~~0000883948us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateBondSecuritiesMember2019-12-31~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the Quarterly Period Ended ~~September 30, 2020~~March 31, 2021

OR

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

Commission File Number: 001-39325

ATLANTIC 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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.33 per share	AUB	The NASDAQ Global Select Market
Depositary Shares, Each Representing a 1/400^th Interest in a Share of 6.875% Perpetual Non-Cumulative Preferred Stock, Series A	AUBAP	The NASDAQ Global Select Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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	☒	Accelerated filer	☐
Non-accelerated filer	☐
		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 ☒

The number of shares of common stock outstanding as of ~~October 28, 2020~~April 29, 2021 was ~~78,718,695.~~79,010,443.

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX


ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of ~~September 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020 (audited)	2

	Consolidated Statements of Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	3

	Consolidated Statements of Comprehensive Income (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	5

	Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	76

	Notes to Consolidated Financial Statements (unaudited)	98

	Review Report of Independent Registered Public Accounting Firm	6049

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6150

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9579

Item 4.	Controls and Procedures	9781

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	9882

Item 1A.	Risk Factors	9882

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9882

Item 6.	Exhibits	9983

	Signatures	~~100~~84

Table of Contents

Glossary of Acronyms and Defined Terms


~~2019~~2020 Form 10-K	–	Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020
Access	–	Access National Corporation and its subsidiaries
ACL	–	Allowance for credit losses
AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALLL	–	Allowance for loan and lease losses, a component of ACL
AOCI	–	Accumulated other comprehensive income (loss)
ASC	–	Accounting Standards Codification
ASC 326	–	ASU 2016-13, Financial Instruments and Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASC 820	–	ASC 820, Fair Value Measurements and Disclosures
~~ASC 842~~	–	~~ASU 2016-02,~~ ~~Leases (Topic 842)~~
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Atlantic Union Bank (formerly, Union Bank & Trust)
BOLI	–	Bank-owned life insurance
bps	–	Basis points
CAA	–	Consolidated Appropriations Act, 2021
CARES Act	–	Coronavirus Aid, Relief, and Economic Security Act
~~CCPs~~	–	~~Central Counterparty Clearinghouses~~
CECL	–	Current expected credit losses
~~CME~~	–	~~Chicago Mercantile Exchange~~
the Company	–	Atlantic Union Bankshares Corporation (formerly, Union Bankshares Corporation) and its subsidiaries
COVID-19	–	~~Novel strain of coronavirus first identified in December 2019 in Wuhan, China that has spread worldwide~~COVID-19 global pandemic
depositary shares	–	Depositary shares, each representing a 1/400th ownership interest in a share of the Company’s Series A preferred stock , with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share)
Dodd-Frank Act	–	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS	–	Earnings per common share
Exchange Act	–	Securities Exchange Act of 1934, as amended
FASB	–	Financial Accounting Standards Board
FCMs	–	Futures Commission Merchants
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
Federal Reserve Act	–	Federal Reserve Act of 1913, as amended
Federal Reserve Bank or FRB	–	Federal Reserve Bank of Richmond
FHLB	–	Federal Home Loan Bank of Atlanta
FOMC	–	Federal Open Markets Committee
FTE	–	Fully taxable equivalent
GAAP or U.S. GAAP	–	Accounting principles generally accepted in the United States
HTM	–	Held to maturity
ICE Data Services	–	Intercontinental Exchange Data Services
~~LCH~~	–	~~London Clearing House~~
~~LIBOR~~	–	~~London Interbank Offered Rate~~
~~March 22~~the Joint Guidance	–	The five federal bank regulatory agencies and the Conference of State Bank Supervisors guidance issued on March 22, 2020 (subsequently revised on April 7, 2020)
~~MSLP~~LIBOR	–	~~Main Street Lending Program~~London Interbank Offered Rate
MBS	–	Mortgage Backed Securities
MD&A	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Table of Contents~~

NOW	–	Negotiable order of withdrawal
NPA	–	Nonperforming assets
NSF	–	Nonsufficient funds
OCI	–	Other comprehensive income

Table of Contents

OREO	–	Other real estate owned
OTTI	–	Other than temporary impairment
PCD	–	Purchased credit deteriorated
PCI	–	Purchased credit impaired
PD/LGD	–	Probability of default/loss given default
PPPLF	–	Paycheck Protection Program Liquidity Facility
PPP	–	Paycheck Protection Program
PPP Round One	–	Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act
PPP Round Two	–	Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Consolidated Appropriations Act, 2021
Quarterly Report	–	Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2020~~March 31, 2021
ROA	–	Return on average assets
ROE	–	Return on average common equity
ROTCE	–	Return on average tangible common equity
ROU Asset	–	Right of Use Asset
RUC	–	Reserve for unfunded commitments
RVI	–	Residual value insurance
SBA	–	Small Business Administration
SEC	–	Securities and Exchange Commission
Series A preferred stock	–	6.875% Perpetual Non-Cumulative Preferred Stock, Series A, par value $10.00 per share
SSFA	–	Simplified supervisory formula approach
TDR	–	Troubled debt restructuring
Topic 606	–	ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”
Topic 740	–	ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”
Topic 848	–	ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
TFSB	–	The Federal Savings Bank
~~UMG~~	–	~~Union Mortgage Group, Inc.~~
~~WHO~~	–	~~World Health Organization~~
Xenith	–	Xenith Bankshares, Inc. and its subsidiaries

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)


	September 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
ASSETS		(unaudited)		(audited)		(unaudited)		(audited)
Cash and cash equivalents:
Cash and due from banks	$	178,563	$	163,050	$	155,972	$	172,307
Interest-bearing deposits in other banks		335,111		234,810		244,593		318,974
Federal funds sold		7,292		38,172		315		2,013
Total cash and cash equivalents		520,966		436,032		400,880		493,294
Securities available for sale, at fair value		2,443,340		1,945,445		2,697,043		2,540,419
Securities held to maturity, at carrying value		546,661		555,144		543,575		544,851
Restricted stock, at cost		112,216		130,848		76,824		94,782
Loans held for sale, at fair value		52,607		55,405		49,082		96,742
Loans held for investment, net of deferred fees and costs		14,383,215		12,610,936		14,272,280		14,021,314
Less allowance for loan and lease losses		174,122		42,294		142,911		160,540
Total loans held for investment, net		14,209,093		12,568,642		14,129,369		13,860,774
Premises and equipment, net		156,934		161,073		161,478		163,829
Goodwill		935,560		935,560		935,560		935,560
Amortizable intangibles, net		61,068		73,669		53,471		57,185
Bank owned life insurance		325,538		322,917		328,627		326,892
Other assets		566,667		378,255		478,703		514,121
Total assets	$	19,930,650	$	17,562,990	$	19,854,612	$	19,628,449
LIABILITIES
Noninterest-bearing demand deposits	$	4,420,665	$	2,970,139	$	5,066,399	$	4,368,703
Interest-bearing deposits		11,155,433		10,334,842		11,231,618		11,354,062
Total deposits		15,576,098		13,304,981		16,298,017		15,722,765
Securities sold under agreements to repurchase		91,086		66,053		105,522		100,888
Other short-term borrowings		175,200		370,200		168,000		250,000
Long-term borrowings		1,048,036		1,077,495		290,078		489,829
Other liabilities		379,345		231,159		283,263		356,477
Total liabilities		17,269,765		15,049,888		17,144,880		16,919,959
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock, $10.00 par value		173		0		173		173
Common stock, $1.33 par value		104,141		105,827		104,493		104,169
Additional paid-in capital		1,914,640		1,790,305		1,918,991		1,917,081
Retained earnings		579,269		581,395		649,574		616,052
Accumulated other comprehensive income (loss)		62,662		35,575		36,501		71,015
Total stockholders' equity		2,660,885		2,513,102		2,709,732		2,708,490
Total liabilities and stockholders' equity	$	19,930,650	$	17,562,990	$	19,854,612	$	19,628,449

Common shares outstanding		78,718,850		80,001,185		79,006,331		78,729,212
Common shares authorized		200,000,000		200,000,000		200,000,000		200,000,000
Preferred shares outstanding		17,250		0		17,250		17,250
Preferred shares authorized		500,000		500,000		500,000		500,000

See accompanying notes to consolidated financial statements.

-2-

Table of Contents

ATLANTIC 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
	September 30,		September 30,		September 30,		September 30,		Three Months Ended
	2020		2019		2020		2019		March 31,		March 31,
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		2021		2020
Interest and dividend income:
Interest and fees on loans	$	138,402	$	156,651	$	432,763	$	459,603	$	128,006	$	151,127
Interest on deposits in other banks		137		1,030		1,154		2,047		77		862
Interest and dividends on securities:
Taxable		10,275		12,625		33,170		39,059		10,353		11,627
Nontaxable		8,600		8,039		24,520		24,413		9,237		7,709
Total interest and dividend income		157,414		178,345		491,607		525,122		147,673		171,325
Interest expense:
Interest on deposits		15,568		30,849		63,943		84,088		9,128		28,513
Interest on short-term borrowings		72		2,200		1,598		14,313		48		1,340
Interest on long-term borrowings		4,393		8,695		16,372		23,978		3,599		6,464
Total interest expense		20,033		41,744		81,913		122,379		12,775		36,317
Net interest income		137,381		136,601		409,694		402,743		134,898		135,008
Provision for credit losses		6,558		9,100		100,954		18,192		(13,624)		60,196
Net interest income after provision for credit losses		130,823		127,501		308,740		384,551		148,522		74,812
Noninterest income:
Service charges on deposit accounts		6,041		7,675		18,549		22,331		5,509		7,578
Other service charges, commissions and fees		1,621		1,513		4,600		4,879		1,701		1,624
Interchange fees		1,979		2,108		5,300		12,765		1,847		1,625
Fiduciary and asset management fees		6,045		6,082		17,543		16,834		6,475		5,984
Mortgage banking income		8,897		3,374		16,744		7,614		8,255		2,022
Gains on securities transactions		18		7,104		12,293		7,306		78		1,936
Bank owned life insurance income		3,421		2,062		7,498		6,191		2,265		2,049
Loan-related interest rate swap fees		3,170		5,480		12,602		10,656		1,754		3,948
Other operating income		3,215		12,708		4,116		15,045		3,101		2,141
Total noninterest income		34,407		48,106		99,245		103,621		30,985		28,907
Noninterest expenses:
Salaries and benefits		49,000		49,718		149,013		148,116		52,660		50,117
Occupancy expenses		7,441		7,493		21,798		22,427		7,315		7,133
Furniture and equipment expenses		3,895		3,719		11,042		10,656		3,968		3,741
Printing, postage, and supplies		904		1,268		3,194		3,763
Technology and data processing		6,564		5,787		19,187		17,203		6,904		6,169
Professional services		2,914		2,681		9,211		8,269		4,960		3,307
Marketing and advertising expense		2,631		2,600		7,413		7,891		2,044		2,739
FDIC assessment premiums and other insurance		1,811		381		7,578		5,620		2,307		2,861
Other taxes		4,124		3,971		12,364		11,779		4,436		4,120
Loan-related expenses		2,314		2,566		7,512		7,250		1,877		2,697
OREO and credit-related expenses		413		1,005		1,512		3,162		(114)		688
Amortization of intangible assets		4,053		4,764		12,676		13,919		3,730		4,401
Training and other personnel costs		746		1,618		3,192		4,240
Merger-related costs		0		2,435		0		26,928
Rebranding expense		0		1,133		0		5,553
Loss on debt extinguishment		0		16,397		10,306		16,397		14,695		0
Other expenses		6,412		4,151		15,683		10,849		7,155		7,672
Total noninterest expenses		93,222		111,687		291,681		324,022		111,937		95,645
Income from continuing operations before income taxes		72,008		63,920		116,304		164,150		67,570		8,074
Income tax expense		11,008		10,724		17,506		26,330		11,381		985
Income from continuing operations	$	61,000	$	53,196	$	98,798	$	137,820
Discontinued operations:
Income (loss) from operations of discontinued mortgage segment	$	0	$	56	$	0	$	(173)
Income tax expense (benefit)		0		14		0		(45)
Income (loss) on discontinued operations		0		42		0		(128)
Net income		61,000		53,238		98,798		137,692		56,189		7,089
Dividends on preferred stock		2,691		-		2,691		-		2,967		0
Net income available to common shareholders	$	58,309	$	53,238	$	96,107	$	137,692	$	53,222	$	7,089

Basic earnings per common share	$	0.74	$	0.65	$	1.22	$	1.72	$	0.67	$	0.09
Diluted earnings per common share	$	0.74	$	0.65	$	1.22	$	1.72	$	0.67	$	0.09
Dividends declared per common share	$	0.25	$	0.25	$	0.75	$	0.71	$	0.25	$	0.25
Basic weighted average number of common shares outstanding		78,714,353		81,769,193		78,904,792		80,120,725		78,863,468		79,290,352
Diluted weighted average number of common shares outstanding		78,725,346		81,832,868		78,921,108		80,183,113		78,884,235		79,317,382

See accompanying notes to consolidated financial statements.

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Net income	$	61,000	$	53,238	$	98,798	$	137,692	$	56,189	$	7,089
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges		0		6,025		(699)		1,970		(1,428)		(699)
Reclassification adjustment for losses included in net income (net of tax, $0 and $42 for the three months and $394 and $120 for the nine months ended September 30, 2020 and 2019, respectively)⁽¹⁾		0		158		1,481		451
Reclassification adjustment for losses (gains) included in net income (net of tax, $12 and $394 for the three months ended March 31, 2021 and 2020, respectively)⁽¹⁾										(47)		1,481
AFS securities:
Unrealized holding gains arising during period (net of tax, $332 and $3,287 for the three months and $9,824 and $14,513 for the nine months ended September 30, 2020 and 2019, respectively)		1,250		12,364		36,956		54,598
Reclassification adjustment for gains included in net income (net of tax, $4 and $1,492 for the three months and $2,582 and $1,534 for the nine months ended September 30, 2020 and 2019, respectively) ⁽²⁾		(14)		(5,612)		(9,711)		(5,772)
Unrealized holding gains (losses) arising during period (net of tax, $8,806 and $3,904 for the three months ended March 31, 2021 and 2020, respectively)										(33,125)		14,687
Reclassification adjustment for gains included in net income (net of tax, $16 and $407 for the three months ended March 31, 2021 and 2020, respectively) ⁽²⁾										(62)		(1,529)
HTM securities:
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months and $4 and $4 for the nine months ended September 30, 2020 and 2019, respectively)⁽³⁾		(5)		(5)		(15)		(15)
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $1 and $1 for the three months ended March 31, 2021 and 2020, respectively)⁽³⁾										(5)		(5)
Bank owned life insurance:
Unrealized holding losses arising during the period		0		(647)		(1,289)		(647)		0		(1,289)
Reclassification adjustment for losses included in net income ⁽⁴⁾		127		19		364		57		153		108
Other comprehensive income (loss)		1,358		12,302		27,087		50,642		(34,514)		12,754
Comprehensive income	$	62,358	$	65,540	$	125,885	$	188,334	$	21,675	$	19,843

(1)

The gross amounts reclassified into earnings for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 included a $1.8 million loss related to the termination of a cash flow hedge that is reported in “Other operating income” with the corresponding income tax effect being reflected as a component of income tax expense. The remaining gross amounts are reported in the interest income and interest expense sections of the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.

