive fixed interest rate swaps	506,056			—		3,051		373,355			1,005		—		704,424			2,641		13,368		529,736			1,350		—
Other contracts:
Interest rate lock commitments	50,311			685		—		48,743			610		—		47,949			828		—		34,314			559		—
Best efforts forward delivery commitments	80,307			245		—		85,400			1,469		—		75,011			—		22		73,777			12		—

(1) Notional amounts are not recorded on the balance sheet and are generally used only as a basis on which interest and other payments are determined.

(2) Balances represent fair value of derivative financial instruments.

For information regarding collateral pledged on derivative instruments, see Note 67 “Commitments and Contingencies.”

8.9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The change in accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 is summarized as follows, net of tax (dollars in thousands):



	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Unrealized Gains (Losses) on BOLI			Total
Balance - December 31, 2017	$	1,874		$	2,705		$	(4,361	)	$	(1,102	)	$	(884	)
Other comprehensive income (loss)	(13,191		)	—			1,964			—			(11,227		)
Amounts reclassified from accumulated other comprehensive income	(168		)	(299		)	249			19			(199		)
Net current period other comprehensive income (loss)	(13,359		)	(299		)	2,213			19			(11,426		)
Balance - March 31, 2018	$	(11,485	)	$	2,406		$	(2,148	)	$	(1,083	)	$	(12,310	)

The change in accumulated other comprehensive income (loss) for the three months ended March 31, 2017 is summarized as follows, net of tax (dollars in thousands):

Unrealized
Gains (Losses)
on AFS
Securities Unrealized Gain
for AFS
Securities
Transferred to
HTM Change in Fair
Value of Cash
Flow Hedge Unrealized Gains (Losses) on BOLI Total
Balance - June 30, 2017 $ 7,733
$ 3,033
$ (5,487 ) $ (1,271 ) $ 4,008
Other comprehensive income (loss) (2,729 ) —
41
—
(2,688 )
Amounts reclassified from accumulated other comprehensive income (119 ) (163 ) 189
84
(9 )
Net current period other comprehensive income (loss) (2,848 ) (163 ) 230
84
(2,697 )
Balance - September 30, 2017 $ 4,885
$ 2,870
$ (5,257 ) $ (1,187 ) $ 1,311

Unrealized
Gains (Losses)
on AFS
Securities

Unrealized Gain
for AFS
Securities
Transferred to
HTM

Change in Fair
Value of Cash
Flow Hedge
Unrealized Gains (Losses) on BOLI Total
Balance - December 31, 2016 $ (542 ) $ 3,377
$ (5,179 ) $ (1,465 ) $ (3,809 )
Other comprehensive income (loss) 5,935
—
(766 ) —
5,169
Amounts reclassified from accumulated other comprehensive income (508 ) (507 ) 688
278
(49 )
Net current period other comprehensive income (loss) 5,427
(507 ) (78 ) 278
5,120
Balance - September 30, 2017 $ 4,885
$ 2,870
$ (5,257 ) $ (1,187 ) $ 1,311

~~The change in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2016 is summarized as follows, net of tax (dollars in thousands):~~

Unrealized
Gains (Losses)
on AFS
Securities Unrealized Gain
for AFS
Securities
Transferred to
HTM Change in Fair
Value of Cash
Flow Hedge Total
Balance - June 30, 2016 $ 14,412
$ 3,853
$ (9,366 ) $ 8,899
Other comprehensive income (loss) 1,121
—
(78 ) 1,043
Amounts reclassified from accumulated other comprehensive income —
(237 ) 154
(83 )
Net current period other comprehensive income (loss) $ 1,121
$ (237 ) $ 76
$ 960
Balance - September 30, 2016 $ 15,533
$ 3,616
$ (9,290 ) $ 9,859


	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Total			Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Unrealized Gains (Losses) on BOLI			Total
Balance - December 31, 2015	$	7,777		$	4,432		$	(5,957	)	$	6,252
Balance - December 31, 2016													$	(542	)	$	3,377		$	(5,179	)	$	(1,465	)	$	(3,809	)
Other comprehensive income (loss)	7,851			—			(3,766		)	4,085			3,637			—			(31		)	—			3,606
Amounts reclassified from accumulated other comprehensive income	(95		)	(816		)	433			(478		)	(313		)	(184		)	180			$	109		(208		)
Net current period other comprehensive income (loss)	7,756			(816		)	(3,333		)	3,607			3,324			(184		)	149			109			3,398
Balance - September 30, 2016	$	15,533		$	3,616		$	(9,290	)	$	9,859
Balance - March 31, 2017													$	2,782		$	3,193		$	(5,030	)	$	(1,356	)	$	(411	)

Reclassifications of unrealized gains (losses) on available for sale securities are reported on the Company’s Consolidated Statements of Income as “Gains on securities transactions, net” with the corresponding income tax effect being reflected as a component of income tax expense. The Company reported gains of ~~$184,000~~$213,000 and ~~$782,000~~$481,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and $0 and $145,000 for the three and nine months ended September 30, 2016,~~ respectively, related to the sale of securities. The tax effects of these transactions during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 were ~~$64,000~~$45,000 and ~~$274,000, respectively, and were $0 and $51,000 during the three and nine months ended September 30, 2016,~~$168,000, respectively, which amounts were included as a component of income tax expense.

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 securities included net pre-tax unrealized gains of $8.1 million at the date of transfer. Reclassifications of the unrealized gains on transferred securities are reported over time as accretion within interest income on the Company's Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense. The Company recorded accretion of ~~$251,000~~$379,000 and ~~$780,000~~$283,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and $365,000 and $1.3 million for the three and nine months ended September 30, 2016,~~ respectively. The tax effect of these transactions during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 were ~~$88,000~~$80,000 and ~~$273,000, respectively, and were $128,000 and $439,000 for the three and nine months ended September 30, 2016,~~$99,000, respectively, which were included as a component of income tax expense.

Reclassifications of the change in fair value of cash flow hedges are reported in interest income and interest expense on the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of

income tax expense. The Company reported net interest expense of ~~$291,000~~$315,000 and ~~$1.1 million~~$277,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and $237,000 and $666,000 for the three and nine months ended September 30, 2016,~~ respectively. The tax effects of these transactions during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 were ~~$102,000~~$66,000 and ~~$370,000,~~$97,000, respectively, ~~and were $83,000 and $233,000 during the three and nine months ended September 30, 2016,~~ which were included as a component of income tax expense.

Reclassifications of unrealized losses on BOLI are reported in salaries and benefits expense on the Company's Consolidated Statements of Income. The Company reported expenses of ~~$84,000~~$19,000 and ~~$278,000~~$109,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and $0 for the both three and nine months ended September 30, 2016.~~respectively.

10. FAIR VALUE MEASUREMENTS

The Company follows ASC 820, Fair Value Measurements and Disclosures, to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:



Level 1		Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2		Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.

Level 3		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Derivative instruments

As discussed in Note 78 “Derivatives”, the Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third party valuations are validated by the Company using Bloomberg Valuation Service’s derivative pricing functions. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

During the ordinary course of business, the Company enters into interest rate lock commitments related to the origination of mortgage loans held for sale, as well as best effort forward delivery commitments to mitigate interest rate risk; these instruments are recorded at estimated fair value based on the value of the underlying loan, which in turn is based on quoted prices for similar loans in the secondary market. This value, however, is adjusted by a pull-through rate, which considers the likelihood that the loan in a lock position will ultimately close. The pull-through rate is derived from the Company’s internal data and is adjusted using significant management judgment. The pull-through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. As such, interest rate lock commitments are classified as Level 3. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments, while a decrease in the pull-through rate will result in a negative fair value adjustment. The Company’s weighted average pull-through rate was approximately 80% as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. The interest rate lock commitments are recorded as a component of “Other Assets” on the Company’s Consolidated Balance Sheets.

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is ~~Interactive Data Corporation (“IDC”),~~IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.

The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

The carrying value of restricted Federal Reserve Bank and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table.

Loans held for sale

Loans held for sale are carried at fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded within the mortgage segment and are reported on a separate line item on the Company’s Consolidated Statements of Income.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	Fair Value Measurements at September 30, 2017 using								Fair Value Measurements at March 31, 2018 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
ASSETS
Securities available for sale:
Obligations of states and political subdivisions	$	—	$	292,199	$	—	$	292,199	$	—	$	364,639	$	—	$	364,639
Corporate and other bonds	—		115,422		—		115,422		—		123,140		—		123,140
Mortgage-backed securities	—		546,904		—		546,904		—		754,412		—		754,412
Other securities	—		13,836		—		13,836		—		10,988		—		10,988
Loans held for sale	—		30,896		—		30,896		—		27,727		—		27,727
Derivatives:
Interest rate swap	—		3,051		—		3,051		—		16,009		—		16,009
Cash flow hedges	—		120		—		120
Fair value hedges	—		1,253		—		1,253		—		3,468		—		3,468
Interest rate lock commitments	—		—		685		685		—		—		828		828
Best efforts forward delivery commitments	—		—		245		245

LIABILITIES
Derivatives:
Interest rate swap	$	—	$	3,051	$	—	$	3,051	$	—	$	16,009	$	—	$	16,009
Cash flow hedges	—		9,460		—		9,460		—		5,063		—		5,063
Fair value hedges	—		371		—		371
Best efforts forward delivery commitments									—		—		22		22



	Fair Value Measurements at December 31, 2017 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Securities available for sale:
Obligations of states and political subdivisions	$	—	$	301,824	$	—	$	301,824
Corporate and other bonds	—		113,880		—		113,880
Mortgage-backed securities	—		548,858		—		548,858
Other securities	—		9,660		—		9,660
Loans held for sale	—		40,662		—		40,662
Derivatives:
Interest rate swap	—		1,350		—		1,350
Cash flow hedges	—		49		—		49
Fair value hedges	—		1,598		—		1,598
Interest rate lock commitments	—		—		559		559
Best efforts forward delivery commitments	—		—		12		12

LIABILITIES
Derivatives:
Interest rate swap	$	—	$	1,350	$	—	$	1,350
Cash flow hedges	—		8,005		—		8,005
Fair value hedges	—		76		—		76

Fair Value Measurements at December 31, 2016 using

Quoted Prices in
Active Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Level 1 Level 2 Level 3 Balance
ASSETS

Securities available for sale:

Obligations of states and political subdivisions $ —
$ 275,890
$ —
$ 275,890
Corporate and other bonds —
121,780
—
121,780
Mortgage-backed securities —
535,286
—
535,286
Other securities —
13,808
—
13,808
Loans held for sale —
36,487
—
36,487
Derivatives:

Interest rate swap —
1,005
—
1,005
Cash flow hedges —
211
—
211
Fair value hedges —
1,437
—
1,437
Interest rate lock commitments —
—
610
610
Best efforts forward delivery commitments —
—
1,469
1,469

LIABILITIES

Derivatives:

Interest rate swap $ —
$ 1,005
$ —
$ 1,005
Cash flow hedges —
9,619
—
9,619
Fair value hedges —
296
—
296

Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is solely from the underlying value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. When evaluating the fair value, management may discount the appraisal further if, based on their understanding of the market conditions, it is determined the collateral is further impaired below the appraised value (Level 3). At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Level 3 weighted average adjustments related to impaired loans were ~~3.3%~~1.3% and ~~1.5%~~3.0%, respectively. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Collateral dependent impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Company’s Consolidated Statements of Income.

Other real estate owned

OREO is evaluated for impairment at least quarterly by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment and included as a component of noninterest expense. Fair values of OREO are carried at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When an appraised value is not available or management determines the

fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as Level 3 valuation. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Level 3 weighted average adjustments related to OREO were approximately ~~25.1%~~18.8% and ~~25.1%~~22.5%, respectively.

Total valuation expenses related to OREO properties for the three months ended ~~September 30,~~March 31, 2018 and 2017 totaled $759,000 and ~~2016 totaled $588,000 and $479,000, respectively. Total valuation expenses related to OREO properties for the nine months ended September 30, 2017 and 2016 totaled $845,000 and $879,000,~~$238,000, respectively.

The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 (dollars in thousands):


	Fair Value Measurements at September 30, 2017 using								Fair Value Measurements at March 31, 2018 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	—	$	—	$	7,143	$	7,143	$	—	$	—	$	2,685	$	2,685
Other real estate owned	—		—		8,764		8,764
OREO									—		—		10,099		10,099


	Fair Value Measurements at December 31, 2016 using								Fair Value Measurements at December 31, 2017 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	—	$	—	$	4,344	$	4,344	$	—	$	—	$	3,229	$	3,229
Other real estate owned	—		—		10,084		10,084
OREO									—		—		6,636		6,636

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and cash equivalents

For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Held to Maturity Securities

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

Loans

~~The~~With the adoption of ASU No. 2016-01 during the first quarter of 2018, the fair value of loans at March 31, 2018 were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the loans. At December 31, 2017, the fair value of performing loans iswere estimated by discounting expected future cash flows using a yield curve that is constructed by adding a loan spread to a market yield curve. Loan spreads are based on spreads currently observed in the market for loans of similar type and structure. Fair value for impaired loans and their respective level within the fair value hierarchy are described in the previous disclosure related to fair value measurements of assets that are measured on a nonrecurring basis.

Bank-owned life insurance

The carrying value of BOLI approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. ~~The~~With the adoption of ASU No. 2016-01 during the first quarter of 2018, the fair value of certificates of deposits at March 31, 2018 were valued using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period. At December 31, 2017, the fair value of certificates of deposit iswas estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Borrowings

The carrying value of the Company’s repurchase agreements is a reasonable estimate of fair value. With the adoption of ASU No. 2016-01 during the first quarter of 2018, subordinated debt and trust preferred cash flows at March 31, 2018 are forecasted at the stated coupon rate and discounted back to the measurement date using the prevailing market rate. The prevailing market rate is based on implied market yields for recently issued debt with similar durations by institutions of similar size. Other borrowings, including subordinated debt and trust preferred at December 31, 2017 are discounted using the current yield curve for the same type of borrowing. For borrowings with embedded optionality, a third party source is used to value the instrument. The Company validates all third party valuations for borrowings with optionality using Bloomberg Valuation Service’s derivative pricing functions.

Accrued interest

The carrying amounts of accrued interest approximate fair value.

The carrying values and estimated fair values of the Company’s financial instruments at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are as follows (dollars in thousands):


			Fair Value Measurements at September 30, 2017 using										Fair Value Measurements at March 31, 2018 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance		Carrying Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	176,961	$	176,961	$	—	$	—	$	176,961	$	342,463	$	342,463	$	—	$	—	$	342,463
Securities available for sale	968,361		—		968,361		—		968,361		1,253,179		—		1,253,179		—		1,253,179
Held to maturity securities	204,801		—		209,835		—		209,835		198,733		—		199,904		—		199,904
Restricted stock	68,441		—		68,441		—		68,441		105,261		—		105,261		—		105,261
Loans held for sale	30,896		—		30,896		—		30,896		27,727		—		27,727		—		27,727
Net loans	6,861,567		—		—		6,873,609		6,873,609		9,765,094		—		—		9,668,738		9,668,738
Derivatives:
Interest rate swap	3,051		—		3,051		—		3,051		16,009		—		16,009		—		16,009
Cash flow hedge	120		—		120		—		120
Fair value hedge	1,253		—		1,253		—		1,253		3,468		—		3,468		—		3,468
Interest rate lock commitments	685		—		—		685		685		828		—		—		828		828
Best efforts forward delivery commitments	245		—		—		245		245
Accrued interest receivable	25,279		—		25,279		—		25,279		35,329		—		35,329		—		35,329
Bank owned life insurance	181,451		—		181,451		—		181,451
BOLI											258,381		—		258,381		—		258,381

LIABILITIES
Deposits	$	6,881,826	$	—	$	6,873,124	$	—	$	6,873,124	$	9,677,955	$	—	$	9,698,797	$	—	$	9,698,797
Borrowings	1,052,087		—		1,031,983		—		1,031,983		1,535,026		—		1,521,524		—		1,521,524
Accrued interest payable	4,372		—		4,372		—		4,372		5,638		—		5,638		—		5,638
Derivatives:
Interest rate swap	3,051		—		3,051		—		3,051		16,009		—		16,009		—		16,009
Cash flow hedges	9,460		—		9,460		—		9,460		5,063		—		5,063		—		5,063
Fair value hedges	371		—		371		—		371
Best efforts forward delivery commitments											22		—		—		22		22


			Fair Value Measurements at December 31, 2016 using										Fair Value Measurements at December 31, 2017 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance		Carrying Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	179,237	$	179,237	$	—	$	—	$	179,237	$	199,373	$	199,373	$	—	$	—	$	199,373
Securities available for sale	946,764		—		946,764		—		946,764		974,222		—		974,222		—		974,222
Held to maturity securities	201,526		—		202,315		—		202,315		199,639		—		203,483		—		203,483
Restricted stock	60,782		—		60,782		—		60,782		75,283		—		75,283		—		75,283
Loans held for sale	36,487		—		36,487		—		36,487		40,662		—		40,662		—		40,662
Net loans	6,269,868		—		—		6,265,443		6,265,443		7,103,344		—		—		7,117,593		7,117,593
Derivatives:
Interest rate swap	1,005		—		1,005		—		1,005		1,350		—		1,350		—		1,350
Cash flow hedges	211		—		211		—		211		49		—		49		—		49
Fair value hedges	1,437		—		1,437		—		1,437		1,598		—		1,598		—		1,598
Interest rate lock commitments	610		—		—		610		610		559		—		—		559		559
Best efforts forward delivery commitments	1,469		—		—		1,469		1,469		12		—		—		12		12
Accrued interest receivable	23,448		—		23,448		—		23,448		26,427		—		26,427		—		26,427
Bank owned life insurance	179,318		—		179,318		—		179,318
BOLI											182,854		—		182,854		—		182,854

LIABILITIES
Deposits	$	6,379,489	$	—	$	6,370,457	$	—	$	6,370,457	$	6,991,718	$	—	$	6,977,845	$	—	$	6,977,845
Borrowings	990,089		—		970,195		—		970,195		1,219,414		—		1,198,645		—		1,198,645
Accrued interest payable	2,320		—		2,230		—		2,230		2,538		—		2,538		—		2,538
Derivatives:
Interest rate swap	1,005		—		1,005		—		1,005		1,350		—		1,350		—		1,350
Cash flow hedges	9,619		—		9,619		—		9,619		8,005		—		8,005		—		8,005
Fair value hedges	296		—		296		—		296		76		—		76		—		76

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Borrowers with fixed rate obligations, however, are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

~~10.~~11. REVENUE

On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” (“Topic 606” or the “Standard”), and all subsequent amendments to the ASU. Using Topic 606 guidelines and other authoritative guidance, the Company concluded that the Standard applies to noninterest income excluding out of scope revenue such as mortgage banking income, gains on securities transactions, and trading revenue (i.e., derivatives). Additionally, the reporting Standard only applies to the community bank segment.