(2)	The gross amounts reclassified into earnings are reported as "Gains on securities transactions" on the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense.

(3)	The gross amounts reclassified into earnings are reported 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.

(4)	Reclassifications in earnings are reported in "Salaries and benefits" expense on the Company’s Consolidated Statements of Income.

See accompanying notes to consolidated financial statements.

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 and 2020

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

Accumulated

Additional

Other

Additional

Other

Common

Preferred

Paid-In

Retained

Comprehensive

Common

Preferred

Paid-In

Retained

Comprehensive

Stock

Capital

Earnings

Income (Loss)

Total

Stock

Capital

Earnings

Income (Loss)

Total

Balance - December 31, 2019

105,827

—

1,790,305

581,395

35,575

2,513,102

105,827

1,790,305

581,395

35,575

2,513,102

Net Income

7,089

7,089

Other comprehensive income (net of taxes of $3,890)

12,754

12,754

Dividends on common stock ($0.25 per share)

(19,825)

(19,825)

Stock purchased under stock repurchase plan (1,493,472 shares)

(1,985)

(47,894)

(49,879)

(1,985)

(47,894)

(49,879)

Issuance of common stock under Equity Compensation Plans (34,714 shares)

731

777

Issuance of common stock for services rendered (6,860 shares)

195

204

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (142,176 shares)

189

(2,199)

(2,010)

Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (183,750 shares)

244

(1,273)

(1,029)

Impact of adoption of ASC 326

(39,053)

(39,053)

Stock-based compensation expense

2,291

2,291

Balance - March 31, 2020

104,086

—

1,743,429

529,606

48,329

2,425,450

Balance- March 31, 2020

104,086

1,743,429

529,606

48,329

2,425,450

Balance - December 31, 2020

104,169

173

1,917,081

616,052

71,015

2,708,490

Net Income

30,709

56,189

Other comprehensive income (net of taxes of $3,415)

12,975

Issuance of preferred stock (17,250 shares)

173

166,190

166,363

Other comprehensive loss (net of taxes of $8,835)

(34,514)

Dividends on common stock ($0.25 per share)

(19,677)

(19,700)

Issuance of common stock under Equity Compensation Plans (1,632 shares)

Issuance of common stock for services rendered (8,640 shares)

189

200

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (19,848)

(206)

(179)

Dividends on preferred stock ($171.88 per share)

(2,967)

Issuance of common stock under Equity Compensation Plans, for services rendered, and vesting of restricted stock, net of shares held for taxes (243,884 shares)

324

(289)

Stock-based compensation expense

2,361

2,199

Balance - June 30, 2020

104,126

173

1,911,985

540,638

61,304

2,618,226

Net Income

61,000

Other comprehensive income (net of taxes of $327)

1,358

Net proceeds from preferred stock

(7)

Dividends on common stock ($0.25 per share)

(19,678)

Dividends on preferred stock ($156.60 per share)

(2,691)

Issuance of common stock for services rendered (8,592 shares)

189

200

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (3,009 shares)

(27)

(23)

Stock-based compensation expense

2,500

Balance - September 30, 2020

104,141

173

1,914,640

579,269

62,662

2,660,885

Balance - March 31, 2021

104,493

173

1,918,991

649,574

36,501

2,709,732

See accompanying notes to consolidated financial statements.

~~-5-~~

~~Table of Contents~~

~~ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)~~

~~THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019~~

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

Accumulated


Additional

Other

Common

Paid-In

Retained

Comprehensive

Stock

Capital

Earnings

Income (Loss)

Total
Balance - December 31, 2018

$
87,250

$
1,380,259

$
467,345

$
(10,273)

$
1,924,581
Net Income



35,631



35,631
Other comprehensive income (net of taxes of $5,346)







18,670

18,670
Issuance of common stock in regard to acquisition (15,842,026 shares)

21,070

478,904





499,974
Dividends on common stock ($0.23 per share)





(18,838)



(18,838)
Issuance of common stock under Equity Compensation Plans (6,127 shares)

8

130





138
Issuance of common stock for services rendered (6,085 shares)

8

211





219
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (104,151 shares)

139

(1,786)





(1,647)
Impact of adoption of ASC 842

(1,133)

(1,133)
Stock-based compensation expense



1,870





1,870
Balance- March 31, 2019

$
108,475

$
1,859,588

$
483,005

$
8,397

$
2,459,465
Net Income





48,823



48,823
Other comprehensive income (net of taxes of $5,913)







19,670

19,670
Dividends on common stock ($0.23 per share)

(18,876)



(18,876)
Issuance of common stock under Equity Compensation Plans (36,551 shares)

48

938



986
Issuance of common stock for services rendered (6,192 shares)

8

192





200
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (21,447 shares)

29

(336)



(307)
Stock-based compensation expense



2,334



2,334
Balance- June 30, 2019

$
108,560

$
1,862,716

$
512,952

$
28,067

$
2,512,295
Net Income





53,238



53,238
Other comprehensive income (net of taxes of $1,836)

12,302

12,302
Dividends on common stock ($0.25 per share)

(20,525)

(20,525)
Stock purchased under stock repurchase plan (969,265 shares)

(1,289)

(33,995)

(35,284)
Issuance of common stock under Equity Compensation Plans (28,253 shares)

38

656

694
Issuance of common stock for services rendered (7,840 shares)

10

269

279
Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (8,247 shares)

11

(138)

(127)
Stock-based compensation expense

2,159

2,159
Balance - September 30, 2019

$
107,330

$
1,831,667

$
545,665

$
40,369

$
2,525,031

~~See accompanying notes to consolidated financial statements.~~

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~


(Dollars in thousands)	2020		2019		2021		2020
Operating activities ⁽¹⁾:
Operating activities:
Net income	$	98,798	$	137,692	$	56,189	$	7,089
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of premises and equipment		11,311		11,138		3,969		3,831
Writedown of foreclosed properties and former bank premises		4,847		1,162		1,065		95
Amortization, net		20,151		19,033		7,904		6,164
Amortization (accretion) related to acquisitions, net		(7,736)		(5,200)
Accretion related to acquisitions, net						(532)		(5,262)
Provision for credit losses		100,954		18,192		(13,624)		60,196
Gains on securities transactions, net		(12,293)		(7,306)		(78)		(1,936)
BOLI income		(7,498)		(6,191)		(2,265)		(2,049)
Decrease (increase) in loans held for sale, net		2,798		(50,981)
Originations and purchases of loans held for sale						(185,885)		(111,008)
Proceeds from sales of loans held for sale						231,250		92,298
Losses (gains) on sales of foreclosed properties and former bank premises, net		37		144		(706)		141
Losses on debt extinguishment		10,306		16,397		14,695		0
Stock-based compensation expenses		7,152		6,363		2,199		2,291
Issuance of common stock for services		604		698		0		204
Net decrease (increase) in other assets		(180,310)		(76,118)		42,567		(112,493)
Net increase in other liabilities		128,298		44,312
Net cash provided by (used in) operating activities		177,419		109,335
Net increase (decrease) in other liabilities						(72,375)		110,796
Net cash provided by operating activities						84,373		50,357
Investing activities:
Purchases of AFS securities and restricted stock		(940,745)		(312,120)		(355,992)		(208,318)
Purchases of HTM securities		0		(47,217)
Proceeds from sales of AFS securities and restricted stock		232,946		486,925		45,436		120,701
Proceeds from maturities, calls and paydowns of AFS securities		271,986		176,824		124,053		81,240
Proceeds from maturities, calls and paydowns of HTM securities		5,996		2,523		432		2,042
Net increase in loans held for investment		(1,761,350)		(371,260)		(250,762)		(152,891)
Net increase in premises and equipment		(18,557)		(11,547)		(3,520)		(3,994)
Cash proceeds from BOLI settlements		439		0
Proceeds from BOLI settlements						556		0
Proceeds from sales of foreclosed properties and former bank premises		2,706		5,329		2,431		2,095
Cash paid in acquisitions		0		(12)
Cash acquired in acquisitions		0		46,164
Net cash provided by (used in) investing activities		(2,206,579)		(24,391)
Net cash used in investing activities						(437,366)		(159,125)
Financing activities:
Net increase in noninterest-bearing deposits		1,450,526		376,160		697,696		97,434
Net increase in interest-bearing deposits		820,701		471,204
Net increase (decrease) in interest-bearing deposits						(122,424)		150,670
Net increase (decrease) in short-term borrowings		(169,967)		(896,622)		(77,366)		528
Cash paid for contingent consideration		0		(565)
Proceeds from issuance of long-term debt		189,945		550,000
Repayments of long-term debt		(230,306)		(160,614)		(214,695)		0
Cash dividends paid - common stock		(59,180)		(58,239)		(19,700)		(19,825)
Cash dividends paid - preferred stock		(2,691)		0		(2,967)		0
Repurchase of common stock		(49,879)		(35,284)		0		(49,879)
Issuance of common stock		801		1,818		2,183		777
Issuance of preferred stock, net		166,356		0
Vesting of restricted stock, net of shares held for taxes		(2,212)		(2,081)		(2,148)		(2,010)
Net cash provided by (used in) financing activities		2,114,094		245,777
Net cash provided by financing activities						260,579		177,695
Increase (decrease) in cash and cash equivalents		84,934		330,721		(92,414)		68,927
Cash, cash equivalents and restricted cash at beginning of the period		436,032		261,199
Cash, cash equivalents and restricted cash at end of the period	$	520,966	$	591,920
Cash, cash equivalents, and restricted cash at beginning of the period						493,294		436,032
Cash, cash equivalents, and restricted cash at end of the period					$	400,880	$	504,959

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Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~

(Dollars in thousands)

2020

2019
Supplemental Disclosure of Cash Flow Information




Cash payments for:




Interest

$
82,409

$
118,067
Income taxes

13,649

20,416

Supplemental schedule of noncash investing and financing activities




Transfers from loans (foreclosed properties) to foreclosed properties (loans)

615

1,816
Transfers from bank premises to OREO

7,949

—
Issuance of common stock in exchange for net assets in acquisitions

0

499,974

Transactions related to acquisitions




Assets acquired

0

2,855,993
Liabilities assumed

0

2,558,638

~~(1)~~ ~~Discontinued operations have an immaterial impact to the Company’s Consolidated Statements of Cash Flows.~~


	2021		2020
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	11,502	$	34,755

Supplemental schedule of noncash investing and financing activities
Transfers from loans to foreclosed properties		0		615
Transfers from bank premises to OREO		1,425		—
Transfers from LHFI to LHFS		0		2,001

See accompanying notes to consolidated financial statements.

~~-8-~~-7-

Table of Contents

ATLANTIC UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated ~~Financial~~Financial Statements (Unaudited)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has ~~135~~129 branches and approximately ~~155~~ 150ATMs located throughout Virginia, and in portions of Maryland and North Carolina. ~~Middleburg Financial~~Atlantic Union Bank Wealth Management is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank affiliates of Atlantic Union Bank include: Old Dominion Capital Management, Inc., and its subsidiary, Outfitter Advisors, Ltd., and Dixon, Hubard, Feinour, & Brown, Inc., which provide investment advisory services, ~~Middleburg Investment Services,~~Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.

Effective March 1, 2021, Middleburg Financial, the Bank’s wealth management division was rebranded to Atlantic Union Bank Wealth Management, and Middleburg Investment Services, LLC changed its name to Atlantic Union Financial Consultants, LLC.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 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 or any other period.

~~These~~The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s ~~2019~~2020 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

~~Impact of COVID-19~~

On March 13, 2020, the United States President declared a national emergency in the face of a growing public health and economic crisis due to the COVID-19 global pandemic. Within a few days of the declaration of a national emergency, governors of states comprising the Company’s geographic footprint issued states of emergency in response to the novel COVID-19. As a result of this pandemic, actions were taken around the world to help mitigate the spread of COVID 19, which have impacted the economies and financial markets of many countries, including the geographical area in which the Company operates. On March 27, 2020, the CARES Act was signed into law. The CARES Act is designated to provide financial relief to the American people and American businesses in response to the economic fallout from COVID-19. On March 22, 2020, the five federal bank regulatory agencies and the Conference of State Bank Supervisors issued joint guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19. The CARES Act, as well as the March 22 Joint Guidance, provide enhanced guidelines and accounting for COVID-19 related modifications.

The federal banking regulators have confirmed with the FASB that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) when the modification program was implemented are not considered TDRs. In addition, Section 4013 of the CARES Act provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans that were not more than thirty days past due as of December 31, 2019. The Company has made $1.8 billion of loan modifications pursuant to the March 22 Joint Guidance or Section 4013 of the CARES Act and as of September 30, 2020 approximately $769.6 million remain under their modified terms. The majority of the Company’s modifications as of September 30, 2020 were in the commercial real estate portfolios.

The Bank processed over 11,000 PPP loans, which totaled $1.7 billion with a recorded investment of $1.6 billion as of September 30, 2020, which included unamortized deferred fees of $32.6 million. The loans carry a 1% interest rate.

Adoption of New Accounting Standards

In March 2020, the FASB issued Topic 848. This guidance provides temporary, optional guidance to ease the potential burden in accounting for reference rate reform associated with the LIBOR transition. LIBOR and other interbank offered rates are widely used benchmark or reference rates that have been used in the valuation of loans, derivatives, and other financial contracts. Global capital markets are going to be required to move away from LIBOR and other interbank offered rates and toward rates that are more observable or transaction based and less susceptible to manipulation. Topic 848 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. Topic 848 is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective as of March 12, 2020 through December 31, 2022 and can be adopted at an instrument level. As of March 31, 2021, the Company utilized the expedient to assert probability of the hedged interest, regardless of any expected modification in terms related to reference rate reform for the newly executed cash flow hedges. The Company expects to incorporate other components of Topic 848 at a later date. This amendment does not have a material impact on the consolidated financial statements.

On January 1, ~~2020,~~2021, the Company adopted ~~ASC 326.~~Topic 740. This ~~ASU updates the~~guidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information difficult for users of financial statements to understand. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending 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. This ASU replaces the incurred loss impairment methodology

~~-9-~~

~~Table of Contents~~

~~in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.~~guidance. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to- maturity debt securities. It also applies to unfunded credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). The Company established a cross-functional governance structure to oversee the Company’s ~~implementation of the CECL methodology, which included evaluating key assumptions used and assessing the internal controls over financial reporting related to the~~ adoption of ASC 326. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and unfunded credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. As a result of adopting ASC 326, the Company recorded a net decrease to retained earnings of ~~$39.1 million.~~
ASC 326 also replaced the Company’s current accounting for PCI loans. With the adoption of ASC 326, previously classified PCI loans are now classified as PCD loans. In accordance with ASC 326, the Company did not re-assess whether individual modifications were needed to individual acquired financial assets accounted for in the pools with troubled debt restructurings as of the date of adoption. The Company adopted ASC 326 using the prospective transition approach for financial assets with PCD that were previously identified as PCI and accounted for under ASC 310-30. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $2.4 million to the ACL. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of January 1,~~2020.~~
~~The Company adopted ASC 326 using the prospective transition approach for debt securities. The effective interest rate on these debt securities was not changed. Upon adoption of ASC 326, the Company~~Topic 740 did not have ~~any securities included in its portfolio where OTTI had previously beenrecognized.~~
~~The following table illustrates the~~a material impact ~~of ASC326.~~

December 31,

January 1,

January 1,

2019

2020

2020

As Previously Reported (Incurred Loss)

Impact of CECL Adoption

As Reported Under CECL
Assets:

Loans

Commercial
$
30,941
$
6,184
$
37,125
Consumer

11,353

41,300

52,653
Allowance for loan and lease losses

42,294

47,484

89,778
Liabilities:

Allowance for credit losses on unfunded credit exposure

900

4,160

5,060
Total Allowance for credit losses
$
43,194
$
51,644
$
94,838

~~Allowance for Loan and Lease Losses~~
The provision for loan losses charged to operations is an amount sufficient to bring the allowance to an estimated balance that management considers adequate to absorb expected losses in the Company’s loan portfolio. The ALLL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the ~~loans. Amortized cost is the principal balance outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.~~
The ALLL represents management’s estimate of credit losses over the remaining life of the loan portfolio. Loans are charged off against the ALLL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged off amounts are recorded as increases to the~~ALLL.~~

~~-10-~~

~~Table of Contents~~

Management’s determination of the adequacy of the ALLL is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors. The ALLL is estimated by pooling loans by call code and credit risk indicator and applying a loan-level PD/LGD method for all loans with the exception of its auto and third party consumer lending portfolios. For auto and third party consumer portfolios, the Company has elected to pool those loans based on similar risk characteristics to determine the ALLL using vintage and loss rate methods. The Company utilizes a forecast period of two years and then reverts to the mean of historical loss factors on a straight-line basis over the following two-year period. The Company considers economic forecasts and recession probabilities from highly recognized third-parties to inform the model for loss estimation. The Company’s ALLL estimate is particularly impacted by the unemployment rate forecast in its geographic footprint. In the current quarter forecast, the unemployment rate in the Company’s geographic footprint is projected to remain significantly elevated through the forecast period. Management also considers qualitative factors when estimating loan losses to take into account model limitations. For the current quarter, the largest qualitative additions were related to industries that are particularly impacted by the COVID-19 pandemic and uncertainty regarding the extent and duration of the pandemic and the timing and efficacy of any potential future government stimulus. These qualitative factors were partially offset by qualitative reductions meant to account for enhanced unemployment benefits, bank deferrals, the PPP loan program and other factors. The Company’s Allowance Committee approves the key methodologies and assumptions, as well as the final ALLL on a quarterly basis. While management uses available information to estimate expected losses on loans, future changes in the ALLL may be necessary based on changes in portfolio composition, portfolio credit quality, and/or economic conditions.

Loans that do not share risk characteristics are evaluated on an individual basis. The individual reserve component relates to loans that have shown substantial credit deterioration as measured by risk rating and/or delinquency status. In addition, the Company has elected the practical expedient that would include loans for individual assessment consideration if the repayment of the loan is expected substantially through the operation or sale of collateral because the borrower is experiencingconsolidated financial difficulty. Where the source of repayment is the sale of collateral, the ALLL is based on the fair value of the underlying collateral, less selling costs, compared to the amortized cost basis of the loan. If the ALLL is based on the operation of the collateral, the reserve is calculated based on the fair value of the collateral calculated as the present value of expected cash flows from the operation of the collateral, compared to the amortized cost basis. If the Company determines that the value of a collateral dependent loan is less than the recorded investment in the loan, the Company charges off the deficiency if it is determined that such amount is deemed to be a confirmed loss. Typically, a loss is confirmed when the Company is moving towards foreclosure (or final disposition).

In situations where, for economic or legal reasons related to a borrower’s financial condition, the Company grants a concession in the loan structure to the borrower that it would not otherwise consider, the related loan is classified as a TDR. With the exception of loans with interest rate concessions, the ALLL on a TDR is measured using the same method as all other loans held for investment. For loans with interest rate concessions, the Company uses a discounted cash flow approach using the original interest rate.statements.

~~Reserve for Unfunded Commitments~~

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is adjusted as a provision for credit loss expense and is measured using the same measurement objectives as the ALLL. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded and is included in “Other Liabilities” within the Company’s Consolidated Balance Sheets.

~~Accrued Interest Receivable~~

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ACL reserve for both loans and HTM securities, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest receivable totaled $55.4 million on loans held for investment and, $5.1 million on HTM securities at September 30, 2020 and is included in “Other Assets” on the Company’s Consolidated Balance Sheets.

~~-11-~~

~~Table of Contents~~

~~Acquired Loans~~

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Acquired loans are recorded at their fair value at acquisition date without carryover of the acquiree’s previously established ALLL, as credit discounts are included in the determination of fair value. The fair value of the loans is 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 then applying a market-based discount rate to those cash flows. During evaluation upon acquisition, acquired loans are also classified as either PCD or acquired performing.

~~The purchase discount on acquired performing loans is accounted for under ASC 310-20,~~ ~~Receivables – Nonrefundable Fees and Other Costs~~. The difference between the fair value and unpaid principal balance of the loan at acquisition date (premium or discount) is amortized or accreted into interest income over the life of the loans. If the acquired performing loan has revolving privileges, it is accounted for using the straight-line method; otherwise, the effective interest method is used.

~~PCD loans reflect loans that have experienced more-than-insignificant credit deterioration since origination. These PCD loans are accounted for under ASC 326~~. Credit risk characteristics include risk rating groups, nonaccrual status, and past due status. For valuation purposes, these pools are further disaggregated by maturity, pricing characteristics, and re-payment structure.

PCD loans are recorded at the amount paid. An ALLL is determined using the same methodology as other loans held for investment. For PCD loans not individually assessed, the initial ALLL is determined on a collective basis and is allocated to individual loans. The sum of the loan's purchase price and ALLL becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.~~Subsequent changes to the ALLL are recorded through provision expense.~~

~~ThePCDloansareandwillcontinue~~tobe~~subject~~to~~theCompany’sinternalandexternalcreditreviewandmonitoring.~~

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash, cash due from banks, interest-bearing deposits in other banks, money market investments, other interest-bearing deposits, and federal funds sold.

Restricted cash is disclosed in Note 87 “Commitments and Contingencies” and is comprised of cash maintained at various correspondent banks as collateral for the Company’s derivative portfolio and is included in interest-bearing deposits in other

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banks in the Company’s Consolidated Balance Sheets. In addition, the Company is required to maintain reserve balances with the Federal Reserve Bank based on the type and amount of deposits; however, on March 15, 2020 the Federal Reserve Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020 due to economic conditions, which eliminated the reserve requirement for all depository institutions.

Accrued Interest Receivable

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ALLL, as well as the ACL reserve for securities. Accrued interest receivable totaled $57.4 million and $56.7 million on loans held for investment, $5.1 million and $6.8 million on HTM securities, and $11.7 million and $11.9 million on AFS securities at March 31, 2021 and December 31, 2020, respectfully, and is included in “Other Assets” on the Company’s Consolidated Balance Sheets. The Company’s policy is to write off accrued interest receivable through reversal of interest income when it becomes probable the Company will not be able to collect the accrued interest. For the quarters ended March 31, 2021 and March 31, 2020, accrued interest receivable write offs were not material to the Company’s consolidated financial statements.

~~Investment Securities~~

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securitieswhere prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

The Company regularly evaluates all securities whose values have declined below amortized cost to assess whether the decline in fair value is the result of credit impairment. For AFS securities, the Company evaluates the fair value and credit quality of its AFS securities on at least a quarterly basis. In the event the fair value of a security falls below its amortized cost basis, the security will be evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality. The primary indicators of credit quality for the Company’s AFS portfolio are security type and credit rating, which are influenced by a number of security-specific factors that may include obligor cash flow, geography, seniority, structure, credit enhancement and other factors.

~~-12-~~-9-

Table of Contents

There is currently 0 ACL held against the Company’s AFS securities portfolio at September 30, 2020. See Note 3 “Securities,” for additional information on the Company’s ACL analysis. If unrealized losses are related to credit quality, the Company estimates the credit related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, an ACL shall be recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis. Non-credit related declines in fair value are recognized in other comprehensive income, net of applicable taxes. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Charge-offs are recorded against the ACL when management believes the AFS security is no longer collectible. Currently, the Company does not have an ACL on its AFS debt securities portfolio. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent.

The Company evaluates the credit risk of its HTM securities on at least a quarterly basis. Management estimates expected credit losses on held-to-maturity debt securities based on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. Management recorded an immaterial ACL on HTM securities as a result of the adoption of ASC 326, and no additional changes were needed at September 30, 2020.

~~-13-~~

~~Table of Contents~~

~~2. ACQUISITIONS~~

~~Access Acquisition~~

On February 1, 2019, the Company completed its acquisition of Access National Corporation (and its subsidiaries), a bank holding company based in Reston, Virginia. Holders of shares of Access’s common stock received 0.75 shares of the Company’s common stock in exchange for each share of Access’s common stock, resulting in the Company issuing 15,842,026 shares of the Company’s common stock at a fair value of approximately $500.0 million. In addition, the Company paid cash of approximately $12,000 in lieu of fractional shares.

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 measurement period was formally closed as of February 1, 2020, and the Company did not make any measurement period adjustments in 2020.~~

~~There were 0 merger-related costs associated with the acquisition of Access during the first nine months of 2020. Merger- related costs associated with the acquisition of Access were $2.0~~ ~~million~~ ~~and $25.6 million for the three and nine months ended September 30, 2019, respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.~~

~~-14-~~

~~Table of Contents~~

3.2. SECURITIES
On January 1, 2020, the Company adopted ASC 326, which made changes to the accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires financial assets measured at amortized cost, including held-to-maturity debt securities, to measure an expected credit loss under the CECL methodology that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note 1 “Accounting Policies”.

All securities information presented as of September 30, 2020 is in accordance with ASC 326. All securities information presented prior to March 31, 2020 is in accordance with previous applicable GAAP. See the Company’s prior accounting policies in Note 1 “Summary of Significant Accounting Policies” of the 2019 Form 10-K.
Available for Sale

The Company’s AFS investment portfolio is generally highly-rated or agency backed. All AFS securities were current with 0 securities past due or on non-accrual as of ~~September 30,~~March 31, 2021 and December 31, 2020.

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of ~~September 30, 2020~~March 31, 2021 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, 2020








March 31, 2021








U.S. government and agency securities

$
13,463

$
465

$
(50)

$
13,878

$
11,470

$
254

$
(47)

$
11,677
Obligations of states and political subdivisions

759,936

39,033

(2,113)

796,856

868,297

35,757

(4,956)

899,098
Corporate and other bonds ⁽¹⁾

147,438

2,217

(737)

148,918

145,403

2,448

(243)

147,608
Commercial mortgage-backed securities

Agency

340,706

17,945

(116)

358,535

316,527

11,260

(1,615)

326,172
Non-agency

30,359

71

—

30,430

58,691

79

(110)

58,660
Total commercial mortgage-backed securities

371,065

18,016

(116)

388,965

375,218

11,339

(1,725)

384,832
Residential mortgage-backed securities

Agency

960,141

35,275

(1,410)

994,006

1,138,014

26,812

(13,668)

1,151,158
Non-agency

99,252

587

(743)

99,096

100,036

1,521

(512)

101,045
Total residential mortgage-backed securities

1,059,393

35,862

(2,153)

1,093,102

1,238,050

28,333

(14,180)

1,252,203
Other securities

1,621

0

0

1,621

1,625

0

0

1,625
Total AFS securities

$
2,352,916

$
95,593

$
(5,169)

$
2,443,340

$
2,640,063

$
78,131

$
(21,151)

$
2,697,043
(1) Other bonds include asset-backed securities.

~~-15-~~

~~Table of Contents~~

The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of December 31, ~~2019~~2020 are summarized as follows (dollars in thousands):

Amortized

Gross Unrealized

Estimated

Amortized

Gross Unrealized

Estimated
December 31, 2019

Cost

Gains

(Losses)

Fair Value


Cost

Gains

(Losses)

Fair Value
December 31, 2020

U.S. government and agency securities

$
21,149

$
209

$
(38)

$
21,320

$
13,009

$
437

$
(52)

$
13,394
Obligations of states and political subdivisions

421,344

25,776

(29)

447,091

786,466

50,878

(18)

837,326
Corporate and other bonds ⁽¹⁾

134,342

1,991

(374)

135,959

148,747

2,430

(99)

151,078
Commercial mortgage-backed securities

Agency

405,731

8,786

(619)

413,898

321,015

16,277

(2)

337,290
Non-agency

11,173

—

(24)

11,149

51,244

167

(17)

51,394
Total commercial mortgage-backed securities

416,904

8,786

(643)

425,047

372,259

16,444

(19)

388,684
Residential mortgage-backed securities

Agency

852,300

16,680

(816)

868,164

1,012,237

31,816

(1,946)

1,042,107
Non-agency

44,309

476

—

44,785

104,904

1,507

(206)

106,205
Total residential mortgage-backed securities

896,609

17,156

(816)

912,949

1,117,141

33,323

(2,152)

1,148,312
Other securities

3,079

0

0

3,079

1,625

0

0

1,625
Total AFS securities

$
1,893,427

$
53,918

$
(1,900)

$
1,945,445

$
2,439,247

$
103,512

$
(2,340)

$
2,540,419
⁽¹⁾ Other bonds include asset-backed securities

~~-16-~~-10-

Table of Contents

The following table shows the gross unrealized losses and fair value of the Company’s AFS securities with unrealized losses for which an ~~allowance for credit losses~~ACL has not been recorded at ~~September 30,~~March 31, 2021 and December 31, 2020 and that are not deemed to be ~~other than temporarily~~ impaired as of ~~December 31, 2019.~~those dates. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (dollars in thousands).