Public entities are required to disclose (1) revenue disaggregated into categories that show how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors; (2) contract balances; (3) a description of when performance obligations are satisfied and (4) significant judgments made in evaluating when a customer obtains control of promised goods or services for performance obligations satisfied at a point in time.

The majority of the Company’s noninterest income comes from short term contracts associated with fees for services provided on deposit accounts, credit cards, and wealth management accounts and is being accounted for in accordance with Topic 606. Typically the duration of a contract does not extend beyond the services performed; therefore the Company concluded that discussion regarding contract balances is immaterial. Additionally, due to the short duration of most customer contracts the revenue from which constitutes noninterest income, the Company will not need to make many judgments that would affect the amount and timing of revenue.

The Company’s performance obligations on revenue from interchange fees and deposit accounts are generally satisfied immediately, when the transaction occurs or by month-end. Performance obligations on revenue from fiduciary and asset management fees are generally satisfied monthly or quarterly. For a majority of fee income on deposit accounts the Company is a principal controlling the promised good or service before transferring it to the customer. However, for income related to most wealth management income, the Company is an agent responsible for arranging for the provision of goods and services by another party.

Noninterest income disaggregated by major source, for the three months ended March 31, 2018 and 2017, consisted of the following (dollars in thousands):



	Three Months Ended
	March 31, 2018		March 31, 2017
Noninterest income:
Deposit Service Charges ⁽¹⁾:
Overdraft fees, net	$	4,820	$	3,731
Maintenance fees & other	1,074		785
Other service charges and fees ⁽¹⁾	1,233		1,139
Interchange fees, net ⁽¹⁾	4,489		3,582
Fiduciary and asset management fees ⁽¹⁾:
Trust asset management fees	1,345		1,268
Registered advisor management fees, net	720		670
Brokerage management fees, net	991		856
Mortgage banking income, net	2,041		2,025
Gains on securities transactions, net	213		481
Bank owned life insurance income	1,667		2,125
Loan-related interest rate swap fees	718		1,180
Other operating income ⁽²⁾	2,998		997
Total noninterest income	$	22,309	$	18,839

(1) Income within scope of ASC 606.

(2) Income within the scope of ASC 606 of $707,000 and $561,000 for the three months ended, March 31, 2018 and 2017, respectively. The remaining balancing is outside the scope of ASC 606.

12. EARNINGS PER SHARE

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock ~~awards.~~awards and warrants.

The following is a reconciliation of the denominators of the basic and diluted EPS computations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (dollars in thousands except per share data):


	Net Income Available to Common Stockholders (Numerator)		Weighted Average Common Shares (Denominator)	Per Share Amount		Net Income Available to Common Stockholders (Numerator)		Weighted Average Common Shares (Denominator)	Per Share Amount
Three months ended September 30, 2017
Three months ended March 31, 2018
Basic						$	16,639	65,555	$	0.25
Effect of dilutive stock awards and warrants						—		81	—
Diluted						$	16,639	65,636	$	0.25
Three months ended March 31, 2017
Basic	20,658		43,707	$	0.47	$	19,124	43,654	$	0.44
Add: potentially dilutive common shares - stock awards	—		85	—		—		72	—
Diluted	$	20,658	43,792	$	0.47	$	19,124	43,726	$	0.44
Three months ended September 30, 2016
Basic	20,401		43,566	$	0.47
Add: potentially dilutive common shares - stock awards	—		189	—
Diluted	$	20,401	43,755	$	0.47
Nine months ended September 30, 2017
Basic	57,737		43,685	$	1.32
Add: potentially dilutive common shares - stock awards	—		83	—
Diluted	$	57,737	43,768	$	1.32
Nine months ended September 30, 2016
Basic	56,699		43,854	$	1.29
Add: potentially dilutive common shares - stock awards	—		114	—
Diluted	$	56,699	43,968	$	1.29

~~11.~~13. SEGMENT REPORTING DISCLOSURES

The Company has two reportable segments: a traditional full service community bank segment and a mortgage loan origination business segment. The community bank segment includes one subsidiary bank, the Bank, which provides loan, deposit, investment, and trust services to retail and commercial customers throughout its ~~111~~150 retail locations throughout Virginia and in ~~Virginia~~portions of Maryland and North Carolina as of ~~September 30, 2017.~~March 31, 2018. The mortgage segment includes UMG, which provides a variety of mortgage loan products principally in Virginia, North Carolina, Maryland, and the Washington D.C. metro area. These loans are originated and sold primarily in the secondary market through purchase commitments from investors, which serves to mitigate the Company’s exposure to interest rate risk.

Profit and loss is measured by net income after taxes including realized gains and losses on the Company’s investment portfolio. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process.

Both of the Company’s reportable segments are service-based. The mortgage segment's business is a primarily fee-based business, while the community bank segment is driven principally by net interest income. The community bank segment provides a distribution and referral network through its customers for the mortgage loan origination business. The mortgage segment offers a more limited referral network for the bank segment.

The community bank segment provides the mortgage segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest. The interest rate on the warehouse line of credit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was the three month LIBOR rate plus 0.15% with no floor. These transactions are eliminated in the consolidation process.

A management fee for operations and administrative support services is charged to all subsidiaries and eliminated in the consolidated totals.

Information about reportable segments and reconciliation of such information to the consolidated financial statements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is as follows (dollars in thousands):

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION


	Community Bank		Mortgage			Eliminations			Consolidated		Community Bank		Mortgage			Eliminations			Consolidated
Three Months Ended September 30, 2017
Three Months Ended March 31, 2018
Net interest income	$	70,718	$	480		$	—		$	71,198	$	103,314	$	433		$	—		$	103,747
Provision for credit losses	3,056		(6		)	—			3,050		3,524		(24		)	—			3,500
Net interest income after provision for credit losses	67,662		486			—			68,148		99,790		457			—			100,247
Noninterest income	15,121		2,527			(112		)	17,536		20,157		2,278			(126		)	22,309
Noninterest expenses	55,133		2,475			(112		)	57,496		101,669		2,465			(126		)	104,008
Income before income taxes	27,650		538			—			28,188		18,278		270			—			18,548
Income tax expense	7,339		191			—			7,530		1,847		62			—			1,909
Net income	$	20,311	$	347		$	—		$	20,658	$	16,431	$	208		$	—		$	16,639
Total assets	$	9,020,486	$	97,154		$	(88,204	)	$	9,029,436	$	13,140,316	$	100,587		$	(91,611	)	$	13,149,292

Three Months Ended September 30, 2016
Three Months Ended March 31, 2017
Net interest income	$	66,605	$	423		$	—		$	67,028	$	66,234	$	333		$	—		$	66,567
Provision for credit losses	2,455		17			—			2,472		2,104		18			—			2,122
Net interest income after provision for credit losses	64,150		406			—			64,556		64,130		315			—			64,445
Noninterest income	15,589		3,501			(140		)	18,950		16,757		2,223			(141		)	18,839
Noninterest expenses	54,353		2,700			(140		)	56,913		55,014		2,522			(141		)	57,395
Income before income taxes	25,386		1,207			—			26,593		25,873		16			—			25,889
Income tax expense	5,770		422			—			6,192		6,753		12			—			6,765
Net income	$	19,616	$	785		$	—		$	20,401	$	19,120	$	4		$	—		$	19,124
Total assets	$	8,251,351	$	90,692		$	(83,813	)	$	8,258,230	$	8,660,987	$	76,818		$	(67,885	)	$	8,669,920

Nine Months Ended September 30, 2017
Net interest income	$	205,534	$	1,231		$	—		$	206,765
Provision for credit losses	7,344		1			—			7,345
Net interest income after provision for credit losses	198,190		1,230			—			199,420
Noninterest income	47,080		7,743			(393		)	54,430
Noninterest expenses	167,643		7,571			(393		)	174,821
Income before income taxes	77,627		1,402			—			79,029
Income tax expense	20,791		501			—			21,292
Net income	$	56,836	$	901		$	—		$	57,737
Total assets	$	9,020,486	$	97,154		$	(88,204	)	$	9,029,436

Nine Months Ended September 30, 2016
Net interest income	$	195,508	$	1,027		$	—		$	196,535
Provision for credit losses	7,215		161			—			7,376
Net interest income after provision for credit losses	188,293		866			—			189,159
Noninterest income	44,137		9,185			(465		)	52,857
Noninterest expenses	158,964		7,937			(465		)	166,436
Income before income taxes	73,466		2,114			—			75,580
Income tax expense	18,145		736			—			18,881
Net income	$	55,321	$	1,378		$	—		$	56,699
Total assets	$	8,251,351	$	90,692		$	(83,813	)	$	8,258,230

14. SUBSEQUENT EVENTS

On April 1, 2018, the Bank completed its acquisition of DHFB, a Roanoke, Virginia based investment advisory firm with approximately $600 million in assets under management and advisement. DHFB will operate as a subsidiary of the Bank.

On April 12, 2018, the Bank announced its subsidiary ODCM entered into an agreement to acquire Outfitter Advisors, Inc., a McLean, Virginia based registered investment advisory firm with approximately $400 million in assets under management and advisement.

Review Report of Independent Registered Public Accounting Firm

~~The~~To the Stockholders and Board of Directors of Union Bankshares Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Union Bankshares Corporation (the “Company”) as of ~~September 30, 2017,~~March 31, 2018, and the related consolidated statements of income, ~~and~~ comprehensive income, ~~for the three and nine-month periods ended September 30, 2017 and 2016, and the consolidated statements of~~ changes in stockholders’ equity and cash flows for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2018 and 2017, and ~~2016. These~~the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements ~~are the responsibility of the Company's management.~~for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States).(PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 27, 2018, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the

standards of the PCAOB. A review of interim financial ~~information~~statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the

financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, not presented herein, and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 28, 2017. In our opinion, the accompanying consolidated balance sheet of the Company as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~/s/~~ Ernst & Young LLP

Richmond, Virginia

~~November 7, 2017~~May 9, 2018

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Union Bankshares Corporation and its subsidiaries (collectively, the “Company”). This discussion and analysis should be read with the consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s ~~2016~~2017 Form 10-K, including management’s discussion and analysis. Highlighted in the discussion are material changes from prior reporting periods and any identifiable trends affecting the Company. Results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes; however, some of the percentages presented are computed based on unrounded amounts.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact, are based on certain assumptions as of the time they are made, and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance, or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of or changes in:

the possibility that any of the anticipated benefits of the acquisition of Xenith ~~pursuant to a definitive merger agreement between the Company and Xenith, dated as of May 19, 2017 (the “Pending Merger”) with Xenith~~ will not be realized or will not be realized within the expected time period, the businesses of the Company and Xenith may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, the expected revenue synergies and cost savings from the ~~Pending Merger~~acquisition may not be fully realized or realized within the expected time frame, revenues following the ~~Pending Merger~~acquisition may be lower than expected, or customer and employee relationships and business operations may be disrupted by the ~~Pending Merger, or completing the Pending Merger on the expected timeframe, may be more difficult, time-consuming or costly than expected,~~acquisition,

changes in interest rates,

general economic and financial market conditions,

the Company’s ability to manage its growth or implement its growth strategy,

the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets,

levels of unemployment in the Bank’s lending area,

real estate values in the Bank’s lending area,

an insufficient ~~ALL,~~allowance for loan losses,

the quality or composition of the loan or investment portfolios,

concentrations of loans secured by real estate, particularly commercial real estate,

the effectiveness of the Company’s credit processes and management of the Company’s credit risk,

demand for loan products and financial services in the Company’s market area,

the Company’s ability to compete in the market for financial services,

technological risks and developments, and cyber attacks or events,

performance by the Company’s counterparties or vendors,

deposit flows,

the availability of financing and the terms thereof,

the level of prepayments on loans and mortgage-backed securities,

legislative or regulatory changes and requirements,

the impact of the Tax Act, including, but not limited to, the effect of the lower corporate tax rate, including on the valuation of the Company's tax assets and liabilities,

any future refinements to the Company's preliminary analysis of the impact of the Tax Act on the Company,

changes in the effect of the Tax Act due to issuance of interpretive regulatory guidance or enactment of corrective or supplement legislation,

monetary and fiscal policies of the U.S. government including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System, and

accounting principles and guidelines.

More information on risk factors that could affect the Company’s forward-looking statements is available on the Company’s website, http://investors.bankatunion.com, or the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, this Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017,~~March 31, 2018, and other reports filed with the ~~SEC, including without limitation the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.~~SEC. The information on the Company’s website is not a part of this Form 10-Q. All risk factors and uncertainties described in those documents should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors.

The critical accounting and reporting policies include the Company’s accounting for the allowance for loan losses, acquired loans, and goodwill and intangible assets. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 "Financial Statements and Supplementary Data" of the Company’s ~~2016~~2017 Form 10-K.

The Company provides additional information on its critical accounting policies and estimates listed above under “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in its ~~2016~~2017 Form 10-K.

ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation ~~is the largest community banking organization headquartered in Virginia and operates in all major banking markets of the Commonwealth. Union Bankshares Corporation~~(NASDAQ: UBSH) is the holding company for Union Bank & Trust, which ~~provides banking, trust, and wealth management services and~~ has 150 branches, 39 of which are operated as Xenith Bank, a ~~statewide presence~~division of ~~111 bank branches~~Union Bank & Trust of Richmond, Virginia, and approximately ~~173 ATMs.~~216 ATMs located throughout Virginia and in portions of Maryland and North Carolina. Union Bank & Trust also operates Shore Premier Finance, a specialty marine lender. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage ~~products;~~products, Old Dominion Capital Management, Inc. and Dixon, Hubard, Feinour, & Brown, Inc., which both provide investment advisory services, and Union Insurance Group, LLC, which offers various lines of insurance ~~products; and Old Dominion Capital Management, Inc., which provides investment advisory services.~~products.

Shares of the Company’s common stock are traded on the NASDAQ Global Select Market under the symbol UBSH. Additional information is available on the Company’s website at http://investors.bankatunion.com. The information contained on the Company’s website is not a part of or incorporated into this report.

RESULTS OF OPERATIONS

Executive Overview

~~For~~

On January 1, 2018, the Company completed the acquisition of Xenith, a bank holding company based in Richmond, Virginia. The Company's first quarter ~~ended September 30, 2017,~~results for 2018 include the financial results of Xenith.

Net Income & Performance Metrics

The Company reported net income of ~~$20.7~~$16.6 million and earnings per share of ~~$0.47. Excluding after-tax merger-related costs of $661,000, net operating earnings~~⁽¹⁾ ~~were $21.3 million and operating earnings per share~~⁽¹⁾ ~~were $0.49~~$0.25 for the ~~third~~ quarter of 2017. The Company's net operating earnings and operating earnings per share for the third quarter of 2017 represent an increase of $918,000, or 4.5%, over net income and an increase of $0.02, or 4.3%, over earnings per share, in each caseended March 31, 2018 compared to the third quarter of 2016. These increases are primarily attributable to increases in net interest income, driven by higher average loan balances partially offset by the impact of the decline in net interest margin.

~~For the nine months ended September 30, 2017, the Company reported~~ net income of ~~$57.7~~$19.1 million and earnings per share of ~~$1.32. Excluding after-tax merger-related costs of $3.0 million, net operating earnings~~⁽¹⁾ ~~were $60.8 million and operating earnings per share~~⁽¹⁾ ~~were $1.39~~$0.44 for the ~~first nine months of~~quarter ended March 31, 2017. The Company's net operating earnings and operating earnings per share for the first nine months of 2017 represent an increase of $4.1 million, or 7.2%, over net income and an increase of $0.10, or 7.8%, over earnings per share, in each case compared to the first nine months of 2016. These increases are primarily attributable to increases in net interest income, driven by higher average loan balances, as well as higher overall noninterest income.

~~Select highlights for the third quarter of 2017 include:~~

The Company entered into a definitive merger agreement during the second quarter of 2017 to acquire Xenith in the Pending Merger, which is expected to close in early January 2018. On October 17, 2017, the Company and Xenith

jointly announced the receipt of regulatory approval from the Federal Reserve Bank and from the Virginia State Corporation Commission to move forward with the Pending Merger. On October 26, 2017, the Company and Xenith jointly announced that stockholders of both Union and Xenith, at separate special meetings, approved the Pending Merger of Xenith with and into Union.


•	~~Net income~~The Company's net operating earnings⁽¹⁾, which excluded after-tax merger-related costs of $22.2 million, were $38.9 million and operating earnings per share⁽¹⁾ were $0.59 for the quarter ended March 31, 2018.


•	ROA was 0.52% for the first quarter of 2018 compared to 0.92% for the first quarter of 2017; operating ROA⁽¹⁾ was 1.21% for the first quarter of 2018.


•	ROE was 3.70% for the first quarter of 2018 compared to 7.68% for the first quarter of 2017; operating ROE⁽¹⁾ was 8.64% for the first quarter of 2018.