Less than 12 months

More than 12 months

Total

Less than 12 months

More than 12 months

Total


Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses
September 30, 2020












March 31, 2021

U.S. government and agency securities

$
0

$
0

$
5,956

$
(50)

$
5,956

(50)

$
0

$
0

$
4,899

$
(47)

$
4,899

$
(47)
Obligations of states and political subdivisions

175,282

(2,113)

0

0

175,282

$
(2,113)

271,172

(4,956)

0

0

271,172

(4,956)
Corporate and other bonds⁽¹⁾

38,137

(477)

20,283

(260)

58,420

(737)

42,612

(237)

4,785

(6)

47,397

(243)
Commercial mortgage-backed securities

Agency

33,827

(115)

446

(1)

34,273

(116)

65,708

(1,614)

359

(1)

66,067

(1,615)
Non-agency

0

0

0

0

0

0

26,736

(110)

0

0

26,736

(110)
Total commercial mortgage-backed securities

33,827

(115)

446

(1)

34,273

(116)

92,444

(1,724)

359

(1)

92,803

(1,725)
Residential mortgage-backed securities

Agency

198,687

(1,407)

1,121

(3)

199,808

(1,410)

558,523

(13,650)

1,175

(18)

559,698

(13,668)
Non-agency

57,044

(743)

0

0

57,044

(743)

36,031

(491)

10,070

(21)

46,101

(512)
Total residential mortgage-backed securities

255,731

(2,150)

1,121

(3)

256,852

(2,153)

594,554

(14,141)

11,245

(39)

605,799

(14,180)
Total AFS securities

$
502,977

$
(4,855)

$
27,806

$
(314)

$
530,783

$
(5,169)

$
1,000,782

$
(21,058)

$
21,288

$
(93)

$
1,022,070

$
(21,151)

December 31, 2019












December 31, 2020












U.S. government and agency securities

$
7,638

$
(38)

$
0

$
0

$
7,638

$
(38)

$
0

$
0

$
5,456

$
(52)

$
5,456

$
(52)
Obligations of states and political subdivisions

4,526

(29)

0

0

4,526

(29)

5,091

(18)

0

0

5,091

(18)
Corporate and other bonds⁽¹⁾

17,323

(83)

19,901

(291)

37,224

(374)

17,946

(52)

10,698

(47)

28,644

(99)
Commercial mortgage-backed securities

Agency

43,552

(530)

14,966

(89)

58,518

(619)

5,893

(2)

376

0

6,269

(2)
Non-agency

11,162

(24)

0

0

11,162

(24)

17,654

(17)

0

0

17,654

(17)
Total commercial mortgage-backed securities

54,714

(554)

14,966

(89)

69,680

(643)

23,547

(19)

376

0

23,923

(19)
Residential mortgage-backed securities

Agency

114,147

(500)

40,168

(316)

154,315

(816)

219,388

(1,944)

1,055

(2)

220,443

(1,946)
Non-agency

0

0

0

0

0

0

36,942

(206)

0

0

36,942

(206)
Total residential mortgage-backed securities

114,147

(500)

40,168

(316)

154,315

(816)

256,330

(2,150)

1,055

(2)

257,385

(2,152)
Total AFS securities

$
198,348

$
(1,204)

$
75,035

$
(696)

$
273,383

$
(1,900)

$
302,914

$
(2,239)

$
17,585

$
(101)

$
320,499

$
(2,340)
⁽¹⁾ Other bonds includes asset-backed securities.

-11-

Table of Contents

As of ~~September 30, 2020,~~March 31, 2021, there were ~~$27.8~~$21.3 million, or ~~18 issues,~~12 instances, of individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of ~~$314,000.~~$93,000. As of December 31, ~~2019,~~2020, there were ~~$75.0~~$17.6 million, or ~~47 issues,~~15 instances, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of ~~$696,000.~~$101,000.
The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 and concluded 0 impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the cost basis of each investment, (4) issuers continue to make timely principal and interest payments, and (5) 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.
Additionally, the majority of the Company’s mortgage-backed securities are issued by FNMA, FHLMC, and GNMA and do not have credit risk given the implicit and explicit government guarantees associated with these agencies. In addition, the non-agency mortgage-backed and asset-backed securities generally received a 20% SSFA rating.

~~-17-~~

~~Table of Contents~~

The following table presents the amortized cost and estimated fair value of AFS securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, by contractual maturity. 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 (dollars in thousands).

September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020


Amortized

Estimated

Amortized

Estimated

Amortized

Estimated

Amortized

Estimated

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value
Due in one year or less

$
28,581

$
28,834

$
35,177

$
35,329

$
18,007

$
18,168

$
19,875

$
19,997
Due after one year through five years

140,844

148,114

164,605

166,873

166,575

172,723

161,448

169,103
Due after five years through ten years

251,501

258,806

249,713

254,790

233,566

239,838

235,021

242,791
Due after ten years

1,931,990

2,007,586

1,443,932

1,488,453

2,221,915

2,266,314

2,022,903

2,108,528
Total AFS securities

$
2,352,916

$
2,443,340

$
1,893,427

$
1,945,445

$
2,640,063

$
2,697,043

$
2,439,247

$
2,540,419

Refer to Note 87 "Commitments and Contingencies" for information regarding the estimated fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.
Held to Maturity
The Company’s HTM investment portfolio primarily consists of highly-rated municipal securities and the estimated credit loss inherent in the portfolio is currently immaterial. The Company’s HTM securities were all current, with 0 securities past due or on non-accrual at ~~September 30,~~March 31, 2021 and December 31, 2020.

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

-12-

Table of Contents

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of ~~September 30,~~March 31, 2021 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated


Value

Gains

(Losses)

Fair Value
March 31, 2021








U.S. government and agency securities

$
2,676

$
0

$
(31)

$
2,645
Obligations of states and political subdivisions

535,634

62,880

0

598,514
Commercial mortgage-backed securities

Agency

5,265

1

(66)

5,200
Non-agency

0

0

0

0
Total commercial mortgage-backed securities

5,265

1

(66)

5,200
Total held-to-maturity securities

$
543,575

$
62,881

$
(97)

$
606,359

The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2020 are summarized as follows (dollars in thousands):

Carrying

Gross Unrealized

Estimated

Carrying

Gross Unrealized

Estimated


Value

Gains

(Losses)

Fair Value

Value

Gains

(Losses)

Fair Value
September 30, 2020








December 31, 2020








U.S. government and agency securities

$
2,767

$
0

$
(14)

$
2,753

$
2,751

$
0

$
(18)

$
2,733
Obligations of states and political subdivisions

538,352

67,561

0

605,913

536,767

74,978

0

611,745
Commercial mortgage-backed securities

Agency

5,542

5

(40)

5,507

5,333

4

(50)

5,287
Non-agency

0

0

0

0

0

0

0

0
Total commercial mortgage-backed securities

5,542

5

(40)

5,507

5,333

4

(50)

5,287
Total held-to-maturity securities

$
546,661

$
67,566

$
(54)

$
614,173

$
544,851

$
74,982

$
(68)

$
619,765

Credit Quality Indicators & Allowance for Credit Losses - HTM

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at March 31, 2021 and December 31, 2020. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The Company’s only HTM securities with credit risk are obligations of states and political subdivisions.

~~-18-~~-13-

Table of Contents

~~The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of December 31, 2019 are summarized as follows (dollars in thousands):~~

Carrying

Gross Unrealized

Estimated


Value

Gains

(Losses)

Fair Value
December 31, 2019








U.S. government and agency securities

$
2,813

$
26

$
0

$
2,839
Obligations of states and political subdivisions

545,148

48,274

0

593,422
Commercial mortgage-backed securities

Agency

7,183

59

0

7,242
Non-agency

0

0

0

0
Total commercial mortgage-backed securities

7,183

59

0

7,242
Total held-to-maturity securities

$
555,144

$
48,359

$
0

$
603,503

~~Credit Quality Indicators & Allowance for Credit Losses - HTM~~

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis based on the PD/LGD methodology primarily using security-level credit ratings. The Company’s HTM securities ACL was immaterial at the adoption of ASC 326. The Company re-evaluated the HTM securities ACL and concluded 0 additional reserve was needed at September 30, 2020. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The Company’s only HTM securities with credit risk are obligations of states and political subdivisions.

The following table presents the amortized cost of HTM securities as of ~~September 30,~~March 31, 2021 and December 31, 2020 by security type and credit rating (dollars in thousands):

Three Months Ended September 30, 2020

U.S. Government and Agency

Obligations of states and political

Mortgage-backed

Total HTM


U.S. Government and Agency

Obligations of states and political

Mortgage-backed

Total HTM

securities

subdivisions

securities

securities

securities

subdivisions

securities

securities
March 31, 2021

Credit Rating:

AAA/AA/A

$
0

$
533,742

$
0

$
533,742

$
0

$
531,203

$
0

$
531,203
Not Rated - Agency⁽¹⁾

2,767

0

5,542

8,309

2,676

0

5,265

7,941
Not Rated - Non-Agency

0

4,610

0

4,610

0

4,431

0

4,431
Total

$
2,767

$
538,352

$
5,542

$
546,661

$
2,676

$
535,634

$
5,265

$
543,575
December 31, 2020

Credit Rating:

AAA/AA/A

$
0

$
532,157

$
0

$
532,157
Not Rated - Agency⁽¹⁾

2,751

0

5,333

8,084
Not Rated - Non-Agency

0

4,610

0

4,610
Total

$
2,751

$
536,767

$
5,333

$
544,851
⁽¹⁾ Generally considered not to have credit risk given the government guarantees associated with these agencies

The following table presents the amortized cost and estimated fair value of HTM securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, by contractual maturity. 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 (dollars in thousands).

September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020


Carrying

Estimated

Carrying

Estimated

Carrying

Estimated

Carrying

Estimated

Value

Fair Value

Value

Fair Value

Value

Fair Value

Value

Fair Value
Due in one year or less

$
1,005

$
1,024

$
502

$
504

$
1,441

$
1,449

$
1,443

$
1,460
Due after one year through five years

9,076

9,436

10,258

10,539

8,518

8,786

8,577

8,893
Due after five years through ten years

1,749

1,796

1,768

1,800

1,680

1,719

1,744

1,805
Due after ten years

534,831

601,917

542,616

590,660

531,936

594,405

533,087

607,607
Total HTM securities

$
546,661

$
614,173

$
555,144

$
603,503

$
543,575

$
606,359

$
544,851

$
619,765

~~-19-~~

~~Table of Contents~~

Refer to Note 87 "Commitments and Contingencies" for information regarding the estimated fair value of HTM securities that were pledged to secure public deposits as permitted or required by law as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.
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, 2020 and December 31, 2019, the~~The FHLB required the Bank to maintain stock in an amount equal to 3.75% and 4.25% of outstanding borrowings at March 31, 2021 and December 31, 2020, respectively, as well as a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of the Bank’s outstanding capital at both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $67.0 million for ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 and FHLB stock in the amount of ~~$45.2~~$9.8 million and ~~$63.9~~$27.8 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

-14-

Table of Contents

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, 2021 and 2020 ~~and 2019~~ (dollars in thousands).


Three Months Ended

Nine Months Ended

Three Months Ended

Three Months Ended

September 30, 2020

September 30, 2020

March 31, 2021

March 31, 2020
Realized gains (losses):








Gross realized gains

$
18

$
12,522

$
138

$
2,164
Gross realized losses

0

(229)

(60)

(228)
Net realized gains

$
18

$
12,293

$
78

$
1,936

Proceeds from sales of securities

$
4,675

$
232,946

$
45,436

$
120,701


Three Months Ended

Nine Months Ended

September 30, 2019

September 30, 2019
Realized gains (losses):




Gross realized gains

$
7,104

$
9,161
Gross realized losses

0

(1,855)
Net realized gains

$
7,104

$
7,306

Proceeds from sales of securities

$
98,975

$
486,925

~~-20-~~-15-

Table of Contents

4.3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
~~On January~~See Note 1 ~~2020, the Company adopted ASC 326. The measurement~~“Summary of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note 1“Significant Accounting Policies” in this Quarterly ~~Report. All loan information presented as~~Report for a summary of ~~September 30, 2020 is in accordance with ASC 326. All loan information presented prior to January 1, 2020 is in accordance with previous applicable GAAP. During March 2020, in response to~~ the economic fallout from the COVID-19 pandemic, the CARES Act was passed by Congress and signed into law by the President along with the March 22 Joint Guidance that provided enhanced guidelines and accounting for COVID-19 related modifications. For further discussion on the CARES Act and the March 22 Joint Guidance and related loanCompany’s impact ~~refer to Note 1 “Accounting Polices” in this Quarterly Report.~~of COVID-19. The information included below reflects the impact of the CARES Act, as amended by the CAA, and the ~~March 22~~ Joint Guidance.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consist of the following at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (dollars in thousands):

September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020
Construction and Land Development

$
1,207,190

$
1,250,924

$
884,303

$
925,798
Commercial Real Estate - Owner Occupied

2,107,333

2,041,243

2,083,155

2,128,909
Commercial Real Estate - Non-Owner Occupied

3,497,929

3,286,098

3,671,471

3,657,562
Multifamily Real Estate

731,582

633,743

842,906

814,745
Commercial & Industrial⁽¹⁾

3,536,249

2,114,033

3,599,884

3,263,460
Residential 1-4 Family - Commercial

696,944

724,337

658,051

671,949
Residential 1-4 Family - Consumer

830,144

890,503

816,916

822,866
Residential 1-4 Family - Revolving

618,320

659,504

563,786

596,996
Auto

387,417

350,419

406,349

401,324
Consumer

276,023

372,853

215,711

247,730
Other Commercial⁽¹⁾⁽²⁾

494,084

287,279

529,748

489,975
Total loans held for investment, net of deferred fees and costs(3)

14,383,215

12,610,936

14,272,280

14,021,314
Allowance for loan and lease losses

(174,122)

(42,294)

(142,911)

(160,540)
Total loans held for investment, net

$
14,209,093

$
12,568,642

$
14,129,369

$
13,860,774
⁽¹⁾Commercial & industrial loans include approximately $1.5 billion and ~~other~~$1.2 billion in loans from the PPP at March 31, 2021 and December 31, 2020, respectively.
.
⁽²⁾Other commercial loans include approximately $~~1.6~~20.2 ~~billion~~million and $~~21.3~~11.3 million ~~respectively,~~ in ~~new~~ loans from the PPP ~~loan program~~ at ~~September 30, 2020.~~March 31, 2021 and December 31, 2020, respectively.