•	ROTCE⁽¹⁾ was 6.43% for the first quarter of 2018 compared to 11.20% for the first quarter of 2017; operating ROTCE⁽¹⁾ was 15.03% for the first quarter of 2018.

Segment Results

•

The Company's community bank segment ~~was $20.3~~reported net income of $16.4 million, or ~~$0.46~~$0.25 per share, for the ~~third~~first quarter of ~~2017~~2018 compared to ~~$19.6~~$19.1 million, or ~~$0.45~~$0.44 per share, for the ~~third~~first quarter of ~~2016.~~2017. Net operating earnings⁽¹⁾ for the community bank segment were ~~$21.0~~$38.7 million, or ~~$0.48~~$0.59 per share, for the ~~third~~first quarter of ~~2017.~~


•	Net income for the community bank segment was $56.8 million, or $1.30 per share, for the nine months ended September 30, 2017 compared to $55.3 million, or $1.26 per share, for the nine months ended September 30, 2016. Net operating earnings⁽¹⁾ ~~for the community bank segment were $59.9 million, or $1.37 per share, for the nine months ended September 30, 2017.~~2018.

The Company's mortgage segment reported net income of ~~$347,000~~$208,000 for the ~~third~~first quarter of ~~2017~~2018 compared to ~~net income of $785,000 in~~$4,000 for the ~~third~~first quarter of ~~2016. The mortgage segment reported net income of $901,000 for the nine months ended September 30, 2017 compared to $1.4 million for the nine months ended September 30, 2016.~~2017.

•

~~ROA was 0.91% for the quarter ended September 30, 2017 compared to 1.00% for the third quarter of 2016. Operating ROA~~⁽¹⁾ ~~for the quarter ended September 30, 2017 was 0.94%. ROA was 0.88% for the nine months ended September 30, 2017 compared to 0.95% for the nine months ended September 30, 2016. Operating ROA~~⁽¹⁾ ~~for the nine months ended September 30, 2017 was 0.93%.~~

Balance Sheet


•	~~ROE was 7.90% for the quarter ended September 30, 2017 compared to 8.14% for the third quarter of 2016. Operating ROE~~⁽¹⁾ ~~for the quarter ended September 30, 2017 was 8.15%. ROE was 7.53% for the nine months ended September 30, 2017 compared to 7.64% for the nine months ended September 30, 2016. Operating ROE~~⁽¹⁾ ~~for the nine months ended September 30, 2017 was 7.93%.~~

•

~~ROTCE was 11.34% for the quarter ended September 30, 2017 compared to 12.00% for the third quarter of 2016. Operating ROTCE~~⁽¹⁾ ~~for the quarter ended September 30, 2017 was 11.70%. ROTCE was 10.90% for the nine months ended September 30, 2017 compared to 11.25% for the nine months ended September 30, 2016. Operating ROTCE~~⁽¹⁾ ~~for the nine months ended September 30, 2017 was 11.47%.~~

Loans held for investment, ~~grew $591.7 million,~~net of deferred fees and costs, were $9.8 billion at March 31, 2018, an increase of $2.7 billion, or ~~12.5% (annualized)~~37.3%, from December 31, ~~2016. Quarterly average~~2017. On a pro forma basis, including Xenith loans, loans held for investment ~~increased $788.8~~grew $205.2 million, or ~~13.1%~~8.7% (annualized), ~~compared to the quarter ended September 30, 2016.~~from January 1, 2018.

~~Deposits grew $502.3 million,~~Total deposits were $9.7 billion at March 31, 2018, an increase of $2.7 billion, or ~~10.5% (annualized)~~38.4%, from December 31, ~~2016. Quarterly average~~2017. On a pro forma basis, including Xenith deposits, ~~increased $592.9~~deposits grew $136.6 million, or ~~9.6%, compared to the quarter ended September 30, 2016.~~5.8% (annualized) from January 1, 2018.

(1)For a reconciliation of the non-GAAP financial measures, including the non-GAAP operating measures that exclude merger-related costs unrelated to the ~~Company’s~~Company's normal operations, refer to “Non-GAAP Measures” section within this Item 2 of this Form 10-Q. Such costs were ~~only~~not incurred during the ~~second and third~~first quarter of 2017; thus each of these operating measures is equivalent to the corresponding GAAP financial measure for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2017.

Net Interest Income


	For the Three Months Ended September 30,										For the Three Months Ended March 31,
	2017			2016			Change				2018			2017			Change
	(Dollars in thousands)										(Dollars in thousands)
Average interest-earning assets	$	8,167,919		$	7,354,684		$	813,235			$	11,475,099		$	7,660,937		$	3,814,162
Interest income	$	84,850		$	74,433		$	10,417			$	124,654		$	76,640		$	48,014
Interest income (FTE) ⁽¹⁾	$	87,498		$	76,860		$	10,638			$	126,217		$	79,180		$	47,037
Yield on interest-earning assets	4.12		%	4.03		%	9			bps	4.41		%	4.05		%	36		bps
Yield on interest-earning assets (FTE) ⁽¹⁾	4.25		%	4.16		%	9			bps	4.46		%	4.19		%	27		bps
Average interest-bearing liabilities	$	6,382,452		$	5,681,102		$	701,350			$	9,104,584		$	5,999,960		$	3,104,624
Interest expense	$	13,652		$	7,405		$	6,247			$	20,907		$	10,073		$	10,834
Cost of interest-bearing liabilities	0.85		%	0.52		%	33			bps	0.93		%	0.68		%	25		bps
Cost of funds	0.66		%	0.40		%	26			bps	0.74		%	0.53		%	21		bps
Net interest income	$	71,198		$	67,028		$	4,170			$	103,747		$	66,567		$	37,180
Net interest income (FTE) ⁽¹⁾	$	73,846		$	69,455		$	4,391			$	105,310		$	69,107		$	36,203
Net interest margin	3.46		%	3.63		%	(17		)	bps	3.67		%	3.52		%	15		bps
Net interest margin (FTE) ⁽¹⁾	3.59		%	3.76		%	(17		)	bps	3.72		%	3.66		%	6		bps

(1) Refer to the “Non-GAAP Measures” section within this Item 2 of this Form 10-Q for more information about this non-GAAP financial measure.

For the ~~third~~first quarter of ~~2017,~~2018, net interest income was ~~$71.2~~$103.7 million, an increase of ~~$4.2~~$37.2 million from the ~~third~~first quarter of ~~2016.~~2017. For the ~~third~~first quarter of ~~2017,~~2018, tax-equivalent net interest income was ~~$73.8~~$105.3 million, an increase of ~~$4.4~~$36.2 million from the ~~third~~first quarter of ~~2016.~~2017. The increases in both net interest income and tax-equivalent net interest income were primarily ~~driven by higher~~the result of a $3.8 billion increase in average ~~loan balances.~~interest-earning assets and a $3.1 billion increase in average interest-bearing liabilities from the full quarter impact of the Xenith acquisition. Net accretion related to acquisition accounting increased ~~$190,000~~$4.1 million from the ~~third~~first quarter of ~~2016~~2017 to ~~$1.7~~$5.6 million in the ~~third~~first quarter of ~~2017.~~2018. In the ~~third~~first quarter of ~~2017, both~~2018, net interest margin increased 15 basis points to 3.67% from 3.52% in the first quarter of 2017, and tax-equivalent net interest margin ~~decreased 17~~increased 6 basis points compared to the ~~third~~first quarter of ~~2016.~~2017. The net ~~decreases~~increases in net interest margin and tax-equivalent net interest margin measures were primarily driven by an increase in the ~~26 basis point~~yield on earnings assets, partially offset by a smaller increase in cost of funds, offset by the 9 basis point increase in interest-earning asset yields. The increase in the cost of funds was primarily attributable to subordinated debt that the Company issued in the fourth quarter of 2016 as well as increased interest-bearing deposit and short-term borrowing rates.

For the Nine Months Ended
September 30,
2017 2016 Change
(Dollars in thousands)
Average interest-earning assets $ 7,922,944
$ 7,159,813
$ 763,131

Interest income $ 242,712
$ 217,964
$ 24,748

Interest income (FTE) ⁽¹⁾
$ 250,548
$ 225,331
$ 25,217

Yield on interest-earning assets 4.10 % 4.07 % 3
bps
Yield on interest-earning assets (FTE) ⁽¹⁾
4.23 % 4.20 % 3
bps
Average interest-bearing liabilities $ 6,196,663
$ 5,528,833
$ 667,830

Interest expense $ 35,947
$ 21,429
$ 14,518

Cost of interest-bearing liabilities 0.78 % 0.52 % 26
bps
Cost of funds 0.61 % 0.40 % 21
bps
Net interest income $ 206,765
$ 196,535
$ 10,230

Net interest income (FTE) ⁽¹⁾
$ 214,601
$ 203,902
$ 10,699

Net interest margin 3.49 % 3.67 % (18 ) bps
Net interest margin (FTE) ⁽¹⁾
3.62 % 3.80 % (18 ) bps

~~(1)~~ funds.~~Refer to the “Non-GAAP Measures” section within this Item 2 of this Form 10-Q for more information about this non-GAAP financial measure.~~

For the first nine months of 2017, net interest income was $206.8 million, an increase of $10.2 million from the first nine months of 2016. For the first nine months of 2017, tax-equivalent net interest income was $214.6 million, an increase of $10.7 million from the first nine months of 2016. The increases in both net interest income and tax-equivalent net interest income were primarily driven by higher average loan balances. Net accretion related to acquisition accounting increased $752,000 from the first nine months of 2016 to $4.8 million in the first nine months of 2017. In the first nine months of 2017, both net interest margin and tax-equivalent net interest margin decreased 18 basis points compared the first nine months of 2016. The net decreases in net interest margin and tax-equivalent net interest margin measures were driven by the 21 basis point increase in cost of funds, offset by the 3 basis point increase in interest-earning asset yields. The increase in the cost of funds was primarily attributable to subordinated debt that the Company issued in the fourth quarter of 2016 as well as increased interest-bearing deposit and short-term borrowing rates.

The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated:

AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)


	For the Three Months Ended September 30,														For the Three Months Ended March 31,
	2017							2016							2018							2017
	Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾
	(Dollars in thousands)														(Dollars in thousands)
Assets:
Securities:
Taxable	$	774,513		$	5,175	2.65	%	$	768,608		$	4,732	2.45	%	$	1,020,691		$	7,072	2.81	%	$	746,359		$	4,923	2.68	%
Tax-exempt	469,391			5,455		4.61	%	449,944			5,302		4.69	%	546,578			5,073		3.76	%	461,409			5,480		4.82	%
Total securities	1,243,904			10,630		3.39	%	1,218,552			10,034		3.28	%	1,567,269			12,145		3.14	%	1,207,768			10,403		3.49	%
Loans, net ^{(3) (4)}	6,822,498			76,333		4.44	%	6,033,723			66,397		4.38	%	9,680,195			113,135		4.74	%	6,383,905			68,503		4.35	%
Other earning assets	101,517			535		2.09	%	102,409			429		1.67	%	227,635			937		1.67	%	69,264			274		4.60	%
Total earning assets	8,167,919			$	87,498	4.25	%	7,354,684			$	76,860	4.16	%	11,475,099			$	126,217	4.46	%	7,660,937			$	79,180	4.19	%
Allowance for loan losses	(38,138		)					(35,995		)					(39,847		)					(37,898		)
Total non-earning assets	844,183							835,262							1,584,320							842,478
Total assets	$	8,973,964						$	8,153,951						$	13,019,572						$	8,465,517
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	3,457,279		$	3,491	0.40	%	$	3,016,337		$	1,682	0.22	%	$	4,759,523		$	5,555	0.47	%	$	3,205,692		$	1,969	0.25	%
Regular savings	555,153			151		0.11	%	598,232			207		0.14	%	644,440			212		0.13	%	596,559			191		0.13	%
Time deposits(5)	1,289,794			3,592		1.10	%	1,181,936			2,663		0.90	%	2,085,930			5,445		1.06	%	1,211,064			2,917		0.98	%
Total interest-bearing deposits	5,302,226			7,234		0.54	%	4,796,505			4,552		0.38	%	7,489,893			11,212		0.61	%	5,013,315			5,077		0.41	%
Other borrowings ⁽⁵⁾⁽⁶⁾	1,080,226			6,418		2.36	%	884,597			2,853		1.28	%	1,614,691			9,695		2.44	%	986,645			4,996		2.05	%
Total interest-bearing liabilities	6,382,452			$	13,652	0.85	%	5,681,102			$	7,405	0.52	%	9,104,584			$	20,907	0.93	%	5,999,960			$	10,073	0.68	%
Noninterest-bearing liabilities:
Demand deposits	1,495,614							1,408,453							1,973,804							1,393,966
Other liabilities	58,106							67,728							116,596							61,273
Total liabilities	7,936,172							7,157,283							11,194,984							7,455,199
Stockholders' equity	1,037,792							996,668							1,824,588							1,010,318
Total liabilities and stockholders' equity	$	8,973,964						$	8,153,951						$	13,019,572						$	8,465,517
Net interest income				$	73,846						$	69,455						$	105,310						$	69,107
Interest rate spread						3.40	%						3.64	%						3.53	%						3.51	%
Cost of funds						0.66	%						0.40	%						0.74	%						0.53	%
Net interest margin(6)						3.59	%						3.76	%						3.72	%						3.66	%

(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21% for the three months ended March 31, 2018 and 35%. for the three months ended March 31, 2017.

(2) Rates and yields are annualized and calculated from actual, not rounded, amounts in thousands, which appear above.

(3) Nonaccrual loans are included in average loans outstanding.

(4) Interest income on loans includes ~~$1.7~~$4.8 million and ~~$1.3~~$1.4 million for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, in accretion of the fair market value adjustments related to acquisitions.

(5)Interest expense on ~~borrowings~~time deposits includes ~~$47,000~~$832,000 and ~~$181,000~~$0 for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, in accretion of the fair market value adjustments related to acquisitions.

~~AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)~~

For the Nine Months Ended September 30,
2017 2016
Average
Balance
Interest
Income /
Expense ⁽¹⁾

Yield /
Rate ⁽¹⁾⁽²⁾
Average
Balance
Interest
Income /
Expense ⁽¹⁾

Yield /
Rate ⁽¹⁾⁽²⁾
(Dollars in thousands)
Assets:

Securities:

Taxable $ 763,276
$ 15,081
2.64 % $ 756,042
$ 13,558
2.40 %
Tax-exempt 463,944
16,338
4.71 % 446,840
15,914
4.76 %
Total securities 1,227,220
31,419
3.42 % 1,202,882
29,472
3.27 %
Loans, net ^{(3) (4)}
6,613,078
217,910
4.41 % 5,869,511
194,839
4.43 %
Other earning assets 82,646
1,219
1.97 % 87,420
1,020
1.56 %
Total earning assets 7,922,944
$ 250,548
4.23 % 7,159,813
$ 225,331
4.20 %
Allowance for loan losses (38,205 )

(35,439 )

Total non-earning assets 846,076

832,467

Total assets $ 8,730,815

$ 7,956,841

Liabilities and Stockholders' Equity:

Interest-bearing deposits:

Transaction and money market accounts $ 3,344,248
$ 8,189
0.33 % $ 2,903,336
$ 4,523
0.21 %
Regular savings 571,735
493
0.12 % 591,699
649
0.15 %
Time deposits 1,250,180
9,728
1.04 % 1,172,856
7,773
0.89 %
Total interest-bearing deposits 5,166,163
18,410
0.48 % 4,667,891
12,945
0.37 %
Other borrowings ⁽⁵⁾
1,030,500
17,537
2.28 % 860,942
8,484
1.32 %
Total interest-bearing liabilities 6,196,663
$ 35,947
0.78 % 5,528,833
$ 21,429
0.52 %
Noninterest-bearing liabilities:

Demand deposits 1,449,555

1,376,001

Other liabilities 59,744

60,910

Total liabilities 7,705,962

6,965,744

Stockholders' equity 1,024,853

991,097

Total liabilities and stockholders' equity $ 8,730,815

$ 7,956,841

Net interest income
$ 214,601

$ 203,902

Interest rate spread

3.45 %

3.68 %
Cost of funds

0.61 %

0.40 %
Net interest margin

3.62 %

3.80 %

~~(1)~~ (6)~~Income~~ Interest expense on borrowings includes $98,000 and ~~yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.~~

~~(2)~~ ~~Rates and yields are annualized and calculated from actual, not rounded, amounts in thousands, which appear above.~~

~~(3)~~ ~~Nonaccrual loans are included in average loans outstanding.~~

~~(4)~~ ~~Interest income on loans includes $4.7 million and $3.7 million~~($48,000) for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, in ~~accretion~~amortization (accretion) of the fair market value adjustments related to acquisitions.

~~(5)~~ Interest expense on borrowings includes $142,000 and $386,000 for the nine months ended September 30, 2017 and 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.

The Volume Rate Analysis table below presents changes in interest income and interest expense and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate). Changes attributable to both volume and rate have been allocated proportionally. Results, on a taxable equivalent basis, are as follows (dollars in thousands):


	Three Months Ended September 30, 2017 vs. September 30, 2016 Increase (Decrease) Due to Change in:									Nine Months Ended September 30, 2017 vs. September 30, 2016 Increase (Decrease) Due to Change in:									Three Months Ended March 31, 2018 vs. March 31, 2017 Increase (Decrease) Due to Change in:
	Volume			Rate			Total			Volume			Rate			Total			Volume		Rate			Total
Earning Assets:
Securities:
Taxable	$	37		$	406		$	443		$	131		$	1,392		$	1,523		$	1,890	$	259		$	2,149
Tax-exempt	226			(73		)	153			603			(179		)	424			910		(1,317		)	(407		)
Total securities	263			333			596			734			1,213			1,947			2,800		(1,058		)	1,742
Loans, net ⁽¹⁾	8,809			1,127			9,936			24,512			(1,441		)	23,071			38,060		6,572			44,632
Other earning assets	(3		)	109			106			(58		)	257			199			651		12			663
Total earning assets	$	9,069		$	1,569		$	10,638		$	25,188		$	29		$	25,217		$	41,511	$	5,526		$	47,037
Interest-Bearing Liabilities:
Interest-bearing deposits:
Transaction and money market accounts	$	276		$	1,533		$	1,809		$	769		$	2,897		$	3,666		$	1,255	$	2,331		$	3,586
Regular savings	(14		)	(42		)	(56		)	(21		)	(135		)	(156		)	16		5			21
Time Deposits(2)	259			670			929			537			1,418			1,955			2,265		263			2,528
Total interest-bearing deposits	521			2,161			2,682			1,285			4,180			5,465			3,536		2,599			6,135
Other borrowings ⁽²⁾⁽³⁾	742			2,823			3,565			1,930			7,123			9,053			3,637		1,062			4,699
Total interest-bearing liabilities	1,263			4,984			6,247			3,215			11,303			14,518			7,173		3,661			10,834
Change in net interest income	$	7,806		$	(3,415	)	$	4,391		$	21,973		$	(11,274	)	$	10,699		$	34,338	$	1,865		$	36,203

(1) The rate-related change in interest income on loans includes the impact of higher accretion of the acquisition-related fair market value adjustments of ~~$324,000 and $996,000 for the three- and nine-month change, respectively.~~$3.4 million.

(2)The rate-related change in interest expense on loans includes the impact of higher accretion of the acquisition-related fair market value adjustments of $832,000.

(3) The rate-related change in interest expense on other borrowings includes the impact of ~~lower accretion~~higher amortization of the acquisition-related fair market value adjustments of ~~$134,000 and $244,000 for the three- and nine-month change, respectively.~~$146,000.

The Company’s fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments. The ~~impact of net accretion for the~~ first ~~three quarters~~quarter of 2017, ~~as well as~~first quarter of 2018, and the remaining estimated net accretion are reflected in the following table (dollars in thousands):


	Loan Accretion		Borrowings Accretion (Amortization)			Total		Loan Accretion		Deposit Accretion		Borrowings Accretion (Amortization)			Total
For the quarter ended March 31, 2017	$	1,445	$	48		$	1,493	$	1,445	$	—	$	48		$	1,493
For the quarter ended June 30, 2017	1,570		47			1,617
For the quarter ended September 30, 2017	1,662		47			1,709
For the remaining three months of 2017 (estimated) ⁽¹⁾	1,358		28			1,386
For the years ending (estimated) ⁽¹⁾:
2018	4,842		(143		)	4,699
For the quarter ended March 31, 2018								4,846		832		(98		)	5,580
For the remaining nine months of 2018								10,083		1,722		(408		)	11,397
For the years ending:
2019	3,483		(286		)	3,197		11,145		1,170		(660		)	11,655
2020	2,689		(301		)	2,388		8,635		284		(734		)	8,185
2021	2,187		(316		)	1,871		6,776		108		(805		)	6,079
2022	1,767		(332		)	1,435		4,830		21		(827		)	4,024
2023								3,052		—		(850		)	2,202
Thereafter	6,589		(4,974		)	1,615		12,020		—		(11,633		)	387

⁽¹⁾~~Estimated accretion only includes accretion for previously executed acquisitions. The effects of the Pending Merger are not included in the information above.~~

Noninterest Income

For the Three Months Ended
September 30, Change
2017 2016 $ %
(Dollars in thousands)
Noninterest income:

Service charges on deposit accounts $ 5,153
$ 4,965
$ 188
3.8 %
Other service charges and fees 4,529
4,397
132
3.0 %
Fiduciary and asset management fees 2,794
2,844
(50 ) (1.8 )%
Mortgage banking income, net 2,305
3,207
(902 ) (28.1 )%
Gains on securities transactions, net 184
—
184
NM
Bank owned life insurance income 1,377
1,389
(12 ) (0.9 )%
Loan-related interest rate swap fees 416
1,303
(887 ) (68.1 )%
Other operating income 778
845
(67 ) (7.9 )%
Total noninterest income $ 17,536
$ 18,950
$ (1,414 ) (7.5 )%

Community bank segment $ 15,121
$ 15,589
$ (468 ) (3.0 )%
Mortgage segment 2,527
3,501
(974 ) (27.8 )%
Intercompany eliminations (112 ) (140 ) 28
20.0 %
Total noninterest income $ 17,536
$ 18,950
$ (1,414 ) (7.5 )%

~~NM - Not meaningful~~



	For the Three Months Ended
	March 31,						Change
	2018			2017			$			%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	5,894		$	4,516		$	1,378		30.5	%
Other service charges and fees	1,233			1,139			94			8.3	%
Interchange fees, net	4,489			3,582			907			25.3	%
Fiduciary and asset management fees	3,056			2,794			262			9.4	%
Mortgage banking income, net	2,041			2,025			16			0.8	%
Gains on securities transactions, net	213			481			(268		)	(55.7	)%
Bank owned life insurance income	1,667			2,125			(458		)	(21.6	)%
Loan-related interest rate swap fees	718			1,180			(462		)	(39.2	)%
Other operating income	2,998			997			2,001			200.7	%
Total noninterest income	$	22,309		$	18,839		$	3,470		18.4	%

Community bank segment	$	20,157		$	16,757		$	3,400		20.3	%
Mortgage segment	2,278			2,223			55			2.5	%
Intercompany eliminations	(126		)	(141		)	15			10.6	%
Total noninterest income	$	22,309		$	18,839		$	3,470		18.4	%

Noninterest income ~~declined $1.4~~increased $3.5 million, or ~~7.5%~~18.4%, to ~~$17.5~~$22.3 million for the quarter ended ~~September 30, 2017~~March 31, 2018 compared to the quarter ended ~~September 30, 2016. The decline was~~March 31, 2017, primarily ~~due to lower mortgage banking income of $902,000,~~ driven by declines in mortgage loan originations compared to the third quarter of 2016 and unrealized losses on mortgage banking derivatives in the third quarter of 2017 compared to unrealized gains on mortgage banking derivatives in the third quarter of 2016. Loan-related swap fees also declined $887,000 in the third quarter of 2017 compared to the third quarter of 2016. Customer-related fee income increased $320,000 primarily related to increases in overdraft and debit card interchange fees, and gains on sales of securities were $184,000 higher, in each case as compared to the third quarter of 2016.

For the Nine Months Ended
September 30, Change
2017 2016 $ %
(Dollars in thousands)
Noninterest income:

Service charges on deposit accounts $ 14,945
$ 14,454
$ 491
3.4 %
Other service charges and fees 13,575
12,971
604
4.7 %
Fiduciary and asset management fees 8,313
7,315
998
13.6 %
Mortgage banking income, net 7,123
8,324
(1,201 ) (14.4 )%
Gains on securities transactions, net 782
145
637
NM
Bank owned life insurance income 4,837
4,122
715
17.3 %
Loan-related interest rate swap fees 2,627
3,056
(429 ) (14.0 )%
Other operating income 2,228
2,470
(242 ) (9.8 )%
Total noninterest income $ 54,430
$ 52,857
$ 1,573
3.0 %

Community bank segment $ 47,080
$ 44,137
$ 2,943
6.7 %
Mortgage segment 7,743
9,185
(1,442 ) (15.7 )%
Intercompany eliminations (393 ) (465 ) 72
15.5 %
Total noninterest income $ 54,430
$ 52,857
$ 1,573
3.0 %

~~NM - Not meaningful~~

Noninterest income increased $1.6 million, or 3.0%, to $54.4 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. For the first nine months of 2017, customer-related fee income increased $1.1 million primarily related to increases in overdraft and debit card interchange fees; fiduciary and asset management fees were $998,000 higher due to the acquisition of ~~ODCM in~~Xenith. Other operating income for the ~~second~~first quarter of ~~2016; bank owned life insurance income increased $715,000 primarily~~2018 included a gain of $1.4 million related to ~~death benefit proceeds received~~the sale of the Company's ownership interest in 2017; and gains on sales of securities were $637,000 higher, in each case as compared to the first nine months of 2016. Mortgage banking income decreased $1.2 million primarily related to declines in mortgage loan originations and lower unrealized gains on mortgage banking derivatives in the first nine months of 2017 compared to the first nine months of 2016.a payments-related company.

Noninterest ~~expense~~Expense


	For the Three Months Ended											For the Three Months Ended
	September 30,						Change					March 31,						Change
	2017			2016			$			%		2018			2017			$			%
	(Dollars in thousands)											(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	29,769		$	30,493		$	(724	)	(2.4	)%	$	42,329		$	32,168		$	10,161		31.6	%
Occupancy expenses	4,939			4,841			98			2.0	%	6,310			4,903			1,407			28.7	%
Furniture and equipment expenses	2,559			2,635			(76		)	(2.9	)%	3,033			2,603			430			16.5	%
Printing, postage, and supplies	1,154			1,147			7			0.6	%	1,073			1,150			(77		)	(6.7	)%
Communications expense	798			948			(150		)	(15.8	)%	1,097			910			187			20.5	%
Technology and data processing	4,232			3,917			315			8.0	%	4,649			3,900			749			19.2	%
Professional services	1,985			1,895			90			4.7	%	2,597			1,658			939			56.6	%
Marketing and advertising expense	1,944			1,975			(31		)	(1.6	)%	1,443			1,740			(297		)	(17.1	)%
FDIC assessment premiums and other insurance	1,141			1,262			(121		)	(9.6	)%	2,185			706			1,479			209.5	%
Other taxes	2,022			639			1,383			216.4	%	2,886			2,022			864			42.7	%
Loan-related expenses	1,349			1,531			(182		)	(11.9	)%	1,471			1,329			142			10.7	%
OREO and credit-related expenses	1,139			503			636			126.4	%	1,532			541			991			183.2	%
Amortization of intangible assets	1,480			1,843			(363		)	(19.7	)%	3,181			1,637			1,544			94.3	%
Training and other personnel costs	887			863			24			2.8	%	1,027			969			58			6.0	%
Merger-related costs	732			—			732			NM		27,712			—			27,712			NM
Other expenses	1,366			2,421			(1,055		)	(43.6	)%	1,483			1,159			324			28.0	%
Total noninterest expense	$	57,496		$	56,913		$	583		1.0	%	$	104,008		$	57,395		$	46,613		81.2	%

Community bank segment	$	55,133		$	54,353		$	780		1.4	%	$	101,669		$	55,014		$	46,655		84.8	%
Mortgage segment	2,475			2,700			(225		)	(8.3	)%	2,465			2,522			(57		)	(2.3	)%
Intercompany eliminations	(112		)	(140		)	28			20.0	%	(126		)	(141		)	15			10.6	%
Total noninterest expense	$	57,496		$	56,913		$	583		1.0	%	$	104,008		$	57,395		$	46,613		81.2	%

NM - Not meaningful

Noninterest expense increased ~~$583,000,~~$46.6 million, or ~~1.0%~~81.2%, to ~~$57.5~~$104.0 million for the quarter ended ~~September 30, 2017~~March 31, 2018 compared to ~~$56.9~~$57.4 million for the ~~third~~first quarter of ~~2016.~~2017, primarily due to the acquisition of Xenith. Excluding merger-related costs of ~~$732,000,~~$27.7 million for the first quarter of 2018, operating noninterest expense for the quarter ended September 30, 2017 declined $149,000, or 0.3%, compared to the third quarter of 2016. Salaries and benefits expenses declined by $724,000 primarily related to decreases in benefits and incentive compensation, offset by increases related to annual merit adjustments. Declines in other expenses primarily related to lower fraud-related and other losses of $364,000 as well as $400,000 in nonrecurring branch closing costs recognized in the third quarter of 2016. These decreases were partially offset by a nonrecurring reduction in expenses of approximately $900,000 in other taxes related to historic tax credits realized in the third quarter of 2016 related to the Company's investment in a historic rehabilitation project that was completed in that quarter andMarch 31, 2018 increased OREO and credit-related expenses due to losses on sales of OREO property in the third quarter of 2017 compared to gains on sales of OREO property in the third quarter of 2016 as well as higher valuation adjustments compared to the third quarter of 2016.

For the Nine Months Ended
September 30, Change
2017 2016 $ %
(Dollars in thousands)
Noninterest expense:

Salaries and benefits $ 92,499
$ 87,061
$ 5,438
6.2 %
Occupancy expenses 14,560
14,627
(67 ) (0.5 )%
Furniture and equipment expenses 7,882
7,867
15
0.2 %
Printing, postage, and supplies 3,710
3,566
144
4.0 %
Communications expense 2,580
2,964
(384 ) (13.0 )%
Technology and data processing 12,059
11,340
719
6.3 %
Professional services 5,734
6,432
(698 ) (10.9 )%
Marketing and advertising expense 5,963
5,838
125
2.1 %
FDIC assessment premiums and other insurance 2,793
4,003
(1,210 ) (30.2 )%
Other taxes 6,065
3,864
2,201
57.0 %
Loan-related expenses 3,959
3,638
321
8.8 %
OREO and credit-related expenses 2,023
1,965
58
3.0 %
Amortization of intangible assets 4,661
5,468
(807 ) (14.8 )%
Training and other personnel costs 2,900
2,512
388
15.4 %
Merger-related costs 3,476
—
3,476
NM
Other expenses 3,957
5,291
(1,334 ) (25.2 )%
Total noninterest expense $ 174,821
$ 166,436
$ 8,385
5.0 %

Community bank segment $ 167,643
$ 158,964
$ 8,679
5.5 %
Mortgage segment 7,571
7,937
(366 ) (4.6 )%
Intercompany eliminations (393 ) (465 ) 72
15.5 %
Total noninterest expense $ 174,821
$ 166,436
$ 8,385
5.0 %

~~NM - Not meaningful~~

~~Noninterest expense increased $8.4~~$18.9 million, or 5.0%, to $174.8 million for the nine months ended September 30, 2017 compared to $166.4 million for the first nine month of 2016. Excluding merger-related costs of $3.5 million, noninterest expense for the nine months ended September 30, 2017 increased $4.9 million, or 2.9%32.9%, compared to the first ~~nine months~~quarter of 2016. Salaries and benefits expenses increased by $5.4 million primarily related to annual merit adjustments; increases in benefits and equity-based compensation; and increased expenses related to investments in the Company's growth, including the acquisition of ODCM.2017. The increase in other taxes was partially offset by the decrease in FDIC expenses, including assessment premiums and other insurance, due to the impact of the issuance of subordinated debt in the fourth quarter of 2016. The remaining increase in other taxesoperating noninterest expense was primarily related to ~~a nonrecurring reduction in expenses~~the acquisition of approximately $900,000 related to the Company's investment in a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016. Technology and data processing costs increased $719,000, mostly due to higher software maintenance and online banking costs due to increased customer activity compared to the nine months ended September 30, 2016. These increases were partially offset by lower intangible amortization expense of $807,000, declines in professional fees of $698,000 due to lower legal and consulting fees, and declines in fraud-related and other losses of $371,000 in each case as compared to the first nine months of 2016.Xenith.

SEGMENT INFORMATION

Community Bank Segment

For the three months ended ~~September 30, 2017,~~March 31, 2018, the community bank segment reported net income of ~~$20.3~~$16.4 million, which was ~~an increase~~a decrease of ~~$695,000~~$2.7 million compared to the ~~third~~first quarter of ~~2016.~~2017. Excluding after-tax merger-related costs of ~~$661,000,~~$22.2 million, net operating earnings for the community bank segment for the quarter ended ~~September 30, 2017~~March 31, 2018 were ~~$21.0~~$38.7 million, which was an increase of $19.5 million compared to the net income for the first quarter of 2017. Net interest income increased $37.1 million year-over-year to $103.3 million for the quarter ended March 31, 2018, primarily the result of a $3.8 billion increase in average interest-earning assets and a $3.1 billion increase in average interest-bearing liabilities from the full quarter impact of the Xenith acquisition. The provision for credit losses for the quarter ended March 31, 2018 was $3.5 million, which was an increase of $1.4 million compared to the ~~net income for the third quarter of 2016. Net interest income increased $4.1 million~~

~~year-over-year to $70.7 million for the quarter ended September 30, 2017, primarily driven by higher average loan balances. The~~ provision for credit losses for the quarter ended ~~September 30,~~March 31, 2017, ~~was $3.1 million, which was an increase of $601,000 compared to the provision for credit losses for the quarter ended September 30, 2016,~~ driven by ~~higher~~ loan ~~balances~~growth and higher levels of charge-offs in the ~~third~~first quarter of ~~2017.~~2018.

Noninterest income ~~decreased $468,000,~~increased $3.4 million, or ~~3.0%~~20.3%, from ~~$15.6~~$16.8 million in the ~~third~~first quarter of ~~2016~~2017 to ~~$15.1~~$20.2 million in the ~~third~~first quarter of ~~2017. The decline was~~2018, primarily ~~due to lower loan-related swap fees~~driven by the acquisition of ~~$887,000 compared~~Xenith. Other operating income for the first quarter of 2018 included a gain of $1.4 million related to the ~~third quarter~~sale of ~~2016. Customer-related fee income increased $320,000 primarily related to increases~~the Company's ownership interest in ~~overdraft and debit card interchange fees, and gains on sales of securities were $184,000 higher, in each case as compared to the third quarter of 2016.~~a payments-related company.