⁽³⁾Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $83.8 million and $69.7 million as of March 31, 2021 and December 31, 2020, respectively.

~~-21-~~-16-

Table of Contents

The following table shows the aging of the Company’s loan portfolio, by class, at ~~September 30, 2020~~March 31, 2021 (dollars in thousands):








Greater than




30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans
Construction and Land Development

$
1,200,729

$
2,625

$
223

$
93

$
3,520

$
1,207,190
Commercial Real Estate - Owner Occupied

2,090,106

4,924

1,310

1,726

9,267

2,107,333
Commercial Real Estate - Non-Owner Occupied

3,493,107

1,291

1,371

168

1,992

3,497,929
Multifamily Real Estate

731,190

—

—

359

33

731,582
Commercial & Industrial

3,528,283

4,322

1,448

604

1,592

3,536,249
Residential 1-4 Family - Commercial

683,730

1,236

937

5,298

5,743

696,944
Residential 1-4 Family - Consumer

806,055

2,998

3,976

4,495

12,620

830,144
Residential 1-4 Family - Revolving

608,570

2,669

1,141

2,276

3,664

618,320
Auto

384,619

1,513

453

315

517

387,417
Consumer

273,829

1,020

772

327

75

276,023
Other Commercial

493,044

613

427

—

—

494,084
Total loans held for investment

$
14,293,262

$
23,211

$
12,058

$
15,661

$
39,023

$
14,383,215

~~These balances reflect the impact of the CARES Act and the March 22 Joint Guidance which provides relief for TDR designations and also provides guidance on past due reporting for modified loans.~~








Greater than




30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

$
880,139

$
865

$
473

$
189

$
2,637

$
884,303

Commercial Real Estate - Owner Occupied

2,069,019

3,426

514

3,180

7,016

2,083,155

Commercial Real Estate - Non-Owner Occupied

3,666,228

1,055

1,413

817

1,958

3,671,471

Multifamily Real Estate

842,638

187

81

0

0

842,906

Commercial & Industrial

3,593,508

3,086

613

654

2,023

3,599,884

Residential 1-4 Family - Commercial

645,684

1,803

798

576

9,190

658,051

Residential 1-4 Family - Consumer

791,466

6,831

808

3,041

14,770

816,916

Residential 1-4 Family - Revolving

557,335

1,397

284

917

3,853

563,786

Auto

404,692

1,035

165

154

303

406,349

Consumer

214,438

595

314

248

116

215,711

Other Commercial

529,253

407

88

0

0

529,748

Total loans held for investment

$
14,194,400

$
20,687

$
5,551

$
9,776

$
41,866

$
14,272,280

% of total loans

99.45
%

0.15
%

0.04
%

0.07
%

0.29
%

100.00
%

The following table shows the aging of the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020 as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of September 30,loan portfolio, by class, at December 31, 2020 (dollars in thousands):

Nonaccrual

January 1, 2020

September 30, 2020

Nonaccrual With No ALLL

90 Days and still Accruing
Construction and Land Development

$
4,060

$
3,520

$
1,985

$
93
Commercial Real Estate - Owner Occupied

13,889

9,267

1,994

1,726
Commercial Real Estate - Non-Owner Occupied

1,368

1,992

0

168
Multifamily Real Estate

0

33

0

359
Commercial & Industrial

3,037

1,592

0

604
Residential 1-4 Family - Commercial

6,492

5,743

1,738

5,298
Residential 1-4 Family - Consumer

13,117

12,620

1,069

4,495
Residential 1-4 Family - Revolving

2,490

3,664

60

2,276
Auto

565

517

0

315
Consumer

88

75

0

327
Other Commercial

98

—

0

0
Total loans held for investment

$
45,204

$
39,023

$
6,846

$
15,661

~~There was 0 interest income recognized on nonaccrual loans during the three or nine months endedSeptember 30, 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2019 Form 10-K for additional information on the Company’s policies for nonaccrual loans.~~








Greater than




30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

$
920,276

$
1,903

$
547

$
0

$
3,072

$
925,798

Commercial Real Estate - Owner Occupied

2,114,804

1,870

1,380

3,727

7,128

2,128,909

Commercial Real Estate - Non-Owner Occupied

3,651,232

2,144

1,721

148

2,317

3,657,562

Multifamily Real Estate

814,095

617

0

0

33

814,745

Commercial & Industrial

3,257,201

1,848

1,190

1,114

2,107

3,263,460

Residential 1-4 Family - Commercial

657,351

2,227

818

1,560

9,993

671,949

Residential 1-4 Family - Consumer

792,852

10,182

1,533

5,699

12,600

822,866

Residential 1-4 Family - Revolving

587,522

2,975

1,044

826

4,629

596,996

Auto

398,206

2,076

376

166

500

401,324

Consumer

245,551

1,166

550

394

69

247,730

Other Commercial

489,959

16

0

0

0

489,975

Total loans held for investment

$
13,929,049

$
27,024

$
9,159

$
13,634

$
42,448

$
14,021,314

% of total loans

99.34
%

0.19
%

0.07
%

0.10
%

0.30
%

100.00
%

~~-22-~~-17-

Table of Contents

The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2021, as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of March 31, 2021 (dollars in thousands):

Nonaccrual

January 1, 2021

March 31, 2021

Nonaccrual With No ALLL

90 Days and still Accruing
Construction and Land Development

$
3,072

$
2,637

$
1,985

$
189
Commercial Real Estate - Owner Occupied

7,128

7,016

1,994

3,180
Commercial Real Estate - Non-Owner Occupied

2,317

1,958

0

817
Multifamily Real Estate

33

0

0

0
Commercial & Industrial

2,107

2,023

1

654
Residential 1-4 Family - Commercial

9,993

9,190

6,388

576
Residential 1-4 Family - Consumer

12,600

14,770

2,364

3,041
Residential 1-4 Family - Revolving

4,629

3,853

60

917
Auto

500

303

0

154
Consumer

69

116

0

248
Total loans held for investment

$
42,448

$
41,866

$
12,792

$
9,776

The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020, as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of December 31, 2020 (dollars in thousands):

Nonaccrual

January 1, 2020

December 31, 2020

Nonaccrual With No ALLL

90 Days and still Accruing
Construction and Land Development

$
4,060

$
3,072

$
1,985

$
0
Commercial Real Estate - Owner Occupied

13,889

7,128

1,994

3,727
Commercial Real Estate - Non-Owner Occupied

1,368

2,317

0

148
Multifamily Real Estate

0

33

0

0
Commercial & Industrial

3,037

2,107

1

1,114
Residential 1-4 Family - Commercial

6,492

9,993

6,388

1,560
Residential 1-4 Family - Consumer

13,117

12,600

1,069

5,699
Residential 1-4 Family - Revolving

2,490

4,629

60

826
Auto

565

500

0

166
Consumer

88

69

0

394
Other Commercial

98

0

0

0
Total loans held for investment

$
45,204

$
42,448

$
11,497

$
13,634

There was 0 interest income recognized on nonaccrual loans during the three months ended March 31, 2021 and 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2020 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

-18-

Table of Contents

Troubled Debt Restructurings

The CARES Act, as amended by the CAA, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of ~~December 31, 2020~~January 1, 2022 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. As of ~~September 30,~~March 31, 2021 and December 31, 2020, the Company had approximately ~~$769.6~~$68.1 million and $146.1 million, respectively, in loans still under their modified terms. The Company’s modification program primarily included payment deferrals and interest only modifications.
In addition to the above mentioned modifications, as of ~~September 30, 2020,~~March 31, 2021, the Company has TDRs totaling ~~$21.6~~$19.7 million with an estimated ~~$2.7~~$1.2 million of allowance for those loans for the current period. As of December 31, 2020, the Company had TDRs totaling $20.6 million with an estimated $1.6 million of allowance for those loans.

A modification of a ~~loan��s~~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 credit losses in accordance with the Company’s ALLL methodology. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and March 31, 2020, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable 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,~~March 31, 2021 and December 31, 2020 (dollars in thousands):

September 30, 2020


No. of

Recorded

Outstanding

Loans

Investment

Commitment
Performing






Construction and Land Development

4

$
219

$
0
Commercial Real Estate - Owner Occupied

6

2,140

101
Commercial Real Estate - Non-Owner Occupied

1

1,089

0
Commercial & Industrial

5

1,117

0
Residential 1-4 Family - Commercial

3

247

0
Residential 1-4 Family - Consumer

80

9,165

0
Residential 1-4 Family - Revolving

2

55

0
Consumer

5

31

0
Other Commercial

1

452

0
Total performing

107

$
14,515

$
101
Nonperforming






Commercial Real Estate - Owner Occupied

2

$
293

$
0
Commercial Real Estate - Non-Owner Occupied

1

137

0
Commercial & Industrial

3

261

0
Residential 1-4 Family - Commercial

4

1,313

0
Residential 1-4 Family - Consumer

23

4,937

0
Residential 1-4 Family - Revolving

3

104

0
Total nonperforming

36

$
7,045

$
0
Total performing and nonperforming

143

$
21,560

$
101

March 31, 2021

December 31, 2020


No. of

Recorded

Outstanding

No. of

Recorded

Outstanding

Loans

Investment

Commitment

Loans

Investment

Commitment
Performing












Construction and Land Development

4

$
212

$
0

4

$
215

$
0
Commercial Real Estate - Owner Occupied

5

1,827

0

6

2,033

176
Commercial Real Estate - Non-Owner Occupied

1

1,089

0

1

1,089

0
Commercial & Industrial

2

446

0

4

727

0
Residential 1-4 Family - Commercial

2

109

0

3

245

0
Residential 1-4 Family - Consumer

84

9,271

0

77

8,943

0
Residential 1-4 Family - Revolving

3

274

3

3

277

0
Consumer

4

35

0

3

22

0
Other Commercial

1

407

0

1

410

0
Total performing

106

$
13,670

$
3

102

$
13,961

$
176
Nonperforming












Commercial Real Estate - Owner Occupied

1

$
19

$
0

1

$
20

$
0
Commercial Real Estate - Non-Owner Occupied

1

128

0

1

134

0
Commercial & Industrial

4

427

0

3

237

0
Residential 1-4 Family - Commercial

3

404

0

4

1,296

0
Residential 1-4 Family - Consumer

26

4,977

0

23

4,865

0
Residential 1-4 Family - Revolving

3

103

0

3

103

0
Total nonperforming

38

$
6,058

$
0

35

$
6,655

$
0
Total performing and nonperforming

144

$
19,728

$
3

137

$
20,616

$
176

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. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

~~-23-~~-19-

Table of Contents

The following table shows, by class and modification type, TDRs that occurred during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 (dollars in thousands):

All Restructurings

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020




Recorded



Recorded



Recorded



Recorded

No. of

Investment at

No. of

Investment at

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Loans

Period End

Loans

Period End
Modified to interest only, at a market rate
















Commercial Real Estate - Owner Occupied

0

$
0

1

$
272
Residential 1-4 Family - Commercial

1

652

1

652
Total interest only at market rate of interest

1

$
652

2

$
924

0

$
0

0

$
0

Term modification, at a market rate
















Commercial & Industrial

0

$
0

3

$
127

0

$
0

1

$
517
Residential 1-4 Family - Commercial

1

299

1

299
Residential 1-4 Family - Consumer

0

0

4

324

2

105

0

0
Consumer

0

0

1

10
Total loan term extended at a market rate

1

$
299

9

$
760

2

$
105

1

$
517

Term modification, below market rate
















Construction and Land Development

0

$
0

1

$
34

0

$
0

1

$
35
Commercial & Industrial

1

143

2

358
Residential 1-4 Family - Commercial

1

290

1

290
Residential 1-4 Family - Consumer

4

423

17

2,387

9

472

10

1,763
Residential 1-4 Family - Revolving

0

0

1

52
Consumer

1

16

0

0
Total loan term extended at a below market rate

6

$
856

22

$
3,121

10

$
488

11

$
1,798

Interest rate modification, below market rate
















Residential 1-4 Family - Commercial

1

$
45

0

$
0
Total interest only at below market rate of interest

0

$
0

0

$
0

1

$
45

0

$
0

Total

8

$
1,807

33

$
4,805

13

$
638

12

$
2,315

~~-24-~~

~~Table of Contents~~

Allowance for Loan and Lease Losses

ALLL on the loan portfolio is a material estimate for the Company. The Company estimates its ALLL on its loan portfolio on a quarterly basis. The Company models the ALLL using two primary segments, Commercial and Consumer. Within each segment, loan classes are further identified based on similar risk characteristics. The Company has identified the following classes within each segment:
● Commercial: Construction and Land Development, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Multifamily Real Estate, Commercial & Industrial, Residential 1-4 Family – Commercial, and Other Commercial
● Consumer: ~~Residential~~Residentil 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer

The following tables show the ALLL activity by segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 (dollars in thousands):

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Commercial

Consumer

Total

Commercial

Consumer

Total

Commercial

Consumer

Total
Balance at beginning of period

$
111,954

$
58,023

$
169,977

$
30,941

$
11,353

$
42,294

$
117,403

$
43,137

$
160,540
Impact of ASC 326 adoption on non-PCD loans

—

—

—

4,432

40,666

45,098
Impact of ASC 326 adoption on PCD loans

—

—

—

1,752

634

2,386
Impact of adopting ASC 326

—

—

—

6,184

41,300

47,484
Loans charged-off

(995)

(1,983)

(2,978)

(5,553)

(9,253)

(14,806)

(1,974)

(1,667)

(3,641)
Recoveries credited to allowance

718

848

1,566

2,580

2,557

5,137

1,606

863

2,469
Provision charged to operations

14,978

(9,421)

5,557

92,503

1,510

94,013

(10,603)

(5,854)

(16,457)
Balance at end of period

$
126,655

$
47,467

$
174,122

$
126,655

$
47,467

$
174,122

$
106,432

$
36,479

$
142,911

~~-25-~~-20-

Table of Contents

Three Months Ended March 31, 2020

Commercial

Consumer

Total
Balance at beginning of period

$
30,941

$
11,353

$
42,294
Impact of ASC 326 adoption on non-PCD loans

4,432

40,666

45,098
Impact of ASC 326 adoption on PCD loans

1,752

634

2,386
Impact of adopting ASC 326

6,184

41,300

47,484
Loans charged-off

(2,968)

(4,183)

(7,151)
Recoveries credited to allowance

1,154

1,006

2,160
Provision charged to operations

42,532

13,724

56,256
Balance at end of period

$
77,843

$
63,200

$
141,043

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer segments. For classes of loans within the Commercial segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is risk rating categories of Pass, Watch, & Special Mention, Substandard, and Doubtful. For classes of loans within the Consumer segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, these indicators are primarily used in estimating the ALLL. The Company evaluates the credit risk of its loan portfolio on at least a quarterly basis.