Noninterest expense increased ~~$780,000,~~$46.7 million, or ~~1.4%~~84.8%, from ~~$54.4~~$55.0 million for the ~~third~~first quarter of ~~2016~~2017 to ~~$55.1~~$101.7 million for the quarter ended ~~September 30, 2017.~~March 31, 2018, primarily due to the acquisition of Xenith. Excluding pre-tax merger-related costs of ~~$732,000,~~$27.7 million, operating noninterest expense for the quarter ended September 30, 2017 remained relatively flat compared to the third quarter of 2016. Salaries and benefits expenses declined by $623,000 primarily related to decreases in benefits and incentive compensation, offset by increases related to annual merit adjustments. Declines in other expenses primarily related to lower fraud-related and other losses of $364,000 as well as $400,000 in nonrecurring branch closing costs recognized in the third quarter of 2016. These decreases were partially offset by a nonrecurring reduction in expenses of approximately $900,000 related to the Company's investment in a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016 andMarch 31, 2018 increased OREO and credit-related expenses due to losses on sales of OREO property in the third quarter of 2017 compared to gains on sales of OREO property in the third quarter of 2016 as well as higher valuation adjustments compared to the third quarter of 2016.

For the nine months ended September 30, 2017, the community bank segment reported net income of $56.8 million, which was an increase of $1.5 million compared to the first nine months of 2016. Excluding after-tax merger-related costs of $3.0 million, net operating earnings for the community bank segment for the nine months ended September 30, 2017 were $59.9 million, which was an increase of $4.5 million compared to the net income for the first nine months of 2016. Net interest income increased $10.0 million year-over-year to $205.5 million for the nine months ended September 30, 2017, primarily driven by higher average loan balances. The provision for credit losses for the nine months ended September 30, 2017 was $7.3 million, which was an increase of $129,000 compared to the provision for credit losses for the nine months ended September 30, 2016, primarily ~~driven by higher loan balances and higher levels of charge-offs during 2017~~.

~~Noninterest income increased $3.0~~$18.9 million, or 6.7%, from $44.1 million in the first nine months of 2016 to $47.1 million in the first nine months of 2017. For the first nine months of 2017, customer-related fee income increased $1.1 million primarily related to increases in overdraft and debit card interchange fees; fiduciary and asset management fees were $998,000 higher due to the acquisition of ODCM in the second quarter of 2016; bank owned life insurance income increased $715,000 primarily related to death benefit proceeds received in 2017; and gains on sales of securities were $637,000 higher, in each case as compared to the first nine months of 2016.

Noninterest expense increased $8.6 million, or 5.5%, from $159.0 million for the first nine months of 2016 to $167.6 million for the nine months ended September 30, 2017. Excluding merger-related costs of $3.5 million, noninterest expense for the nine months ended September 30, 2017 increased $5.2 million, or 3.3%34.4%, compared to the first ~~nine months~~quarter of 2016. Salaries and benefits expenses increased by $5.6 million primarily related to annual merit adjustments; increases in benefits and equity-based compensation; and increased expenses related to investments in the Company's growth, including the acquisition of ODCM.2017. The ~~net~~ increase in ~~FDIC and other insurance expenses and other taxes~~operating noninterest expense was primarily related to ~~a nonrecurring reduction in expenses~~the acquisition of approximately $900,000 related to the Company's investment in a historic rehabilitation project that was completed, and the related historic tax credits realized, in the third quarter of 2016. Technology and data processing costs increased $708,000, mostly due to higher software maintenance and online banking costs due to increased customer activity compared to the nine months ended September 30, 2016. These increases were partially offset by lower intangible amortization expense of $807,000, declines in professional fees of $792,000 due to lower legal and consulting fees, and declines in fraud-related and other losses of $371,000 in each case as compared to the first nine months of 2016.Xenith.

Mortgage Segment

The mortgage segment reported net income of ~~$347,000~~$208,000 for the ~~third~~first quarter of ~~2017,~~2018, compared to net income of ~~$785,000~~$4,000 in the ~~third~~first quarter of ~~2016.~~2017. Mortgage banking income, net of commissions, ~~decreased $902,000,~~increased $16,000, primarily related to increased margins, despite declines in mortgage loan ~~originations and unrealized losses on mortgage banking derivatives in the third quarter of 2017 compared to unrealized gains on mortgage banking derivatives in the third quarter of 2016.~~originations. Mortgage loan originations decreased ~~$29.4~~$7.7 million, or ~~18.7%~~7.7%, from ~~$156.7~~$100.2 million for the quarter ended ~~September 30, 2016~~March 31, 2017 to ~~$127.3~~$92.5 million for the quarter ended

~~September 30, 2017.~~ March 31, 2018. Noninterest expense decreased ~~$225,000,~~$57,000, or ~~8.3%~~2.3%, when comparing the ~~third~~first quarter of ~~2017~~2018 to the ~~third~~first quarter of ~~2016,~~2017, largely a result of declines in ~~personnel-related~~equipment-related costs and ~~equipment-related expenses.~~

The mortgage segment reported net income of $901,000 for the first nine months of 2017, compared to net income of $1.4 million for the first nine months of 2016. Mortgage banking income, net of commissions, decreased $1.2 million, primarily related to declines in mortgage loan originations and lower unrealized gains on mortgage banking derivatives in the first nine months of 2017 compared to the first nine months of 2016. Mortgage loan originations decreased $30.8 million, or 7.8%, from $394.9 million for the nine months ended September 30, 2016 to $364.1 million for the nine months ended September 30, 2017. Noninterest expense decreased $366,000, largely a result of declines in personnel-related costs and equipment-relatedoperating expenses.

Income Taxes

The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

~~In assessing~~On December 22, 2017, the ~~ability~~Tax Act was signed into law. Among other things, the Tax Act permanently reduced the corporate tax rate to ~~realize~~21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, companies were required to revalue their deferred tax assets ~~management considers~~and liabilities as of the ~~scheduled reversal~~date of ~~temporary differences, projected future taxable income, and~~enactment, with resulting tax ~~planning strategies. Management~~effects accounted for in the fourth quarter of 2017. The Company continues to ~~believe~~evaluate the tax impact of the revaluation required by the lower corporate tax rate implemented by the Tax Act, which management has estimated to fall between $5.0 million and $8.0 million. During the fourth quarter of 2017, the Company recorded $6.3 million in additional tax expense based on the Company's preliminary analysis of the impact of the Tax Act. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. The actual results may differ from the current estimate due to, among other things, further guidance that ~~it is not likely~~may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company ~~will realize its deferred tax asset~~has preliminarily made. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment per the guidance under ASC 740, Accounting for Uncertainty in Income Taxes, and SAB 118. No additional adjustments related to ~~net operating losses generated at~~ the ~~state level and accordingly has established a valuation allowance.~~ Tax Act were recorded in the first quarter of 2018.

The ~~Company’s bank subsidiary~~Bank is not subject to a state income tax in its primary place of business (Virginia). The Company’s other subsidiaries are subject to state income taxes and have historically generated losses ~~on a consolidated basis~~ for state income tax ~~purposes which the Company is currently unable to utilize.~~purposes. State net operating loss carryovers will begin to expire after 2026.

The effective tax rate for the three months ended ~~September 30,~~March 31, 2018 and 2017 was 10.3% and ~~2016 was 26.7% and 23.3%, respectively; the effective tax rate for the nine months ended September 30, 2017 and 2016 was 26.9% and 25.0%~~26.1%, respectively. During the first quarter of 2018, excess tax benefits related to share-based compensation of approximately $1.2 million were recorded in accordance with ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The ~~increase~~decline in the effective tax rate compared to the first quarter of 2017 is primarily ~~related~~due to ~~tax-exempt interest and bank owned life insurance income being a smaller percentage of pre-tax income~~the reduction in ~~2017 compared to 2016~~the federal tax rate under the Tax Act as well as the discrete impact of ~~nondeductible acquisition-related expenses recognized in 2017. Additionally,~~ the ~~Company's effective~~excess tax ~~rate in 2016 was lower due to historic tax credits realized in the third quarter of 2016~~benefits related to the ~~Company's investment in a historic rehabilitation project that was completed in such quarter.~~exercise of stock options and vesting of restricted stock.

BALANCE SHEET

Assets

At ~~September 30, 2017,~~March 31, 2018, total assets were ~~$9.0~~$13.1 billion, an increase of ~~$602.6 million, or 9.6% (annualized),~~$3.8 billion from ~~$8.4~~$9.3 billion at December 31, ~~2016.~~2017, reflecting the impact of the Xenith acquisition.

On January 1, 2018 the Company completed its acquisition of Xenith. Below is a summary of the transaction and related impact on the Company's balance sheet.

• The ~~increase~~fair value of assets acquired equaled $3.249 billion, and the fair value of liabilities assumed equaled $2.874 billion.

• Loans held for investment acquired totaled $2.507 billion with a fair value of $2.459 billion.

• Total deposits assumed totaled $2.546 billion with a fair value of $2.550 billion.

• Total goodwill arising from the transaction equaled $425.6 million.

• Core deposit intangibles acquired totaled $38.5 million.

Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in ~~assets was mostly related to loan growth.~~accordance with ASC 805, Business Combinations.

Loans held for investment, net of deferred fees and costs, were ~~$6.9~~$9.8 billion at ~~September 30, 2017,~~March 31, 2018, an increase of ~~$591.7 million,~~$2.7 billion, or ~~12.5% (annualized)~~37.3%, from December 31, ~~2016. Loan growth occurred across all categories.~~2017. On a pro forma basis, including Xenith loans, loans held for investment grew $205.2 million, or 8.7% (annualized), from January 1, 2018. Quarterly average loans increased ~~$788.8 million,~~$3.3 billion, or ~~13.1%~~51.6%, for the quarter ended ~~September 30, 2017~~March 31, 2018 compared to the quarter ended ~~September 30, 2016.~~March 31, 2017. For additional information on the Company’s loan activity, please refer to “Loan Portfolio” within this Item 2 or Note 34 “Loans and Allowance for Loan Losses” in Part I, Item 1 “Financial Statements” of this report.

Liabilities and Stockholders’ Equity

At ~~September 30, 2017,~~March 31, 2018, total liabilities were ~~$8.0~~$11.3 billion, an increase of ~~$562.3 million~~$3.0 billion from December 31, ~~2016.~~2017.

Total deposits were ~~$6.9~~$9.7 billion at ~~September 30, 2017,~~March 31, 2018, an increase of ~~$502.3 million,~~$2.7 billion, or ~~10.5% (annualized)~~38.4%, from December 31, ~~2016. Deposits increased in all categories with the exception of savings accounts when compared to year-end 2016, but was primarily driven by increases in demand and interest-bearing~~2017. On a pro forma basis, including Xenith deposits, ~~consisting of NOW and money market accounts.~~deposits grew $136.6 million, or 5.8% (annualized) from January 1, 2018. Quarterly average deposits increased ~~$592.9 million,~~$3.1 billion, or ~~9.6%~~47.7%, for the quarter ended ~~September 30, 2017~~March 31, 2018 compared to the quarter ended ~~September 30, 2016.~~March 31, 2017. For further discussion on this topic, see “Deposits” within this Item 2.

At ~~September 30, 2017,~~March 31, 2018, stockholders’ equity was ~~$1.0~~$1.8 billion, an increase of ~~$40.3~~$784.7 million from December 31, ~~2016.~~2017. The Company’s capital ratios continue to exceed the minimum capital requirements for regulatory ~~purposes but have decreased from prior periods primarily due to asset growth. The total risk-based~~purposes. For additional information on the Company’s capital ratios, at September 30, 2017 and December 31, 2016 were 12.94% and 13.56%, respectively. The Tier 1 risk-based capital ratios were 10.56% and 10.97% at September 30, 2017 and December 31, 2016, respectively. The common equity Tier 1 risk-based capital ratios were 9.40% and 9.72% at September 30, 2017 and December 31, 2016, respectively. The Company’s common equityplease refer to total asset ratios at September 30, 2017 and December 31, 2016 were 11.53% and 11.88%, respectively, while its tangible common equity to tangible assets ratios were 8.34% and 8.41%, respectively, at the same dates.“Capital Resources” within this Item 2.

~~Also, the~~The Company declared and paid a cash dividend of ~~$0.20~~$0.21 per share during the ~~third~~first quarter of ~~2017,~~2018, an increase of $0.01 per share, or ~~5.3%~~5.0%, compared to the dividend paid during the ~~same~~first quarter ~~in the prior year. Dividends for the nine months ended September 30, 2017 were $0.60 compared to $0.57 for the nine months ended September 30, 2016.~~of 2017.

Securities

At ~~September 30, 2017,~~March 31, 2018, the Company had total investments in the amount of ~~$1.2~~$1.6 billion, or ~~13.8~~11.8 % of total assets, as compared to $1.2 billion, or ~~14.3%~~13.4% of total assets, at December 31, ~~2016.~~2017. The Company seeks to diversify its portfolio to minimize risk. It focuses on purchasing mortgage-backed securities for cash flow and reinvestment opportunities and securities issued by states and political subdivisions due to the tax benefits and the higher yield offered from these securities. The majority of the Company’s mortgage-backed securities are investment grade. The investment portfolio has a high percentage of municipals and mortgage-backed securities; therefore the Company earns a higher taxable equivalent yield on its portfolio as compared to many of its peers. The Company does not engage in structured derivative or hedging activities within the investment portfolio.

The table below sets forth a summary of the securities available for sale, securities held to maturity, and restricted stock as of the dates indicated (dollars in thousands):


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Available for Sale:
Obligations of states and political subdivisions	$	292,199	$	275,890	$	364,639	$	301,824
Corporate and other bonds	115,422		121,780		123,140		113,880
Mortgage-backed securities	546,904		535,286		754,412		548,858
Other securities	13,836		13,808		10,988		9,660
Total securities available for sale, at fair value	968,361		946,764		1,253,179		974,222

Held to Maturity:
Obligations of states and political subdivisions, at carrying value	204,801		201,526		198,733		199,639

Restricted Stock:
Federal Reserve Bank stock	27,559		23,808		42,016		27,558
Federal Home Loan Bank stock	40,882		36,974
FHLB stock					63,245		47,725
Total restricted stock, at cost	68,441		60,782		105,261		75,283
Total investments	$	1,241,603	$	1,209,072	$	1,557,173	$	1,249,144

During each quarter and at year end, the Company conducts an assessment of the securities portfolio for OTTI consideration. No OTTI was recognized during the three ~~and nine~~ months ended September 30, 2017. 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.~~2018. The Company monitors the portfolio, which is subject to liquidity needs, market rate changes, and credit risk changes, to determine whether adjustments are needed. 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.

The following table summarizes the contractual maturity of securities available for sale at fair value and their weighted average yields as of ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


	1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total			1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total
Mortgage backed securities:
Amortized cost	$	197		$	82,828		$	121,469		$	341,544		$	546,038		$	947		$	168,249		$	103,656		$	494,514		$	767,366
Fair value	202			83,072			121,515			342,115			546,904			948			165,272			101,311			486,881			754,412
Weighted average yield ⁽¹⁾	3.08		%	2.16		%	2.19		%	2.43		%	2.34		%	1.99		%	2.25		%	2.27		%	2.72		%	2.56		%

Obligations of states and political subdivisions:
Amortized cost	11,795			44,929			82,296			146,901			285,921			19,508			32,831			58,242			255,235			365,816
Fair value	11,968			46,531			85,491			148,209			292,199			19,689			33,426			59,189			252,335			364,639
Weighted average yield ⁽¹⁾	5.69		%	4.92		%	4.34		%	3.80		%	4.21		%	4.61		%	4.01		%	3.87		%	3.31		%	3.53		%

Corporate bonds and other securities:
Amortized cost	11,395			504			63,727			53,261			128,887			9,593			500			67,026			56,904			134,023
Fair value	11,340			504			64,824			52,590			129,258			9,460			500			68,061			56,107			134,128
Weighted average yield ⁽¹⁾	0.93		%	1.04		%	4.46		%	2.31		%	3.24		%	0.67		%	0.33		%	4.58		%	2.85		%	3.55		%

Total securities available for sale:
Amortized cost	23,387			128,261			267,492			541,706			960,846			30,048			201,580			228,924			806,653			1,267,205
Fair value	23,510			130,107			271,830			542,914			968,361			30,097			199,198			228,561			795,323			1,253,179
Weighted average yield ⁽¹⁾	3.35		%	3.12		%	3.39		%	2.79		%	3.01		%	3.27		%	2.54		%	3.35		%	2.92		%	2.94		%

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.

The following table summarizes the contractual maturity of securities held to maturity at carrying value and their weighted average yields as of ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


	1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total			1 Year or Less			1 - 5 Years			5 - 10 Years			Over 10 Years			Total
Obligations of states and political subdivisions:
Carrying Value	$	5,879		$	41,196		$	65,893		$	91,833		$	204,801		$	6,764		$	48,016		$	78,816		$	65,137		$	198,733
Fair value	5,902			41,959			67,444			94,530			209,835			6,780			48,265			79,099			65,760			199,904
Weighted average yield ⁽¹⁾	2.96		%	2.78		%	3.21		%	3.78		%	3.37		%	2.52		%	2.39		%	2.82		%	3.35		%	2.88		%

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.

As of ~~September 30, 2017,~~March 31, 2018, the Company maintained a diversified municipal bond portfolio with approximately ~~75%~~64% of its holdings in general obligation issues and the majority of the remainder backed by revenue bonds. Issuances within the ~~State~~States of Washington and Texas represented ~~12%~~13% and ~~issuances within the State of Washington~~12%, respectively, and the Commonwealth of Virginia ~~both~~ represented 11% of the municipal portfolio; no other state had a concentration above 10%. Substantially all municipal holdings are considered investment grade. When purchasing municipal securities, the Company focuses on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, loans held for sale, and securities and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the purchase of brokered certificates of deposit, and a corporate line of credit with a large correspondent bank. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

As of ~~September 30, 2017,~~March 31, 2018, liquid assets totaled ~~$2.6~~$3.9 billion, or ~~29.2%~~29.5%, of total assets, and liquid earning assets totaled ~~$2.5~~$3.7 billion, or ~~30.6%~~32.2% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of ~~September 30, 2017,~~March 31, 2018, approximately ~~$2.3~~$3.3 billion, or ~~32.9%~~33.7% of total loans, are scheduled to mature within one year based on contractual maturity, adjusted for expected prepayments, and approximately ~~$156.3~~$197.8 million, or ~~12.6%~~12.7% of total securities, are scheduled to mature within one year.

Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary. For additional information and the available balances on various lines of credit, please refer to Note 56 “Borrowings” in Part I, Item 1 “Financial Statements” of this report. In addition to lines of credit, the Bank may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. For additional information and outstanding balances on purchased certificates of deposits, please refer to “Deposits” within this Item 2.

Loan Portfolio

Loans held for investment, net of deferred fees and costs, were ~~$6.9~~$9.8 billion at ~~September 30, 2017, $6.3~~March 31, 2018, $7.1 billion at December 31, ~~2016,~~2017, and ~~$6.1~~$6.6 billion at ~~September 30, 2016,~~March 31, 2017, respectively. Commercial real estate - non-owner occupied loans continue to represent the Company’s largest category, comprising ~~25.3%~~22.7% of the total loan portfolio at ~~September 30, 2017.~~March 31, 2018.

The following table presents the Company’s composition of loans held for investment, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of the quarter ended (dollars in thousands):


	September 30, 2017				June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016				March 31, 2018				December 31, 2017				September 30, 2017				June 30, 2017				March 31, 2017
Construction and Land Development	$	841,738	12.2	%	$	799,938	11.8	%	$	770,287	11.8	%	$	751,131	11.9	%	$	776,430	12.6	%	$	1,249,196	12.7	%	$	948,791	13.3	%	$	841,738	12.2	%	$	799,938	11.8	%	$	770,287	11.8	%
Commercial Real Estate - Owner Occupied	903,523		13.1	%	888,285		13.1	%	870,559		13.3	%	857,805		13.6	%	857,142		13.9	%	1,279,155		13.0	%	943,933		13.2	%	903,523		13.1	%	888,285		13.1	%	870,559		13.3	%
Commercial Real Estate - Non-Owner Occupied	1,748,039		25.3	%	1,698,329		25.1	%	1,631,767		24.9	%	1,564,295		24.8	%	1,454,828		23.7	%	2,230,463		22.7	%	1,713,659		24.0	%	1,748,039		25.3	%	1,698,329		25.1	%	1,631,767		24.9	%
Multifamily Real Estate	368,686		5.4	%	367,257		5.4	%	353,769		5.4	%	334,276		5.3	%	339,313		5.5	%	547,520		5.6	%	357,079		5.0	%	368,686		5.4	%	367,257		5.4	%	353,769		5.4	%
Commercial & Industrial	554,522		8.0	%	568,602		8.4	%	576,567		8.8	%	551,526		8.7	%	509,857		8.3	%	1,125,733		11.5	%	612,023		8.6	%	554,522		8.0	%	568,602		8.4	%	576,567		8.8	%
Residential 1-4 Family	1,083,112		15.7	%	1,066,519		15.8	%	1,057,439		16.1	%	1,029,547		16.3	%	999,361		16.3	%
Residential 1-4 Family - Commercial																					714,660		7.3	%	612,395		8.6	%	602,937		8.7	%	589,398		8.7	%	580,568		8.8	%
Residential 1-4 Family - Mortgage																					604,354		6.2	%	485,690		6.8	%	480,175		7.0	%	477,121		7.1	%	476,871		7.3	%
Auto	276,572		4.0	%	274,162		4.0	%	271,466		4.1	%	262,071		4.2	%	255,188		4.2	%	288,089		3.0	%	282,474		4.0	%	276,572		4.0	%	274,162		4.0	%	271,466		4.1	%
HELOC	535,446		7.8	%	535,088		7.9	%	527,863		8.1	%	526,884		8.4	%	524,097		8.5	%	642,084		6.5	%	537,521		7.5	%	535,446		7.8	%	535,088		7.9	%	527,863		8.1	%
Consumer and all other	587,091		8.5	%	573,310		8.5	%	494,329		7.5	%	429,525		6.8	%	432,702		7.0	%
Consumer and all other ⁽¹⁾																					1,124,469		11.5	%	647,987		9.0	%	587,091		8.5	%	573,310		8.5	%	494,329		7.5	%
Total loans held for investment	$	6,898,729	100.0	%	$	6,771,490	100.0	%	$	6,554,046	100.0	%	$	6,307,060	100.0	%	$	6,148,918	100.0	%	$	9,805,723	100.0	%	$	7,141,552	100.0	%	$	6,898,729	100.0	%	$	6,771,490	100.0	%	$	6,554,046	100.0	%

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed), as of ~~September 30, 2017~~March 31, 2018 (dollars in thousands):


					Variable Rate						Fixed Rate										Variable Rate						Fixed Rate
	Total Maturities		Less than 1 year		Total		1-5 years		More than 5 years		Total		1-5 years		More than 5 years		Total Maturities		Less than 1 year		Total		1-5 years		More than 5 years		Total		1-5 years		More than 5 years
Construction and Land Development	$	841,738	$	481,566	$	220,078	$	170,885	$	49,193	$	140,094	$	102,639	$	37,455	$	1,249,196	$	593,479	$	408,019	$	352,509	$	55,510	$	247,698	$	184,785	$	62,913
Commercial Real Estate - Owner Occupied	903,523		106,283		252,090		31,982		220,108		545,150		384,557		160,593		1,279,155		134,128		336,386		83,099		253,287		808,641		591,553		217,088
Commercial Real Estate - Non-Owner Occupied	1,748,039		173,965		601,345		198,386		402,959		972,729		693,236		279,493		2,230,463		268,678		656,020		237,721		418,299		1,305,765		939,950		365,815
Multifamily Real Estate	368,686		29,313		145,063		37,143		107,920		194,310		169,340		24,970		547,520		79,958		154,771		62,079		92,692		312,791		261,682		51,109
Commercial & Industrial	554,522		165,346		153,500		111,836		41,664		235,676		157,121		78,555		1,125,733		379,320		387,069		334,536		52,533		359,344		269,392		89,952
Residential 1-4 Family	1,083,112		76,215		337,860		11,569		326,291		669,037		370,497		298,540
Residential 1-4 Family - Commercial																	714,660		95,616		97,724		13,330		84,394		521,320		428,361		92,959
Residential 1-4 Family - Mortgage																	604,354		13,222		327,809		6,384		321,425		263,323		24,433		238,890
Auto	276,572		2,188		—		—		—		274,384		135,387		138,997		288,089		2,292		5		5		—		285,792		142,405		143,387
HELOC	535,446		39,610		493,368		46,379		446,989		2,468		2,025		443		642,084		52,557		587,888		98,616		489,272		1,639		78		1,561
Consumer and all other	587,091		54,890		70,097		11,524		58,573		462,104		193,576		268,528
Consumer and all other ⁽¹⁾																	1,124,469		65,474		171,167		16,998		154,169		887,828		250,862		636,966
Total loans held for investment	$	6,898,729	$	1,129,376	$	2,273,401	$	619,704	$	1,653,697	$	3,495,952	$	2,208,378	$	1,287,574	$	9,805,723	$	1,684,724	$	3,126,858	$	1,205,277	$	1,921,581	$	4,994,141	$	3,093,501	$	1,900,640

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The Company remains committed to originating soundly underwritten loans to qualifying borrowers within its markets. The Company is focused on providing community-based financial services and discourages the origination of portfolio loans outside of its principal trade areas. As reflected in the loan table, at ~~September 30, 2017,~~March 31, 2018, the largest components of the Company’s loan portfolio consisted of commercial real estate ~~loans, residential 1-4 family~~ loans and construction and land development loans. The risks attributable to these concentrations are mitigated by the Company’s credit underwriting and monitoring processes, including oversight by a centralized credit administration function and credit policy and risk management committee, as well as seasoned bankers focusing their lending to borrowers with proven track records in markets with which the Company is familiar. UMG primarily serves as a secondary mortgage banking operation, selling the majority of its loan production in the secondary market or selling loans to meet the Bank’s current asset/liability management needs.

Asset Quality

Overview

At ~~September 30, 2017,~~March 31, 2018, the Company had higher levels of NPAs compared to December 31, ~~2016 and September 30, 2016, due to the increase in nonaccrual loan levels,~~2017, primarily related to ~~three unrelated credit relationships that were classified~~nonaccrual additions of mortgage and commercial & industrial loans and acquired other real estate owned. NPAs as ~~nonaccrual during the first and second quarters~~a percentage of ~~2017. Partially offsetting this increase, OREO balances~~total outstanding loans held for investment declined ~~compared to the same periods. The Company experienced increases in past due loan levels~~ compared to December 31, ~~2016 and September 30, 2016~~2017, while past due loans as a percentage of total loans held for investment increased slightly compared to ~~performing loans not being renewed prior to quarter end.~~December 31, 2017. As the Company's NPAs and past due loan

levels have been at historic lows over the last several quarters, certain changes from quarter to quarter might stand out in comparison to one another but have an insignificant impact on the Company's overall asset quality position.

~~Net~~While net charge-offs increased for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, total net charge-offs as ~~some~~a percentage of total average loans on an annualized basis remained consistent at 0.05% for both the ~~nonaccrual additions earlier in 2017 were charged off during the third quarter of~~three months ended March 31, 2018 and 2017. The provision for loan losses also increased for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, as a result of the increased charge-offs and loan growth during ~~2017.~~the first quarter of 2018. The allowance for loan losses at ~~September 30, 2017 was consistent with~~March 31, 2018 increased from December 31, ~~2016.~~2017 primarily due to organic loan growth during the quarter.

All nonaccrual and past due loan metrics discussed below exclude PCI loans totaling ~~$51.0~~$102.9 million (net of fair value mark of ~~$11.7~~$21.7 million) at ~~September 30, 2017.~~March 31, 2018.

Troubled Debt Restructurings

The total recorded investment in TDRs as of ~~September 30, 2017~~March 31, 2018 was ~~$19.2~~$17.6 million, an increase of ~~$3.8 million,~~$174,000, or ~~24.9%~~1.0%, from ~~$15.4~~$17.4 million at December 31, ~~2016~~2017 and ~~an increase~~a decrease of ~~$5.9~~$1.1 million, or ~~45.0%~~6.1%, from ~~$13.3~~$18.7 million at ~~September 30, 2016.~~March 31, 2017. Of the ~~$19.2~~$17.6 million of TDRs at ~~September 30, 2017, $16.5~~March 31, 2018, $13.3 million, or ~~85.8%~~75.6%, were considered performing while the remaining ~~$2.7~~$4.3 million were considered nonperforming.

Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring. These loans have performed in accordance with their modified terms for twelve consecutive months and were no longer considered impaired. Loans removed from TDR status are collectively evaluated for impairment; due to the significant improvement in the expected future cash flows, these loans are grouped based on their primary risk characteristics, which is included in the Company's general reserve. Impairment is measured based on historical loss experience taking into consideration environmental factors. The significant majority of these loans have been subject to new credit decisions due to the improvement in the expected future cash flows, the financial condition of the borrower, and other factors considered during re-underwriting. The TDR activity during the quarter did not have a material impact on the Company’s allowance for loan losses, financial condition, or results of operations.

Nonperforming Assets

At ~~September 30, 2017,~~March 31, 2018, NPAs totaled ~~$28.9~~$35.2 million, an increase of ~~$8.8 million, or 44.0%, from December 31, 2016 and an increase of $5.6~~$6.9 million, or 24.2%, from ~~September 30, 2016.~~December 31, 2017 and an increase of $3.3 million, or 10.3%, from March 31, 2017. In addition, NPAs as a percentage of total outstanding loans ~~increased 10 basis points to 0.42% at September 30, 2017 from 0.32% at December 31, 2016 and increased~~declined 4 basis points from ~~0.38%~~0.40% at ~~September 30, 2016. These increases are due~~December 31, 2017 and 13 basis points from 0.49% at March 31, 2017 to ~~the higher levels of nonaccrual loans~~0.36% at ~~September 30, 2017 compared to the prior periods.~~March 31, 2018.

The following table shows a summary of asset quality balances and related ratios as of and for the quarters ended (dollars in thousands):


	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017
Nonaccrual loans, excluding PCI loans	$	20,122		$	24,574		$	22,338		$	9,973		$	12,677		$	25,138		$	21,743		$	20,122		$	24,574		$	22,338
Foreclosed properties	6,449			6,828			6,951			7,430			7,927			8,079			5,253			6,449			6,828			6,951
Former bank premises	2,315			2,654			2,654			2,654			2,654
Total nonperforming assets	28,886			34,056			31,943			20,057			23,258
Former Bank premises																2,020			1,383			2,315			2,654			2,654
Total NPAs																35,237			28,379			28,886			34,056			31,943
Loans past due 90 days and accruing interest	4,532			3,625			2,323			3,005			3,529			2,630			3,532			4,532			3,625			2,323
Total nonperforming assets and loans past due 90 days and accruing interest	$	33,418		$	37,681		$	34,266		$	23,062		$	26,787
Total NPAs and loans past due 90 days and accruing interest																$	37,867		$	31,911		$	33,418		$	37,681		$	34,266

Performing TDRs	$	16,519		$	14,947		$	14,325		$	13,967		$	11,824		$	13,292		$	14,553		$	16,519		$	14,947		$	14,325
PCI loans	51,041			56,167			57,770			59,292			62,346			102,861			39,021			51,041			56,167			57,770

Balances
Allowance for loan losses	$	37,162		$	38,214		$	38,414		$	37,192		$	36,542		$	40,629		$	38,208		$	37,162		$	38,214		$	38,414
Average loans, net of deferred fees and costs	6,822,498			6,628,011			6,383,905			6,214,084			6,033,723			9,680,195			6,701,101			6,822,498			6,628,011			6,383,905
Loans, net of deferred fees and costs	6,898,729			6,771,490			6,554,046			6,307,060			6,148,918			9,805,723			7,141,552			6,898,729			6,771,490			6,554,046

Ratios
NPAs to total loans	0.42		%	0.50		%	0.49		%	0.32		%	0.38		%	0.36		%	0.40		%	0.42		%	0.50		%	0.49		%
NPAs & loans 90 days past due to total loans	0.48		%	0.56		%	0.52		%	0.37		%	0.44		%	0.39		%	0.45		%	0.48		%	0.56		%	0.52		%
NPAs to total loans & OREO	0.42		%	0.50		%	0.49		%	0.32		%	0.38		%	0.36		%	0.40		%	0.42		%	0.50		%	0.49		%
NPAs & loans 90 days past due and accruing to total loans & OREO	0.48		%	0.56		%	0.52		%	0.37		%	0.43		%
NPAs & loans 90 days past due to total loans & OREO																0.39		%	0.45		%	0.48		%	0.56		%	0.52		%
ALL to nonaccrual loans	184.68		%	155.51		%	171.97		%	372.93		%	288.25		%	161.62		%	175.73		%	184.68		%	155.51		%	171.97		%
ALL to nonaccrual loans & loans 90 days past due and accruing	150.73		%	135.52		%	155.77		%	286.58		%	225.48		%
ALL to nonaccrual loans & loans 90 days past due																146.32		%	151.17		%	150.73		%	135.52		%	155.77		%

NPAs at ~~September 30, 2017~~March 31, 2018 included ~~$20.1~~$25.1 million in nonaccrual loans, a net increase of ~~$10.1~~$3.4 million, or ~~101.8%~~15.6%, from December 31, ~~2016~~2017 and a net increase of ~~$7.4~~$2.8 million, or ~~58.7%~~12.5%, from ~~September 30, 2016.~~March 31, 2017. The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands):


	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017
Beginning Balance	$	24,574		$	22,338		$	9,973		$	12,677		$	10,861		$	21,743		$	20,122		$	24,574		$	22,338		$	9,973
Net customer payments	(4,642		)	(1,498		)	(1,068		)	(1,451		)	(1,645		)	(1,455		)	(768		)	(4,642		)	(1,498		)	(1,068		)
Additions	4,114			5,979			13,557			1,094			4,359			5,451			4,335			4,114			5,979			13,557
Charge-offs	(3,376		)	(2,004		)	(97		)	(1,216		)	(660		)	(403		)	(1,305		)	(3,376		)	(2,004		)	(97		)
Loans returning to accruing status	—			(134		)	(27		)	(1,039		)	(23		)	(182		)	(448		)	—			(134		)	(27		)
Transfers to OREO	(548		)	(107		)	—			(92		)	(215		)	(16		)	(193		)	(548		)	(107		)	—
Ending Balance	$	20,122		$	24,574		$	22,338		$	9,973		$	12,677		$	25,138		$	21,743		$	20,122		$	24,574		$	22,338

The majority of nonaccrual additions during 2017 relate to three unrelated credit relationships, comprised of commercial real estate - non-owner occupied loans, commercial & industrial loans, and constructions loans.

The following table presents the composition of nonaccrual loans at the quarters ended (dollars in thousands):


	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		March 31, 2018		December 31, 2017		September 30, 2017		June 30, 2017		March 31, 2017
Construction and Land Development	$	5,671	$	5,659	$	6,545	$	2,037	$	2,301	$	6,391	$	5,610	$	5,671	$	5,659	$	6,545
Commercial Real Estate - Owner Occupied	2,205		1,279		1,298		794		1,609		2,539		2,708		2,205		1,279		1,298
Commercial Real Estate - Non-owner Occupied	2,701		4,765		2,798		—		—		2,089		2,992		2,701		4,765		2,798
Commercial & Industrial	1,252		4,281		3,245		124		1,344		1,969		316		1,252		4,281		3,245
Residential 1-4 Family(1)	6,163		6,128		5,856		5,279		5,279		9,441		7,354		6,163		6,128		5,856
Auto	174		270		393		169		231		394		413		174		270		393
HELOC	1,791		2,059		1,902		1,279		1,464		2,072		2,075		1,791		2,059		1,902
Consumer and all other	165		133		301		291		449		243		275		165		133		301
Total	$	20,122	$	24,574	$	22,338	$	9,973	$	12,677	$	25,138	$	21,743	$	20,122	$	24,574	$	22,338

(1) Includes Residential 1-4 Family Commercial and Mortgage.