Commercial Loans

The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. 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 credit loss. 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.

Watch ~~& 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;

Special Mention is determined by the following criteria:
● 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.

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.

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.

~~-26-~~-21-

Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of ~~September 30, 2020~~March 31, 2021 (dollars in thousands):

September 30, 2020

Term Loans Amortized Cost Basis by Origination Year

2020

2019

2018

2017

2016

Prior

Revolving Loans

Total
Construction and Land Development

Pass

$
236,949

$
346,840

$
304,768

$
41,015

$
42,268

$
63,632

$
29,674

$
1,065,146
Watch & Special Mention

2,268

67,572

40,714

347

5,863

16,549

1,645

134,958
Substandard

0

0

368

710

2,040

3,968

0

7,086
Total Construction and Land Development

$
239,217

$
414,412

$
345,850

$
42,072

$
50,171

$
84,149

$
31,319

$
1,207,190

Commercial Real Estate - Owner Occupied

Pass

$
226,090

$
369,661

$
304,296

$
243,299

$
143,786

$
616,113

$
23,577

$
1,926,822
Watch & Special Mention

2,002

17,684

23,479

17,770

31,406

64,728

2,599

159,668
Substandard

0

118

1,099

1,113

1,039

17,175

299

20,843
Total Commercial Real Estate - Owner Occupied

$
228,092

$
387,463

$
328,874

$
262,182

$
176,231

$
698,016

$
26,475

$
2,107,333

Commercial Real Estate - Non-Owner Occupied

Pass

$
275,008

$
439,081

$
401,551

$
442,151

$
356,256

$
862,293

$
24,467

$
2,800,807
Watch & Special Mention

27,599

104,352

97,973

71,618

107,934

259,591

18,318

687,385
Substandard

0

0

6,464

0

25

3,248

0

9,737
Total Commercial Real Estate - Non-Owner Occupied

$
302,607

$
543,433

$
505,988

$
513,769

$
464,215

$
1,125,132

$
42,785

$
3,497,929

Commercial & Industrial

Pass

$
1,979,209

$
401,385

$
221,417

$
79,734

$
76,145

$
149,692

$
524,960

$
3,432,542
Watch & Special Mention

5,081

29,405

16,889

4,163

5,170

6,443

28,156

95,307
Substandard

37

928

396

129

623

2,710

3,577

8,400
Total Commercial & Industrial

$
1,984,327

$
431,718

$
238,702

$
84,026

$
81,938

$
158,845

$
556,693

$
3,536,249

��

Multifamily Real Estate

Pass

$
131,434

$
80,234

$
69,881

$
120,758

$
70,127

$
239,525

$
2,499

$
714,458
Watch & Special Mention

2,283

1,018

4,894

2,490

621

5,427

0

16,733
Substandard

0

0

0

0

0

391

0

391
Total Multifamily Real Estate

$
133,717

$
81,252

$
74,775

$
123,248

$
70,748

$
245,343

$
2,499

$
731,582

Residential 1-4 Family - Commercial

Pass

$
78,631

$
100,919

$
76,284

$
87,277

$
76,710

$
226,118

$
1,251

$
647,190
Watch & Special Mention

592

4,625

8,739

4,420

4,186

15,798

0

38,360
Substandard

652

810

272

2,060

993

6,119

488

11,394
Total Residential 1-4 Family - Commercial

$
79,875

$
106,354

$
85,295

$
93,757

$
81,889

$
248,035

$
1,739

$
696,944

Other Commercial

Pass

$
221,801

$
115,346

$
9,972

$
39,542

$
16,602

$
47,858

$
31,730

$
482,851
Watch & Special Mention

22

0

621

1,312

927

8,351

0

11,233
Total Other Commercial

$
221,823

$
115,346

$
10,593

$
40,854

$
17,529

$
56,209

$
31,730

$
494,084

Total Commercial

Pass

$
3,149,122

$
1,853,466

$
1,388,169

$
1,053,776

$
781,894

$
2,205,231

$
638,158

$
11,069,816
Watch & Special Mention⁽¹⁾

39,847

224,656

193,309

102,120

156,107

376,887

50,718

1,143,644
Substandard

689

1,856

8,599

4,012

4,720

33,611

4,364

57,851
Total Commercial

$
3,189,658

$
2,079,978

$
1,590,077

$
1,159,908

$
942,721

$
2,615,729

$
693,240

$
12,271,311

⁽¹⁾~~Approximately 85.0% was comprised of Watch, which increased from December 31, 2019 due to the continued uncertainty of the COVID-19 pandemic on impacted industries.~~

March 31, 2021

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total
Construction and Land Development

Pass

$
61,584

$
340,066

$
215,340

$
77,960

$
22,165

$
65,264

$
26,117

$
808,496
Watch

13

2,486

23,950

1,834

571

5,521

412

34,787
Special Mention

0

0

5,635

135

0

1,062

0

6,832
Substandard

0

0

0

28,395

8

5,785

0

34,188
Total Construction and Land Development

$
61,597

$
342,552

$
244,925

$
108,324

$
22,744

$
77,632

$
26,529

$
884,303

Commercial Real Estate - Owner Occupied

Pass

$
34,001

$
273,173

$
346,684

$
285,739

$
216,109

$
664,203

$
17,023

$
1,836,932
Watch

0

15,073

16,771

23,606

15,970

66,770

932

139,122
Special Mention

0

974

27,269

5,393

4,909

36,050

1,841

76,436
Substandard

0

0

4,950

5,060

158

20,497

0

30,665
Total Commercial Real Estate - Owner Occupied

$
34,001

$
289,220

$
395,674

$
319,798

$
237,146

$
787,520

$
19,796

$
2,083,155

Commercial Real Estate - Non-Owner Occupied

Pass

$
113,841

$
381,511

$
429,913

$
401,006

$
395,726

$
1,183,233

$
35,333

$
2,940,563
Watch

0

17,458

160,682

81,003

40,014

231,751

15,291

546,199
Special Mention

0

698

23,529

30,489

31,998

65,303

723

152,740
Substandard

0

10,991

0

13,263

0

7,715

0

31,969
Total Commercial Real Estate - Non-Owner Occupied

$
113,841

$
410,658

$
614,124

$
525,761

$
467,738

$
1,488,002

$
51,347

$
3,671,471

Commercial & Industrial

Pass

$
587,238

$
1,519,813

$
334,830

$
199,114

$
59,668

$
196,093

$
564,292

$
3,461,048
Watch

23

13,018

25,346

14,560

2,559

6,048

17,433

78,987
Special Mention

15,235

1,260

6,396

3,669

4,630

1,731

11,265

44,186
Substandard

0

527

4,942

1,278

303

2,865

5,748

15,663
Total Commercial & Industrial

$
602,496

$
1,534,618

$
371,514

$
218,621

$
67,160

$
206,737

$
598,738

$
3,599,884

Multifamily Real Estate

Pass

$
8,219

$
143,295

$
114,224

$
166,220

$
102,337

$
269,062

$
2,927

$
806,284
Watch

0

0

4,398

471

0

24,243

0

29,112
Special Mention

0

2,280

640

4,383

0

94

0

7,397
Substandard

0

0

0

0

0

113

0

113
Total Multifamily Real Estate

$
8,219

$
145,575

$
119,262

$
171,074

$
102,337

$
293,512

$
2,927

$
842,906

Residential 1-4 Family - Commercial

Pass

$
20,945

$
106,176

$
82,343

$
62,283

$
74,998

$
254,905

$
2,294

$
603,944
Watch

0

659

3,898

8,013

3,916

13,632

193

30,311
Special Mention

165

0

2,744

456

444

6,007

0

9,816
Substandard

0

0

773

5,433

1,444

5,842

488

13,980
Total Residential 1-4 Family - Commercial

$
21,110

$
106,835

$
89,758

$
76,185

$
80,802

$
280,386

$
2,975

$
658,051

Other Commercial

Pass

$
50,013

$
216,949

$
111,954

$
8,870

$
30,297

$
57,341

$
21,903

$
497,327
Watch

0

0

0

605

1,286

3,835

0

5,726
Special Mention

0

0

0

0

5

612

26,078

26,695
Total Other Commercial

$
50,013

$
216,949

$
111,954

$
9,475

$
31,588

$
61,788

$
47,981

$
529,748

Total Commercial

Pass

$
875,841

$
2,980,983

$
1,635,288

$
1,201,192

$
901,300

$
2,690,101

$
669,889

$
10,954,594
Watch

36

48,694

235,045

130,092

64,316

351,800

34,261

864,244
Special Mention

15,400

5,212

66,213

44,525

41,986

110,859

39,907

324,102
Substandard

0

11,518

10,665

53,429

1,913

42,817

6,236

126,578
Total Commercial

$
891,277

$
3,046,407

$
1,947,211

$
1,429,238

$
1,009,515

$
3,195,577

$
750,293

$
12,269,518

~~-27-~~-22-

Table of Contents

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 2020 (dollars in thousands):

December 31, 2020

Term Loans Amortized Cost Basis by Origination Year

2020

2019

2018

2017

2016

Prior

Revolving Loans

Total
Construction and Land Development

Pass

$
316,585

$
277,142

$
116,800

$
24,770

$
42,970

$
54,023

$
23,324

$
855,614
Watch

1,873

18,181

8,434

344

2,355

6,372

412

37,971
Special Mention

0

5,532

135

0

0

2,655

0

8,322
Substandard

0

0

17,780

64

2,037

4,010

0

23,891
Total Construction and Land Development

$
318,458

$
300,855

$
143,149

$
25,178

$
47,362

$
67,060

$
23,736

$
925,798

Commercial Real Estate - Owner Occupied

Pass

$
286,522

$
375,541

$
300,583

$
233,359

$
128,261

$
570,361

$
18,838

$
1,913,465
Watch

1,942

14,611

22,224

15,623

24,979

41,361

1,648

122,388
Special Mention

988

6,052

5,749

4,198

9,907

30,455

1,121

58,470
Substandard

0

4,858

5,159

914

1,555

21,101

999

34,586
Total Commercial Real Estate - Owner Occupied

$
289,452

$
401,062

$
333,715

$
254,094

$
164,702

$
663,278

$
22,606

$
2,128,909

Commercial Real Estate - Non-Owner Occupied

Pass

$
381,849

$
455,427

$
433,183

$
403,677

$
336,630

$
850,035

$
30,421

$
2,891,222
Watch

28,354

142,279

76,838

59,451

79,533

224,944

16,870

628,269
Special Mention

702

11,072

34,905

18,073

40,771

11,211

723

117,457
Substandard

246

0

13,357

0

25

6,986

0

20,614
Total Commercial Real Estate - Non-Owner Occupied

$
411,151

$
608,778

$
558,283

$
481,201

$
456,959

$
1,093,176

$
48,014

$
3,657,562

Commercial & Industrial

Pass

$
1,730,876

$
350,618

$
199,489

$
67,035

$
71,799

$
140,461

$
590,701

$
3,150,979
Watch

4,872

32,028

13,073

6,500

3,182

4,906

19,972

84,533
Special Mention

1,009

2,178

3,890

1,150

724

1,234

4,755

14,940
Substandard

534

4,269

1,274

309

560

2,676

3,386

13,008
Total Commercial & Industrial

$
1,737,291

$
389,093

$
217,726

$
74,994

$
76,265

$
149,277

$
618,814

$
3,263,460

Multifamily Real Estate

Pass

$
144,805

$
85,740

$
150,724

$
117,881

$
67,984

$
231,113

$
2,311

$
800,558
Watch

0

5,074

475

0

617

560

0

6,726
Special Mention

2,280

0

4,388

0

0

760

0

7,428
Substandard

0

0

0

0

0

33

0

33
Total Multifamily Real Estate

$
147,085

$
90,814

$
155,587

$
117,881

$
68,601

$
232,466

$
2,311

$
814,745

Residential 1-4 Family - Commercial

Pass

$
104,630

$
89,332

$
70,310

$
79,156

$
68,915

$
201,492

$
2,236

$
616,071
Watch

666

6,665

8,252

4,141

4,067

9,307

195

33,293
Special Mention

0

0

601

663

468

5,923

0

7,655
Substandard

644

793

4,913

1,995

986

5,111

488

14,930
Total Residential 1-4 Family - Commercial

$
105,940

$
96,790

$
84,076

$
85,955

$
74,436

$
221,833

$
2,919

$
671,949

Other Commercial

Pass

$
223,490

$
112,045

$
9,549

$
30,314

$
16,494

$
42,158

$
44,180

$
478,230
Watch

0

0

613

1,299

1,189

3,934

0

7,035
Special Mention

10

0

0

7

0

4,591

102

4,710
Total Other Commercial

$
223,500

$
112,045

$
10,162

$
31,620

$
17,683

$
50,683

$
44,282

$
489,975

Total Commercial

Pass

$
3,188,757

$
1,745,845

$
1,280,638

$
956,192

$
733,053

$
2,089,643

$
712,011

$
10,706,139
Watch

37,707

218,838

129,909

87,358

115,922

291,384

39,097

920,215
Special Mention

4,989

24,834

49,668

24,091

51,870

56,829

6,701

218,982
Substandard

1,424

9,920

42,483

3,282

5,163

39,917

4,873

107,062
Total Commercial

$
3,232,877

$
1,999,437

$
1,502,698

$
1,070,923

$
906,008

$
2,477,773

$
762,682

$
11,952,398

-23-

Table of Contents

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of ~~September 30, 2020~~March 31, 2021 (dollars in thousands):