NPAs at ~~September 30, 2017~~March 31, 2018 also included ~~$8.8~~$10.1 million in OREO, ~~a decline~~an increase of ~~$1.3~~$3.5 million, or ~~13.1%~~52.2%, from December 31, ~~2016~~2017 and ~~a decline~~an increase of ~~$1.8 million,~~$494,000, or ~~17.2%~~5.1%, from ~~September 30, 2016.~~March 31, 2017. The following table shows the activity in OREO for the quarters ended (dollars in thousands):


	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017
Beginning Balance	$	9,482		$	9,605		$	10,084		$	10,581		$	13,381		$	6,636		$	8,764		$	9,482		$	9,605		$	10,084
Additions of foreclosed property	621			132			—			859			246			44			325			621			132			—
Acquisitions of foreclosed property																4,204			—			—			—			—
Acquisitions of former bank premises																1,208			—			—			—			—
Valuation adjustments	(588		)	(19		)	(238		)	(138		)	(479		)	(759		)	(1,046		)	(588		)	(19		)	(238		)
Proceeds from sales	(648		)	(272		)	(277		)	(1,282		)	(2,844		)	(1,255		)	(1,419		)	(648		)	(272		)	(277		)
Gains (losses) from sales	(103		)	36			36			64			277			21			12			(103		)	36			36
Ending Balance	$	8,764		$	9,482		$	9,605		$	10,084		$	10,581		$	10,099		$	6,636		$	8,764		$	9,482		$	9,605

The following table presents the composition of the OREO portfolio at the quarter ended (dollars in thousands):


	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016		March 31, 2018		December 31, 2017		September 30, 2017		June 30, 2017		March 31, 2017
Land	$	2,755	$	3,205	$	3,328	$	3,328	$	3,440	$	2,649	$	2,755	$	2,755	$	3,205	$	3,328
Land Development	1,993		2,050		2,111		2,379		2,320		3,624		1,045		1,993		2,050		2,111
Residential Real Estate	1,562		1,399		1,338		1,549		1,806		1,171		1,314		1,562		1,399		1,338
Commercial Real Estate	139		174		174		174		361		635		139		139		174		174
Former Bank Premises ⁽¹⁾	2,315		2,654		2,654		2,654		2,654		2,020		1,383		2,315		2,654		2,654
Total	$	8,764	$	9,482	$	9,605	$	10,084	$	10,581	$	10,099	$	6,636	$	8,764	$	9,482	$	9,605

(1) Includes closed branch property and land previously held for future branch sites.

Past Due Loans

At ~~September 30, 2017,~~March 31, 2018, total accruing past due loans were ~~$34.3~~$41.6 million, or ~~0.50%~~0.42% of total loans, compared to ~~$27.9~~$27.8 million, or ~~0.44%~~0.39% of total loans, at December 31, ~~2016~~2017 and $26.9 million, or ~~0.44%~~0.41% of total loans, at ~~September 30, 2016.~~March 31, 2017. Of the total past due loans still accruing interest at ~~September 30, 2017, $4.5~~March 31, 2018, $2.6 million, or ~~0.07%~~0.03% of total loans, were past due 90 days or more, compared to ~~$3.0~~$3.5 million, or 0.05% of total loans, at December 31, ~~2016~~2017 and ~~$3.5~~$2.3 million, or ~~0.06%~~0.04% of total loans, at September 30, 2016. As the Company's past due loan levels have been at historic lows over the last several quarters, certain changes from quarter to quarter might stand out in comparison to one another but have an insignificant impact on the Company's overall asset quality position.March 31, 2017.

Net Charge-offs

For the quarter ended ~~September 30, 2017,~~March 31, 2018, net charge-offs were ~~$4.1~~$1.1 million, or ~~0.24%~~0.05% of average loans on an annualized basis, compared to ~~$929,000,~~$788,000, or ~~0.06%~~0.05%, for the same quarter ~~ended September 30, 2016.~~last year. Of the net charge-offs in the ~~third~~first quarter of ~~2017,~~2018, the majority were ~~previously considered impaired. For the nine months ended September 30, 2017, net charge-offs were $7.4 million, or 0.15% of total average loans on annualized basis, compared~~related to ~~$4.7 million, or 0.11%, for the same period in 2016. Of the net charge-offs during 2017, the majority were previously considered impaired.~~

consumer loans.

Provision for Loan Losses

The provision for loan losses for the quarter ended ~~September 30, 2017~~March 31, 2018 was ~~$3.1~~$3.5 million, an increase of ~~$653,000~~$1.5 million compared with the same quarter ~~ended September 30, 2016.~~last year. The increase in the provision for loan losses ~~for~~compared to the ~~nine months ended September 30,~~first quarter of 2017 was ~~$7.4 million compared to $7.2 million for the nine months ended September 30, 2016. The provision for~~primarily driven by loan ~~losses increased~~growth and higher levels of charge-offs in the first ~~nine months~~quarter of ~~2017 compared to the same period in 2016, primarily driven by higher loan balances and higher charge-off levels.~~2018.

Allowance for Loan Losses

~~At both September 30, 2017 and December~~The allowance for loan losses of $40.6 million at March 31, ~~2016,~~2018, is an increase of $2.4 million compared to the allowance for loan losses ~~was $37.2 million.~~at December 31, 2017 primarily due to organic loan growth during the quarter. The current level of the allowance for loan losses reflects specific reserves related to nonperforming loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers important in assessing the adequacy of the allowance for loan losses. The allowance for loan losses as a percentage of the total loan portfolio was 0.41% at March 31, 2018, 0.54% at ~~September 30,~~December 31, 2017 ~~compared to~~and 0.59% at ~~both December~~March 31, ~~2016 and September 30, 2016.~~2017. The decline in the allowance ratio was primarily attributable to the acquisition of Xenith. In acquisition accounting, there is ~~primarily related to lower specific reserves as well as declining historical loss factors.~~no carryover of previously established allowance for loan losses.

The following table summarizes activity in the allowance for loan losses during the quarters ended (dollars in thousands):


	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			March 31, 2018				December 30, 2017			September 30, 2017			June 30, 2017			March 31, 2017
Balance, beginning of period	$	38,214		$	38,414		$	37,192		$	36,542		$	35,074		$	38,208			$	37,162		$	38,214		$	38,414		$	37,192
Loans charged-off:
Commercial	684			316			241			620			16			206				1,036			684			316			241
Real estate	3,049			1,595			374			469			929			419			��	468			3,049			1,595			374
Consumer	1,256			1,416			1,018			738			518			1,934				1,857			1,256			1,416			1,018
Total loans charged-off	4,989			3,327			1,633			1,827			1,463			2,559				3,361			4,989			3,327			1,633
Recoveries:
Commercial	189			123			139			61			67			186				32			189			123			139
Real estate	272			306			273			806			303			825				279			272			306			273
Consumer	426			398			433			136			164			469				385			426			398			433
Total recoveries	887			827			845			1,003			534			1,480				696			887			827			845
Net charge-offs	4,102			2,500			788			824			929			1,079				2,665			4,102			2,500			788
Provision for loan losses	3,050			2,300			2,010			1,474			2,397			3,500				3,711			3,050			2,300			2,010
Balance, end of period	$	37,162		$	38,214		$	38,414		$	37,192		$	36,542		$	40,629			$	38,208		$	37,162		$	38,214		$	38,414

ALL to loans	0.54		%	0.56		%	0.59		%	0.59		%	0.59		%	0.41		%		0.54		%	0.54		%	0.56		%	0.59		%
Net charge-offs to average loans	0.24		%	0.15		%	0.05		%	0.05		%	0.06		%	0.05		%		0.15		%	0.24		%	0.15		%	0.05		%
Provision to average loans	0.18		%	0.14		%	0.13		%	0.09		%	0.16		%	0.15		%		0.21		%	0.18		%	0.14		%	0.13		%

The following table shows both an allocation of the allowance for loan losses among loan categories based upon the loan portfolio’s composition and the ratio of the related outstanding loan balances to total loans as of the quarters ended (dollars in thousands):


	September 30, 2017				June 30, 2017				March 31, 2017				December 31, 2016				September 30, 2016				March 31, 2018				December 31, 2017				September 30, 2017				June 30, 2017				March 31, 2017
	$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾		$		% ⁽¹⁾
Commercial	$	5,363	8.0	%	$	5,614	8.4	%	$	5,279	8.8	%	$	4,627	8.7	%	$	5,403	8.3	%	$	5,694	11.5	%	$	4,552	8.6	%	$	5,363	8.0	%	$	5,614	8.4	%	$	5,279	8.8	%
Real estate	27,518		79.5	%	28,450		79.1	%	29,356		79.6	%	29,441		80.3	%	28,064		81.0	%	29,054		74.1	%	28,597		78.4	%	27,518		79.5	%	28,450		79.1	%	29,356		79.6	%
Consumer	4,281		12.5	%	4,150		12.5	%	3,779		11.6	%	3,124		11.0	%	3,075		10.7	%	5,881		14.4	%	5,059		13.0	%	4,281		12.5	%	4,150		12.5	%	3,779		11.6	%
Total	$	37,162	100.0	%	$	38,414	100.0	%	$	38,414	100.0	%	$	37,192	100.0	%	$	36,542	100.0	%	$	40,629	100.0	%	$	38,208	100.0	%	$	37,162	100.0	%	$	38,214	100.0	%	$	38,414	100.0	%

(1) The percent represents the loan balance divided by total loans.

Deposits

As of ~~September 30, 2017,~~March 31, 2018, total deposits were ~~$6.9~~$9.7 billion, an increase of ~~$502.3 million,~~$2.7 billion, or ~~10.5% (annualized)~~38.4%, from December 31, ~~2016.~~2017. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of ~~$1.3~~$2.1 billion accounted for ~~24.7%~~27.4% of total interest-bearing deposits at ~~September 30, 2017.~~March 31, 2018.

The following table presents the deposit balances by major ~~categories~~category as of the quarters ended (dollars in thousands):


	September 30, 2017				December 31, 2016				March 31, 2018				December 31, 2017
Deposits:	Amount		% of total deposits		Amount		% of total deposits		Amount		% of total deposits		Amount		% of total deposits
Non-interest bearing	$	1,535,149	22.3	%	$	1,393,625	21.8	%
Noninterest bearing									$	2,057,425	21.2	%	$	1,502,208	21.5	%
NOW accounts	1,851,327		26.9	%	1,765,956		27.7	%	2,185,562		22.6	%	1,929,416		27.6	%
Money market accounts	1,621,443		23.6	%	1,435,591		22.5	%	2,692,662		27.8	%	1,685,174		24.1	%
Savings accounts	553,082		8.0	%	591,742		9.3	%	654,931		6.8	%	546,274		7.8	%
Time deposits of $100,000 and over	621,070		9.0	%	530,275		8.3	%	819,056		8.5	%	624,112		8.9	%
Other time deposits	699,755		10.2	%	662,300		10.4	%	1,268,319		13.1	%	704,534		10.1	%
Total Deposits	$	6,881,826	100.0	%	$	6,379,489	100.0	%	$	9,677,955	100.0	%	$	6,991,718	100.0	%

The Company may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. The Company utilizes this funding source when rates are more favorable than other funding sources. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, there were ~~$19.4~~$153.5 million and ~~$0,~~$11.0 million, respectively, purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance Sheets.

Maturities of time deposits as of ~~September 30, 2017~~March 31, 2018 were as follows (dollars in thousands):

Within 3
Months

3 - 12
Months

Over 12
Months
Total
Maturities of time deposits of $100,000 and over $ 57,493
$ 201,742
$ 361,835
$ 621,070
Maturities of other time deposits 62,724
273,340
363,691

699,755
Total time deposits $ 120,217
$ 475,082
$ 725,526
$ 1,320,825



	Amount
Within 3 Months	$	382,729
3 - 12 Months	769,543
Over 12 Months	935,103
Total	$	2,087,375

Capital Resources

Capital resources represent funds, earned or obtained, over which financial institutions can exercise greater or longer control in comparison with deposits and borrowed funds. The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company’s resources and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allow management to effectively leverage its capital to maximize return to stockholders.

In July 2013, the Federal Reserve issued final rules to include technical changes to its market risk capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Company and the Bank to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). These capital requirements will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

Beginning January 1, 2016, the capital conservation buffer requirement began to be phased in at 0.625% of risk-weighted assets, and will increase by the same amount each year until fully implemented at 2.5% on January 1, 2019. As of ~~September 30, 2017,~~March 31, 2018, the capital conservation buffer was ~~1.25%~~1.875% of risk-weighted assets. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The table summarizes the Company’s regulatory capital and related ratios for the periods presented (dollars in thousands):


	September 30, 2017			December 31, 2016			September 30, 2016			March 31, 2018			December 31, 2017			March 31, 2017
Common equity Tier 1 capital	$	734,892		$	699,728		$	685,329		$	1,007,662		$	737,204		$	708,985
Tier 1 capital	825,392			790,228			775,829			1,136,939			826,979			799,485
Tier 2 capital	186,012			185,917			37,032			198,861			186,809			187,295
Total risk-based capital	1,011,404			976,145			812,861			1,335,800			1,013,788			986,780
Risk-weighted assets	7,817,079			7,200,778			7,010,112			11,156,746			8,157,174			7,420,280

Capital ratios:
Common equity Tier 1 capital ratio	9.40		%	9.72		%	9.78		%	9.03		%	9.04		%	9.55		%
Tier 1 capital ratio	10.56		%	10.97		%	11.07		%	10.19		%	10.14		%	10.77		%
Total capital ratio	12.94		%	13.56		%	11.60		%	11.97		%	12.43		%	13.30		%
Leverage ratio (Tier 1 capital to average assets)	9.52		%	9.87		%	9.89		%	9.32		%	9.42		%	9.79		%
Capital conservation buffer ratio ⁽¹⁾	4.56		%	4.97		%	3.60		%	3.97		%	4.14		%	4.77		%
Common equity to total assets	11.53		%	11.88		%	12.12		%	13.93		%	11.23		%	11.71		%
Tangible common equity to tangible assets(2)	8.34		%	8.41		%	8.57		%	8.54		%	8.14		%	8.36		%

(1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company's actual ratio results for Common equity, Tier 1, and Total risk based capital. The lowest of the three measures represents the Company's capital conservation buffer ratio.

(2) Refer to “Non-GAAP Measures” section within this Item 2 of this Form 10-Q.

NON-GAAP MEASURES

In reporting the results of ~~September 30, 2017,~~March 31, 2018, the Company has provided supplemental performance measures on a tax-equivalent, tangible, and/or operating basis. These measures are a supplement to GAAP used to prepare the Company's financial statements and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies.

Net interest income (FTE), which is used in computing net interest margin (FTE) and efficiency ratio (FTE), provides valuable additional insight into the net interest margin and the efficiency ratio by adjusting for differences in tax treatment of interest income sources.

The Company believes tangible common equity is an important indication of its ability to grow organically and through business combinations as well as its ability to pay dividends and to engage in various capital management strategies. Tangible common equity is used in the calculation of certain profitability, capital, and per share ratios. These ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

Operating measures exclude merger-related costs unrelated to the Company’s normal operations. Such costs were ~~only~~not incurred during the ~~second and third quarters~~first quarter of 2017; thus each of these operating measures is equivalent to the corresponding GAAP financial measure for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2017. The Company believes these measures are useful to investors as they exclude certain costs resulting from acquisition activity and allow investors to more clearly see the combined economic results of the organization's operations.