September 30, 2020

March 31, 2021

Term Loans Amortized Cost Basis by Origination Year

Term Loans Amortized Cost Basis by Origination Year

2020

2019

2018

2017

2016

Prior

Revolving Loans

Total

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total
Residential 1-4 Family - Consumer

Current

$
143,716

$
83,309

$
78,957

$
77,910

$
111,043

$
311,108

$
12

$
806,055

$
59,779

$
203,048

$
73,588

$
56,557

$
58,921

$
339,562

$
11

$
791,466
30-59 Days Past Due

0

156

1,648

43

263

888

0

2,998

—

0

1,007

499

1,474

3,851

0

6,831
60-89 Days Past Due

0

0

708

1,138

67

2,063

0

3,976

0

0

0

0

108

700

0

808
90+ Days Past Due

646

1,574

0

313

388

1,574

0

4,495

0

607

831

0

27

1,576

0

3,041
Nonaccrual

0

0

708

870

774

10,268

0

12,620

0

0

109

2,210

903

11,548

0

14,770
Total Residential 1-4 Family - Consumer

$
144,362

$
85,039

$
82,021

$
80,274

$
112,535

$
325,901

$
12

$
830,144

$
59,779

$
203,655

$
75,535

$
59,266

$
61,433

$
357,237

$
11

$
816,916

Residential 1-4 Family - Revolving

Current

$
11,456

$
4,160

$
2,019

$
0

$
0

$
644

$
590,291

$
608,570

$
1,705

$
11,472

$
3,548

$
1,443

$
0

$
488

$
538,679

$
557,335
30-59 Days Past Due

0

36

0

0

0

0

2,633

2,669

0

43

0

0

0

0

1,354

1,397
60-89 Days Past Due

0

0

0

0

0

0

1,141

1,141

0

41

0

0

0

0

243

284
90+ Days Past Due

0

0

0

0

0

0

2,276

2,276

0

0

0

0

0

0

917

917
Nonaccrual

0

0

0

0

0

314

3,350

3,664

0

76

0

20

0

226

3,531

3,853
Total Residential 1-4 Family - Revolving

$
11,456

$
4,196

$
2,019

$
0

$
0

$
958

$
599,691

$
618,320

$
1,705

$
11,632

$
3,548

$
1,463

$
0

$
714

$
544,724

$
563,786

Consumer

Current

$
26,520

$
79,119

$
79,878

$
25,836

$
11,163

$
18,017

$
33,296

$
273,829

$
3,126

$
22,775

$
58,410

$
55,650

$
19,059

$
23,877

$
31,541

$
214,438
30-59 Days Past Due

37

261

444

87

24

41

126

1,020

0

47

167

238

70

40

33

595
60-89 Days Past Due

38

126

273

20

25

186

104

772

0

2

152

122

24

6

8

314
90+ Days Past Due

0

19

253

32

21

0

2

327

0

8

6

217

10

5

2

248
Nonaccrual

0

0

0

0

1

74

0

75

0

0

0

0

0

116

0

116
Total Consumer

$
26,595

$
79,525

$
80,848

$
25,975

$
11,234

$
18,318

$
33,528

$
276,023

$
3,126

$
22,832

$
58,735

$
56,227

$
19,163

$
24,044

$
31,584

$
215,711

Auto

Current

$
129,176

$
126,243

$
62,569

$
37,390

$
20,505

$
8,736

$
0

$
384,619

$
37,040

$
166,686

$
104,887

$
49,676

$
28,220

$
18,183

$
0

$
404,692
30-59 Days Past Due

145

490

265

288

195

130

0

1,513

55

89

244

193

278

176

0

1,035
60-89 Days Past Due

39

132

118

116

26

22

0

453

0

42

82

16

0

25

0

165
90+ Days Past Due

29

99

62

45

53

27

0

315

0

55

24

4

58

13

0

154
Nonaccrual

33

128

61

107

111

77

0

517

0

48

28

59

59

109

0

303
Total Auto

$
129,422

$
127,092

$
63,075

$
37,946

$
20,890

$
8,992

$
0

$
387,417

$
37,095

$
166,920

$
105,265

$
49,948

$
28,615

$
18,506

$
0

$
406,349

Total Consumer

Current

$
310,868

$
292,831

$
223,423

$
141,136

$
142,711

$
338,505

$
623,599

$
2,073,073

$
101,650

$
403,981

$
240,433

$
163,326

$
106,200

$
382,110

$
570,231

$
1,967,931
30-59 Days Past Due

182

943

2,357

418

482

1,059

2,759

8,200

55

179

1,418

930

1,822

4,067

1,387

9,858
60-89 Days Past Due

77

258

1,099

1,274

118

2,271

1,245

6,342

0

85

234

138

132

731

251

1,571
90+ Days Past Due

675

1,692

315

390

462

1,601

2,278

7,413

0

670

861

221

95

1,594

919

4,360
Nonaccrual

33

128

769

977

886

10,733

3,350

16,876

0

124

137

2,289

962

11,999

3,531

19,042
Total Consumer

$
311,835

$
295,852

$
227,963

$
144,195

$
144,659

$
354,169

$
633,231

$
2,111,904

$
101,705

$
405,039

$
243,083

$
166,904

$
109,211

$
400,501

$
576,319

$
2,002,762

The Company did not have any material revolving loans convert to term during the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021.

~~-28-~~

~~Table of Contents~~

~~Acquired Loans~~

The Company has purchased loans that, at the time of acquisition, exhibited more than insignificant credit deterioration since origination. The Company has elected to treat all loans that were previously identified as PCI as PCD. As of September 30, 2020, the amortized cost of the Company’s PCD loans totaled ~~$68.8 million, which had an estimated ALLL of $4.7 million.~~

~~Prior to the adoption of ASC 326~~
~~The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2019 (dollars in thousands):~~






Greater than








30-59 Days

60-89 Days

90 Days and

Past Due

Past Due

still Accruing

PCI

Nonaccrual

Current

Total Loans
Construction and Land Development

$
4,563

$
482

$
189

$
10,944

$
3,703

$
1,231,043

$
1,250,924
Commercial Real Estate - Owner Occupied

3,482

2,184

1,062

27,438

6,003

2,001,074

2,041,243
Commercial Real Estate - Non-Owner Occupied

457

0

1,451

14,565

381

3,269,244

3,286,098
Multifamily Real Estate

223

0

474

94

0

632,952

633,743
Commercial & Industrial

8,698

1,598

449

1,579

1,735

2,099,974

2,114,033
Residential 1-4 Family - Commercial

1,479

2,207

674

12,205

4,301

703,471

724,337
Residential 1-4 Family - Consumer

16,244

3,072

4,515

14,713

9,292

842,667

890,503
Residential 1-4 Family - Revolving

10,190

1,784

3,357

4,127

2,080

637,966

659,504
Auto

2,525

236

272

4

563

346,819

350,419
Consumer

2,128

1,233

953

668

77

367,794

372,853
Other Commercial

464

0

0

344

97

286,374

287,279
Total loans held for investment

$
50,453

$
12,796

$
13,396

$
86,681

$
28,232

$
12,419,378

$
12,610,936

~~The following table shows the PCI loan portfolios, by class and their delinquency status, at December 31, 2019 (dollars in thousands):~~


30-89 Days

Greater than




Past Due

90 Days

Current

Total
Construction and Land Development

$
136

$
343

$
10,465

$
10,944
Commercial Real Estate - Owner Occupied

480

6,884

20,074

27,438
Commercial Real Estate - Non-Owner Occupied

848

987

12,730

14,565
Multifamily Real Estate

0

0

94

94
Commercial & Industrial

—

989

590

1,579
Residential 1-4 Family - Commercial

543

1,995

9,667

12,205
Residential 1-4 Family - Consumer

927

1,781

12,005

14,713
Residential 1-4 Family - Revolving

287

205

3,635

4,127
Auto

—

—

4

4
Consumer

—

9

659

668
Other Commercial

0

0

344

344
Total

$
3,221

$
13,193

$
70,267

$
86,681

~~-29-~~-24-

Table of Contents

As of December 31, 2019, the Company measured the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s loans, excluding PCI loans, by class at December 31, 2019 (dollars in thousands):

December 31, 2019




Unpaid


Recorded

Principal

Related

Investment

Balance

Allowance
Loans without a specific allowance






Construction and Land Development

$
5,877

$
7,174

$
—
Commercial Real Estate - Owner Occupied

8,801

9,296

—
Commercial Real Estate - Non-Owner Occupied

3,510

4,059

—
Commercial & Industrial

3,668

3,933

—
Residential 1-4 Family - Commercial

4,047

4,310

—
Residential 1-4 Family - Consumer

8,420

9,018

—
Residential 1-4 Family - Revolving

862

865

—
Total impaired loans without a specific allowance

$
35,185

$
38,655

$
—
Loans with a specific allowance






Construction and Land Development

$
984

$
1,032

$
49
Commercial Real Estate - Owner Occupied

2,820

3,093

146
Commercial Real Estate - Non-Owner Occupied

335

383

2
Commercial & Industrial

2,568

2,590

619
Residential 1-4 Family - Commercial

1,726

1,819

162
Residential 1-4 Family - Consumer

12,026

12,670

1,242
Residential 1-4 Family - Revolving

2,186

2,369

510
Auto

563

879

221
Consumer

168

336

46
Other Commercial

562

567

30
Total impaired loans with a specific allowance

$
23,938

$
25,738

$
3,027
Total impaired loans

$
59,123

$
64,393

$
3,027

The following table shows the average recorded investment and interest income recognized for the Company’s loans, excluding PCI loans, by class for the three and nine months ended September 30, 2019 (dollars in thousands):

Three Months Ended

Nine Months Ended

September 30, 2019

September 30, 2019




Interest



Interest

Average

Income

Average

Income

Investment

Recognized

Investment

Recognized
Construction and Land Development

$
13,581

$
40

$
13,601

$
351
Commercial Real Estate - Owner Occupied

13,301

85

13,436

339
Commercial Real Estate - Non-Owner Occupied

2,748

26

3,543

82
Multifamily Real Estate

1,217

15

1,234

46
Commercial & Industrial

3,986

41

4,046

129
Residential 1-4 Family - Commercial

6,334

41

6,521

125
Residential 1-4 Family - Consumer

19,802

75

20,007

264
Residential 1-4 Family - Revolving

2,125

5

2,242

31
Auto

691

—

781

9
Consumer

184

2

192

5
Other Commercial

570

7

579

21
Total impaired loans

$
64,539

$
337

$
66,182

$
1,402

~~-30-~~

~~Table of Contents~~

At December 31, 2019, the Company considered 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 credit loss methodology.
The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable 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 December 31, 2019 (dollars in thousands):

December 31, 2019


No. of

Recorded

Outstanding

Loans

Investment

Commitment
Performing






Construction and Land Development

4

$
1,114

$
0
Commercial Real Estate - Owner Occupied

6

2,228

26
Commercial Real Estate - Non-Owner Occupied

1

1,089

0
Commercial & Industrial

4

1,020

0
Residential 1-4 Family - Commercial

5

290

0
Residential 1-4 Family - Consumer

69

9,396

0
Residential 1-4 Family - Revolving

2

56

0
Consumer

4

29

0
Other Commercial

1

464

0
Total performing

96

$
15,686

$
26
Nonperforming






Commercial Real Estate - Owner Occupied

2

$
176

$
0
Commercial & Industrial

1

55

0
Residential 1-4 Family - Consumer

19

3,522

0
Residential 1-4 Family - Revolving

2

57

0
Total nonperforming

24

$
3,810

$
0
Total performing and nonperforming

120

$
19,496

$
26

The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructuring or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30, 2019 the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

~~-31-~~

~~Table of Contents~~

The following table ~~shows, by class and modification type, TDRs that occurred during~~details the ~~three and nine months ended September 30, 20~~19 ~~(dollars in thousands):~~

All Restructurings

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019




Recorded



Recorded

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End
Modified to interest only, at a market rate








Total interest only at market rate of interest

—

$
—

—

$
—

Term modification, at a market rate








Commercial & Industrial

1

$
376

1

$
376
Residential 1-4 Family - Commercial

—

—

1

73
Residential 1-4 Family - Consumer

1

461

4

761
Consumer

2

18

3

26
Total loan term extended at a market rate

4

$
855

9

$
1,236

Term modification, below market rate








Construction and Land Development

2

$
164

2

$
164
Residential 1-4 Family - Consumer

5

883

17

2,211
Consumer

—

—

1

5
Total loan term extended at a below market rate

7

$
1,047

20

$
2,380

Total

11

$
1,902

29

$
3,616

~~Allowance for Loan and Lease Losses~~
~~The following table shows the ALLL activity by class for the nine months ended September 30, 2019. The table below includes the provision for loan losses. Allocation of a portion~~amortized cost of the ~~allowance to one category~~classes of loans ~~does not preclude its availability to absorb losses in other categories (dollars in thousands):~~

Nine Months Ended September 30, 2019

Allowance for loan losses


Balance,

Recoveries

Loans

Provision

Balance,

beginning of

credited to

charged

charged to

end of

the year

allowance

off

operations

period
Construction and Land Development

$
6,803

$
269

$
(4,028)

$
2,863

$
5,907
Commercial Real Estate - Owner Occupied

4,023

118

(483)

361

4,019
Commercial Real Estate - Non-Owner Occupied

8,865

95

(270)

996

9,686
Multifamily Real Estate

649

85

0

46

780
Commercial & Industrial

7,636

936

(2,162)

2,739

9,149
Residential 1-4 Family - Commercial

1,692

244

(397)

50

1,589
Residential 1-4 Family - Consumer

1,492

256

(108)

158

1,798
Residential 1-4 Family - Revolving

1,297

589

(570)

(179)

1,137
Auto

1,443

452

(957)

614

1,552
Consumer and all other⁽¹⁾

7,145

1,896

(12,215)

11,377

8,203
Total

$
41,045

$
4,940

$
(21,190)