The following table reconciles these non-GAAP measures from their respective U.S. GAAP basis measures for each of the periods presented (dollars in thousands, except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Interest Income (FTE)
Interest Income (GAAP)	$	84,850		$	74,433		$	242,712		$	217,964		$	124,654		$	76,640
FTE adjustment	2,648			2,427			7,836			7,367			1,563			2,540
Interest Income FTE (non-GAAP)	$	87,498		$	76,860		$	250,548		$	225,331		$	126,217		$	79,180
Average earning assets	$	8,167,919		$	7,354,684		$	7,922,944		$	7,159,813		$	11,475,099		$	7,660,937
Yield on interest-earning assets (GAAP)	4.12		%	4.03		%	4.10		%	4.07		%	4.41		%	4.05		%
Yield on interest-earning assets (FTE) (non-GAAP)	4.25		%	4.16		%	4.23		%	4.20		%	4.46		%	4.19		%
Net Interest Income (FTE)
Net Interest Income (GAAP)	$	71,198		$	67,028		$	206,765		$	196,535		$	103,747		$	66,567
FTE adjustment	2,648			2,427			7,836			7,367			1,563			2,540
Net Interest Income FTE (non-GAAP)	73,846			69,455			214,601			203,902			105,310			69,107
Average earning assets	$	8,167,919		$	7,354,684		$	7,922,944		$	7,159,813		$	11,475,099		$	7,660,937
Net interest margin (GAAP)	3.46		%	3.63		%	3.49		%	3.67		%	3.67		%	3.52		%
Net interest margin (FTE) (non-GAAP)	3.59		%	3.76		%	3.62		%	3.80		%	3.72		%	3.66		%
Tangible Assets
Ending Assets (GAAP)	$	9,029,436		$	8,258,230		$	9,029,436		$	8,258,230		$	13,149,292		$	8,669,920
Less: Ending goodwill	298,191			298,191			298,191			298,191			724,106			298,191
Less: Ending amortizable intangibles	16,017			22,343			16,017			22,343			50,092			18,965
Ending tangible assets (non-GAAP)	$	8,715,228		$	7,937,696		$	8,715,228		$	7,937,696		$	12,375,094		$	8,352,764
Tangible Common Equity
Ending Equity (GAAP)	$	1,041,371		$	1,000,964		$	1,041,371		$	1,000,964		$	1,831,077		$	1,015,631
Less: Ending goodwill	298,191			298,191			298,191			298,191			724,106			298,191
Less: Ending amortizable intangibles	16,017			22,343			16,017			22,343			50,092			18,965
Ending tangible common equity (non-GAAP)	$	727,163		$	680,430		$	727,163		$	680,430		$	1,056,879		$	698,475
Average equity (GAAP)	$	1,037,792		$	996,668		$	1,024,853		$	991,097		$	1,824,588		$	1,010,318
Less: Average goodwill	298,191			297,707			298,191			295,380			724,106			298,191
Less: Average amortizable intangibles	16,681			22,653			18,184			22,249			51,658			19,743
Average tangible common equity (non-GAAP)	$	722,920		$	676,308		$	708,478		$	673,468		$	1,048,824		$	692,384
ROE (GAAP)	7.90		%	8.14		%	7.53		%	7.64		%	3.70		%	7.68		%
ROTCE (non-GAAP)	11.34		%	12.00		%	10.90		%	11.25		%	6.43		%	11.20		%
Common equity to assets (GAAP)	11.53		%	12.12		%	11.53		%	12.12		%	13.93		%	11.71		%
Tangible common equity to tangible assets (non-GAAP)	8.34		%	8.57		%	8.34		%	8.57		%	8.54		%	8.36		%
Book value per share (GAAP)													$	27.87		$	23.44
Tangible book value per share (non-GAAP)													$	16.14		$	16.12


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Operating Measures
Net income (GAAP)	$	20,658		$	20,401		$	57,737		$	56,699		$	16,639		$	19,124
Merger-related costs, net of tax	661			—			3,020			—			22,236			—
Net operating earnings (non-GAAP)	$	21,319		$	20,401		$	60,757		$	56,699		$	38,875		$	19,124

Weighted average common shares outstanding, diluted	43,792,058			43,754,915			43,767,502			43,967,725			65,636,262			43,725,923
Earnings per common share, diluted (GAAP)	$	0.47		$	0.47		$	1.32		$	1.29		$	0.25		$	0.44
Operating earnings per common share, diluted (non-GAAP)	$	0.49		$	0.47		$	1.39		$	1.29		$	0.59		$	0.44

Average assets (GAAP)	$	8,973,964		$	8,153,951		$	8,730,815		$	7,956,841		$	13,019,572		$	8,465,517
ROA (GAAP)	0.91		%	1.00		%	0.88		%	0.95		%	0.52		%	0.92		%
Operating ROA (non-GAAP)	0.94		%	1.00		%	0.93		%	0.95		%	1.21		%	0.92		%

Average common equity (GAAP)	$	1,037,792		$	996,668		$	1,024,853		$	991,097		$	1,824,588		$	1,010,318
ROE (GAAP)	7.90		%	8.14		%	7.53		%	7.64		%	3.70		%	7.68		%
Operating ROE (non-GAAP)	8.15		%	8.14		%	7.93		%	7.64		%	8.64		%	7.68		%

Average tangible common equity (non-GAAP)	$	722,920		$	676,308		$	708,478		$	673,468		$	1,048,824		$	692,384
ROTCE (non-GAAP)	11.34		%	12.00		%	10.90		%	11.25		%	6.43		%	11.20		%
Operating ROTCE (non-GAAP)	11.70		%	12.00		%	11.47		%	11.25		%	15.03		%	11.20		%

Noninterest expense (GAAP)	$	57,496		$	56,913		$	174,821		$	166,436		$	104,008		$	57,395
Less: Merger-related costs	732			—			3,476			—			27,712			—
Operating noninterest expense (non-GAAP)	$	56,764		$	56,913		$	171,345		$	166,436		$	76,296		$	57,395

Net interest income (GAAP)	$	71,198		$	67,028		$	206,765		$	196,535		$	103,747		$	66,567
Net interest income (FTE) (non-GAAP)	73,846			69,455			214,601			203,902			105,310			69,107
Noninterest income (GAAP)	17,536			18,950			54,430			52,857			22,309			18,839

Efficiency ratio (GAAP)	64.80		%	66.19		%	66.93		%	66.74		%	82.51		%	67.20		%
Efficiency ratio (FTE) (non-GAAP)	62.92		%	64.38		%	64.98		%	64.82		%	81.50		%	65.26		%
Operating efficiency ratio (FTE) (non-GAAP)	62.12		%	64.38		%	63.69		%	64.82		%	59.79		%	65.26		%

Community Bank Segment Operating Measures
Community bank segment net income (GAAP)	$	20,311		$	19,616		$	56,836		$	55,321		$	16,431		$	19,120
Merger-related costs, net of tax	661			—			3,020			—			22,236			—
Community bank segment net operating earnings (non-GAAP)	$	20,972		$	19,616		$	59,856		$	55,321		$	38,667		$	19,120

Weighted average common shares outstanding, diluted	43,792,058			43,754,915			43,767,502			43,967,725			65,636,262			43,725,923
Earnings per common share, diluted (GAAP)	$	0.46		$	0.45		$	1.30		$	1.26		$	0.25		$	0.44
Operating earnings per common share, diluted (non-GAAP)	$	0.48		$	0.45		$	1.37		$	1.26		$	0.59		$	0.44

Community bank segment noninterest expense (GAAP)	$	55,133		$	54,353		$	167,643		$	158,964		$	101,669		$	55,014
Less: Merger-related costs	732			—			3,476			—			27,712			—
Community bank segment operating noninterest expense (non-GAAP)	$	54,401		$	54,353		$	164,167		$	158,964		$	73,957		$	55,014

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk. The ALCO of the Company is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to

monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

Interest rate risk is monitored through the use of three complementary modeling tools: static gap analysis, earnings simulation modeling, and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk models has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Static gap, which measures aggregate re-pricing values, is less utilized because it does not effectively measure the options risk impact on the Company and is not addressed here. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.

The Company determines the overall magnitude of interest sensitivity risk and then formulates policies and practices governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the states of the national, regional, and local economies, and other financial and business risk factors. The Company uses simulation modeling to measure and monitor the effect of various interest rate scenarios and business strategies on net interest income. This modeling reflects interest rate changes and the related impact on net interest income and net income over specified time horizons.

EARNINGS SIMULATION ANALYSIS

Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis discussed above.

Assumptions used in the model are derived from historical trends and management’s outlook and include loan and deposit growth rates and projected yields and rates. These assumptions may not materialize and unanticipated events and circumstances may occur. The model also does not take into account any future actions of management to mitigate the impact of interest rate changes. Such assumptions are monitored by management and periodically adjusted as appropriate. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.

The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates. The analysis assesses the impact on net interest income over a 12 month time horizon after an immediate increase or “shock” in rates, of 100 basis points up to 300 basis points. The shock down 200 ~~or 300~~ basis points analysis is not as meaningful as interest rates across most of the yield curve are near historic lows and cannot decrease another 200 ~~or 300~~ basis points. The model, under all scenarios, does not drop the index below zero.

The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled for balances as of ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (dollars in thousands):


	Change In Net Interest Income September 30,								Change In Net Interest Income March 31,
	2017				2016				2018				2017
	%		$		%		$		%		$		%		$
Change in Yield Curve:
+300 basis points	7.65		23,401		11.25		31,821		3.70		16,666		14.68		44,658
+200 basis points	5.24		16,034		7.65		21,636		2.90		13,055		10.05		30,566
+100 basis points	2.82		8,634		3.91		11,051		1.71		7,678		5.21		15,861
Most likely rate scenario	—		—		—		—		—		—		—		—
-100 basis points	(3.21	)	(9,828	)	(3.30	)	(9,338	)	(3.13	)	(14,108	)	(5.95	)	(18,094	)
-200 basis points	(6.69	)	(20,459	)	(4.66	)	(13,197	)	(7.05	)	(31,730	)	(10.18	)	(30,968	)
-300 basis points	(7.04	)	(21,528	)	(4.76	)	(13,464	)

Asset sensitivity indicates that in a rising interest rate environment the Company’s net interest income would increase and in a decreasing interest rate environment the Company’s net interest income would decrease. Liability sensitivity indicates that in a rising interest rate environment the Company’s net interest income would decrease and in a decreasing interest rate environment the Company’s net interest income would increase.

As of ~~September 30, 2017,~~March 31, 2018, the Company was less asset sensitive in a rising interest rate environment scenario when compared to ~~September 30, 2016~~March 31, 2017 in part due to the composition of the balance sheet and in part due to the market characteristics of certain deposit products. The Company would expect net interest income to increase with an immediate increase or shock in market rates. In the decreasing interest rate environments, the Company would expect a decline in net interest income as interest-earning assets re-price at lower rates and interest-bearing deposits remain at or near their floors. It should be noted that although net interest income simulation results are presented through the down ~~300~~200 basis points interest rate environments, the Company does not believe the down 200 ~~and 300~~ basis point ~~scenarios are~~scenario is plausible given the current level of interest rates.

ECONOMIC VALUE SIMULATION

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.

The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly periods ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ (dollars in thousands):


	Change In Economic Value of Equity September 30,								Change In Economic Value of Equity March 31,
	2017				2016				2018				2017
	%		$		%		$		%		$		%		$
Change in Yield Curve:
+300 basis points	(1.11	)	(16,200	)	2.67		35,364		0.60		14,841		3.39		49,683
+200 basis points	(0.05	)	(800	)	2.65		35,109		1.01		24,884		2.97		43,563
+100 basis points	0.41		5,960		1.85		24,533		1.02		25,083		1.98		28,998
Most likely rate scenario	—		—		—		—		—		—		—		—
-100 basis points	(2.72	)	(39,795	)	(4.68	)	(61,889	)	(3.46	)	(85,255	)	(4.29	)	(62,850	)
-200 basis points	(8.27	)	(120,822	)	(8.92	)	(117,988	)	(9.59	)	(236,131	)	(11.31	)	(165,668	)
-300 basis points	(9.58	)	(139,886	)	(5.86	)	(77,480	)

As of ~~September 30, 2017,~~March 31, 2018, the Company was generally less sensitive to market interest rate fluctuations ~~in the shock down 100, shock down 200 and shock up 100, 200, and 300 basis points scenarios~~ when compared to ~~September 30, 2016.~~March 31, 2017. The Company believes that the shock down 200 ~~or 300~~ basis points ~~analyses are~~analysis is not as meaningful since interest rates across most of the yield curve are near historic lows and are not likely to decrease another 200 ~~or 300~~ basis points. While management considers this scenario highly unlikely, the natural floor increases the Company's sensitivity in rates down scenarios.

ITEM 4 – CONTROLS AND PROCEDURES

The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the ~~Company’s~~Company��s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level.

There was no change in the internal control over financial reporting that occurred during the quarter ended ~~September 30, 2017~~March 31, 2018 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

On September 7,19, 2017, ~~Paul Parshall,~~Shannon Rowe, a purported ~~shareholder~~stockholder of Xenith, filed a putative class action lawsuit (the ~~“Parshall~~“Rowe Lawsuit”), in the United States District Court for the Eastern District of Virginia, against Xenith and its ~~current directors, and~~directors. The Company was not named as a defendant in the ~~Company on behalf of all public shareholders of Xenith.~~Rowe Lawsuit. The plaintiff in the action alleged that the Company’s registration statement on Form S-4 filed with the SEC, as amended, relating to the ~~Pending Merger~~merger omitted certain material information in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and further that the individual defendants were liable for those omissions under Section 20(a) of the Exchange Act. The relief sought in the lawsuit included preliminary and permanent ~~injunction~~injunctions to prevent the completion of the ~~Pending Merger,~~merger, rescission or rescissory damages if the

~~Pending Merger were~~ merger was completed, costs and attorneys’ fees. On ~~November 6, 2017, Mr. Parshall~~February 20, 2018, Ms. Rowe filed a notice of voluntary dismissal, terminating the ~~Parshall~~Rowe Lawsuit without prejudice.

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

ITEM 1A – RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016 and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,~~ 2017.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities – None.

(b) Use of Proceeds – Not Applicable.

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this Form 10-Q and this list includes the Exhibit Index:



Exhibit No.		Description
2.01		Agreement and Plan of Reorganization, dated as of May 19, 2017, by and between Union Bankshares Corporation and Xenith Bankshares, Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on May 23, 2017).

3.01		Articles of Incorporation of Union Bankshares Corporation, as amended April 25, 2014 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 29, 2014).

3.02		Bylaws of Union Bankshares Corporation, as amended January 21, 2017 (incorporated by reference to Exhibit 3.02 to Annual Report on Form 10-K filed on February 28, 2017).

~~10.24~~10.33		Union Bankshares Corporation ~~Executive Severance Plan (as amended and restated effective~~Stock Ownership Policy, adopted January 1, ~~2018)~~2018 (incorporated by reference to Exhibit ~~10.24~~10.33 to ~~Current~~Annual Report on Form ~~8-K~~10-K filed ~~September 26, 2017)~~on February 27, 2018).

~~10.32~~10.34		~~Severance~~Underwriting Agreement, ~~and Release of Claims,~~ dated ~~October~~January 24, ~~2017,~~2018, by and ~~between~~among Union Bankshares Corporation, ~~Union Bank~~ACMO-HR, L.L.C., Carlyle Financial Services Harbor, L.P. and Keefe, Bruyette & ~~Trust and Elizabeth M. Bentley~~Woods, Inc. (incorporated by reference to Exhibit ~~10.32~~1.1 to Current Report on Form 8-K filed ~~October 24, 2017)~~on January 26, 2018).

10.35		Form of Performance Share Unit Agreement under Union Bankshares Corporation Stock and Incentive Plan (for awards on or after February 15, 2018) (incorporated by reference to Exhibit 10.35 to Annual Report on Form 10-K filed on February 27, 2018).

10.36		Form of Time-Based Restricted Stock Agreement under Union Bankshares Corporation Stock and Incentive Plan (for awards on or after February 15, 2018) (incorporated by reference to Exhibit 10.36 to Annual Report on Form 10-K filed on February 27, 2018).

15.01		Letter regarding unaudited interim financial information.

31.01		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01		Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.00		Interactive data files formatted in eXtensible Business Reporting Language for the quarter ended ~~September 30, 2017~~March 31, 2018 pursuant to Rule 405 of Regulation S-T (1): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Changes in Stockholders’ Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to ~~the~~ Consolidated Financial Statements (unaudited).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Union Bankshares Corporation

	(Registrant)

Date: ~~November 7, 2017~~May 9, 2018	By:	/s/ John C. Asbury
		John C. Asbury,
		President and Chief Executive Officer
		(principal executive officer)

Date: ~~November 7, 2017~~May 9, 2018	By:	/s/ Robert M. Gorman
		Robert M. Gorman,
		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

~~-76-~~-75-



	For the Nine Months Ended September 30,
	2017							2016
	Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾		Average Balance			Interest Income / Expense ⁽¹⁾		Yield / Rate ⁽¹⁾⁽²⁾
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	763,276		$	15,081	2.64	%	$	756,042		$	13,558	2.40	%
Tax-exempt	463,944			16,338		4.71	%	446,840			15,914		4.76	%
Total securities	1,227,220			31,419		3.42	%	1,202,882			29,472		3.27	%
Loans, net ^{(3) (4)}	6,613,078			217,910		4.41	%	5,869,511			194,839		4.43	%
Other earning assets	82,646			1,219		1.97	%	87,420			1,020		1.56	%
Total earning assets	7,922,944			$	250,548	4.23	%	7,159,813			$	225,331	4.20	%
Allowance for loan losses	(38,205		)					(35,439		)
Total non-earning assets	846,076							832,467
Total assets	$	8,730,815						$	7,956,841
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	3,344,248		$	8,189	0.33	%	$	2,903,336		$	4,523	0.21	%
Regular savings	571,735			493		0.12	%	591,699			649		0.15	%
Time deposits	1,250,180			9,728		1.04	%	1,172,856			7,773		0.89	%
Total interest-bearing deposits	5,166,163			18,410		0.48	%	4,667,891			12,945		0.37	%
Other borrowings ⁽⁵⁾	1,030,500			17,537		2.28	%	860,942			8,484		1.32	%
Total interest-bearing liabilities	6,196,663			$	35,947	0.78	%	5,528,833			$	21,429	0.52	%
Noninterest-bearing liabilities:
Demand deposits	1,449,555							1,376,001
Other liabilities	59,744							60,910
Total liabilities	7,705,962							6,965,744
Stockholders' equity	1,024,853							991,097
Total liabilities and stockholders' equity	$	8,730,815						$	7,956,841
Net interest income				$	214,601						$	203,902
Interest rate spread						3.45	%						3.68	%
Cost of funds						0.61	%						0.40	%
Net interest margin						3.62	%						3.80	%



	For the Nine Months Ended
	September 30,						Change
	2017			2016			$			%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	14,945		$	14,454		$	491		3.4	%
Other service charges and fees	13,575			12,971			604			4.7	%
Fiduciary and asset management fees	8,313			7,315			998			13.6	%
Mortgage banking income, net	7,123			8,324			(1,201		)	(14.4	)%
Gains on securities transactions, net	782			145			637			NM
Bank owned life insurance income	4,837			4,122			715			17.3	%
Loan-related interest rate swap fees	2,627			3,056			(429		)	(14.0	)%
Other operating income	2,228			2,470			(242		)	(9.8	)%
Total noninterest income	$	54,430		$	52,857		$	1,573		3.0	%

Community bank segment	$	47,080		$	44,137		$	2,943		6.7	%
Mortgage segment	7,743			9,185			(1,442		)	(15.7	)%
Intercompany eliminations	(393		)	(465		)	72			15.5	%
Total noninterest income	$	54,430		$	52,857		$	1,573		3.0	%



	Within 3 Months		3 - 12 Months		Over 12 Months		Total
Maturities of time deposits of $100,000 and over	$	57,493	$	201,742	$	361,835	$	621,070
Maturities of other time deposits	62,724		273,340		363,691		699,755
Total time deposits	$	120,217	$	475,082	$	725,526	$	1,320,825