$
19,025

$
43,820
⁽¹⁾within the Consumer ~~and Other Commercial are grouped together as Consumer and all other for reporting purposes.~~

~~-32-~~

~~Table of Contents~~

~~The following tables show the loan and ALLL balances~~segment based on ~~impairment methodology by class~~their delinquency status and year of origination as of December 31, ~~2019~~2020 (dollars in thousands):

December 31, 2019

Loans individually

Loans collectively

Loans acquired with

evaluated for

evaluated for

deteriorated credit

impairment

impairment

quality

Total


Loans

ALL

Loans

ALL

Loans

ALL

Loans

ALL
Construction and Land Development

$
6,861

$
49

$
1,233,119

$
5,709

$
10,944

$
0

$
1,250,924

$
5,758
Commercial Real Estate - Owner Occupied

11,621

146

2,002,184

3,773

27,438

0

2,041,243

3,919
Commercial Real Estate - Non-Owner Occupied

3,845

2

3,267,688

9,541

14,565

0

3,286,098

9,543
Multifamily Real Estate

0

0

633,649

632

94

0

633,743

632
Commercial & Industrial

6,236

619

2,106,218

7,768

1,579

217

2,114,033

8,604
Residential 1-4 Family - Commercial

5,773

162

706,359

1,203

12,205

0

724,337

1,365
Residential 1-4 Family - Consumer

20,446

1,242

855,344

771

14,713

0

890,503

2,013
Residential 1-4 Family - Revolving

3,048

510

652,329

813

4,127

0

659,504

1,323
Auto

563

221

349,852

1,232

4

0

350,419

1,453
Consumer and all other⁽¹⁾

730

76

658,390

7,608

1,012

0

660,132

7,684
Total loans held for investment, net

$
59,123

$
3,027

$
12,465,132

$
39,050

$
86,681

$
217

$
12,610,936

$
42,294
⁽¹⁾~~Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.~~

December 31, 2020

Term Loans Amortized Cost Basis by Origination Year

2020

2019

2018

2017

2016

Prior

Revolving Loans

Total
Residential 1-4 Family - Consumer

Current

$
213,763

$
75,133

$
64,299

$
68,320

$
102,123

$
269,203

$
11

$
792,852
30-59 Days Past Due

678

181

2,243

516

457

6,107

0

10,182
60-89 Days Past Due

156

0

57

679

0

641

0

1,533
90+ Days Past Due

608

1,696

23

0

1,246

2,126

0

5,699
Nonaccrual

0

0

696

851

887

10,166

0

12,600
Total Residential 1-4 Family - Consumer

$
215,205

$
77,010

$
67,318

$
70,366

$
104,713

$
288,243

$
11

$
822,866

Residential 1-4 Family - Revolving

Current

$
13,217

$
3,916

$
1,593

$
300

$
0

$
636

$
567,860

$
587,522
30-59 Days Past Due

70

0

0

0

0

0

2,905

2,975
60-89 Days Past Due

53

0

0

0

0

0

991

1,044
90+ Days Past Due

0

0

0

0

0

0

826

826
Nonaccrual

0

0

21

0

0

227

4,381

4,629
Total Residential 1-4 Family - Revolving

$
13,340

$
3,916

$
1,614

$
300

$
0

$
863

$
576,963

$
596,996

Consumer

Current

$
26,498

$
68,208

$
67,041

$
22,464

$
9,997

$
15,893

$
35,450

$
245,551
30-59 Days Past Due

35

252

504

98

15

143

119

1,166
60-89 Days Past Due

28

176

317

23

0

3

3

550
90+ Days Past Due

5

84

242

4

0

56

3

394
Nonaccrual

0

0

0

0

0

69

0

69
Total Consumer

$
26,566

$
68,720

$
68,104

$
22,589

$
10,012

$
16,164

$
35,575

$
247,730

Auto

Current

$
171,051

$
115,319

$
55,886

$
32,555

$
17,081

$
6,314

$
0

$
398,206
30-59 Days Past Due

239

467

543

478

197

152

0

2,076
60-89 Days Past Due

124

150

0

59

26

17

0

376
90+ Days Past Due

6

23

53

58

15

11

0

166
Nonaccrual

30

93

126

101

88

62

0

500
Total Auto

$
171,450

$
116,052

$
56,608

$
33,251

$
17,407

$
6,556

$
0

$
401,324

Total Consumer

Current

$
424,529

$
262,576

$
188,819

$
123,639

$
129,201

$
292,046

$
603,321

$
2,024,131
30-59 Days Past Due

1,022

900

3,290

1,092

669

6,402

3,024

16,399
60-89 Days Past Due

361

326

374

761

26

661

994

3,503
90+ Days Past Due

619

1,803

318

62

1,261

2,193

829

7,085
Nonaccrual

30

93

843

952

975

10,524

4,381

17,798
Total Consumer

$
426,561

$
265,698

$
193,644

$
126,506

$
132,132

$
311,826

$
612,549

$
2,068,916

The Company ~~uses a risk rating system and past due status as~~did not have any material revolving loans convert to term during 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 loss; 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.~~

~~Watch & 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.~~

~~-33-~~

~~Table of Contents~~

~~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~~year ended December 31, ~~2019 (dollars in thousands):~~


Pass

Watch & Special Mention

Substandard

Doubtful

Total
Construction and Land Development

$
1,197,066

$
37,182

$
5,732

$
0

$
1,239,980
Commercial Real Estate - Owner Occupied

1,916,492

87,004

10,309

0

2,013,805
Commercial Real Estate - Non-Owner Occupied

3,205,463

62,368

3,608

94

3,271,533
Multifamily Real Estate

613,844

19,396

409

0

633,649
Commercial & Industrial

2,043,903

60,495

8,048

8

2,112,454
Residential 1-4 Family - Commercial

680,894

24,864

6,374

0

712,132
Residential 1-4 Family - Consumer

841,408

13,592

20,534

256

875,790
Residential 1-4 Family - Revolving

641,069

6,373

7,935

0

655,377
Auto

345,960

2,630

1,825

0

350,415
Consumer

371,315

550

320

0

372,185
Other Commercial

284,914

1,863

158

0

286,935
Total

$
12,142,328

$
316,317

$
65,252

$
358

$
12,524,255

~~The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, 2019 (dollars in thousands):~~


Pass

Watch & Special Mention

Substandard

Doubtful

Total
Construction and Land Development

$
1,092

$
3,692

$
6,160

$
0

$
10,944
Commercial Real Estate - Owner Occupied

8,264

10,524

8,650

0

27,438
Commercial Real Estate - Non-Owner Occupied

3,826

9,415

1,324

0

14,565
Multifamily Real Estate

0

94

0

0

94
Commercial & Industrial

127

25

1,427

0

1,579
Residential 1-4 Family - Commercial

6,000

2,693

3,512

0

12,205
Residential 1-4 Family - Consumer

9,947

557

4,209

0

14,713
Residential 1-4 Family - Revolving

2,887

707

533

0

4,127
Auto

2

0

2

0

4
Consumer

657

0

11

—

668
Other Commercial

120

224

0

0

344
Total

$
32,922

$
27,931

$
25,828

$
0

$
86,681

~~-34-~~

~~Table of Contents~~

~~Acquired Loans~~
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,~~ ~~as of September 30, 2019 (dollars in thousands):~~

For the Nine Months Ended September 30,

2019
Balance at beginning of period

$
31,201
Additions

2,432
Accretion

(9,830)
Reclass of nonaccretable difference due to improvement in expected cash flows

1,372
Measurement period adjustment

2,629
Other, net ⁽¹⁾

5,083
Balance at end of period

$
32,887
~~(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, Receivables -~~ ~~Loans and Debt Securities Acquired with Deteriorated Credit Quality~~, totaled $86.7 million at December 31, 2019. The outstanding balance of the Company’s PCI loan portfolio totaled $104.9 million at December 31, 2019. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, ~~Receivables – Nonrefundable Fees and Other Costs~~~~, totaled $3.0 billion at December 31, 2019; the remaining discount on these loans totaled $50.1 million at December 31, 2019.~~2020.

~~-35-~~-25-

Table of Contents

5.4. GOODWILL AND 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 intangibles are being amortized over the period of expected benefit, which ranges from 4 to 10 years, using an accelerated method. Other amortizable intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 10 years, using various methods.
~~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 COVID-19 pandemic has disrupted and adversely impacted the economy and created significant volatility in the financial markets. The volatility in the financial markets ~~has~~ adversely affected the Company’s expected future cash flows, due to the lower interest rate environment and other ~~factors, and resulted in a decline~~factors. The forecasted impact from COVID-19 was included in the ~~market price of the~~ Company’s ~~common stock, along with others in the financial services industry. The Company performed its~~ annual goodwill impairment ~~testing~~test in the second quarter of 2020, and while the fair value of the reporting unit declined from the prior test, the Company determined that there was 0 impairment to its goodwill or intangible assets. In the normal course of business, the Company routinely monitors the impact of the changes in the financial markets and includes these assessments in the Company’s goodwill impairment process.
The Company analyzed its intangible assets at March 31, 2021 and concluded 0 impairment existed as of the balance sheet date. Amortization expense of intangibles for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 totaled ~~$4.1~~$3.7 million and ~~$12.7 million, respectively; and for the three and nine months ended September 30, 2019 totaled $4.8 million and $13.9~~$4.4 million, respectively.
As of ~~September 30, 2020,~~March 31, 2021, the estimated remaining amortization expense of intangibles is as follows for the years ending (dollars in thousands):

For the remaining three months of 2020

$
3,883
2021

13,874
For the remaining nine months of 2021

$
10,159
2022

11,490

11,490
2023

9,687

9,688
2024

7,819

7,818
2025

6,221
Thereafter

14,315

8,095
Total estimated amortization expense

$
61,068

$
53,471

~~-36-~~-26-

Table of Contents

6.5. LEASES
The Company enters into both lessor and lessee arrangements and determines if an arrangement is a lease at inception. As both a lessee and lessor, the Company elected the practical expedient permitted under the transition guidance within the standard to account for lease and non-lease components as a single lease component for all asset classes.
Lessor Arrangements
The Company’s lessor arrangements consist of sales-type and direct financing leases for equipment. Lease payment terms are fixed and are typically payable in monthly installments with terms ranging from 31 months to 125 months. The lease arrangements may contain renewal options and purchase options that allow the lessee to purchase the leased equipment at the end of the lease term. The leases generally do not contain non-lease components. The Company has no material sale leaseback transactions and 0 lease transactions with related parties.
At lease inception the Company estimates the expected residual value of the leased property at the end of the lease term by considering both internal and third-party appraisals. In certain cases, the Company obtains lessee-provided residual value guarantees and third-party RVI to reduce its residual asset risk. At ~~September 30,~~March 31, 2021 and December 31, 2020, the carrying value of residual assets covered by residual value guarantees and RVI was ~~$14.2 million.~~$14.1 million and $14.7 million, respectively.

The net investment in sales-type and direct financing leases consists of the carrying amount of the lease receivables plus unguaranteed residual assets, net of unearned income and any deferred selling profit on direct financing leases. The lease receivables include the lessor’s right to receive lease payments and the guaranteed residual asset value the lessor expects to derive from the underlying assets at the end of the lease term. ~~At September 30, 2020, the total net investment in sales-type and direct financing leases was $146.5 million, comprised of $142.1 million in lease receivables and $4.4~~ ~~million in unguaranteed residuals. There were no significant changes in the balance of the Company’s unguaranteed residual assets for the period ending September 30, 2020.~~ The Company’s net investment in sales-type and direct financing leases are included in Loans Held for Investment (net of deferred fees and costs) on the Company’s Consolidated Balance Sheets. ~~For the three and nine months ended September 30, 2020, total lease~~Lease income ~~was~~ ~~$782,000 and $1.1 million, respectively, and~~ is recorded within Interest Income on the Company’s Consolidated Statements of Income. There ~~was 0 lease income~~were no significant changes in the balance of the Company’s unguaranteed residual assets for the ~~three~~periods ending March 31, 2021and December 31, 2020.

Total net investment in sales-type and ~~nine months ended September 30, 2019.~~direct financing leases consists of the following (dollars in thousands):

March 31, 2021

December 31, 2020
Sales-type and direct financing leases:

Lease receivables, net of unearned

$
150.0

$
141.2
Unguaranteed residual values, net of unearned

5.3

4.8
Total net investment in sales-type and direct financing leases

$
155.3

$
146.0

Lessee Arrangements
The Company’s lessee arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable operating leases and are primarily for real estate leases with remaining lease terms of up to 25 years. The Company’s real estate lease agreements do not contain residual value guarantees and most agreements do not contain restrictive covenants. The Company does not have any material arrangements where the Company is in a sublease contract.

Lessee arrangements with an initial term of ~~twelve~~12 months or less are not recorded on the Consolidated Balance Sheets. The ROU Assets and lease liabilities associated with operating and finance leases greater than ~~twelve~~12 months are recorded in the Company’s Consolidated Balance Sheets; ROU Assets within Other Assets and lease liabilities within Other Liabilities. ROU Assets represent the Company’s right to use an underlying asset over the course of the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The initial measurement of lease liabilities and ROU Assets are the same for operating and finance leases. Lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments, discounted using the incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU Assets are recognized at commencement date based on the initial measurement of the lease liability, any lease payments made excluding lease incentives, and any initial direct costs incurred. Most of the Company’s operating leases include one or more options to ~~renew. The~~renew and the Company is reasonably certain to exercise those options. The options ~~they~~to exercise are included in the measurement of the operating ROU Assets and lease liabilities.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income. Finance lease expenses

-27-

Table of Contents

consist of straight-line amortization expense of the ROU Assets recognized over the lease term and interest expense on the lease liability. Total finance lease expenses for the amortization of the ROU Assets are recorded in Occupancy Expense within noninterest expense on the Company’s Consolidated Statements of Income and interest expense on the finance lease liability is recorded in Interest Expense on Long-Term Borrowings within total interest expense on the Company’s Consolidated Statements of Income.

~~-37-~~

~~Table of Contents~~

As of ~~September 30,~~March 31, 2021 and December 31, 2020, the Company had 0 sales leaseback transactions or leases that have 0t yet commenced that create significant rights and obligations.
The tables below provide information about the Company’s lessee lease portfolio and other supplemental lease information (dollars in thousands):


September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020

Operating

Finance

Operating

Operating

Finance

Operating

Finance

Right-of-use-assets

$
53,948

$
7,654

$
54,941

$
47,165

$
7,195

$
48,051

$
7,425

Lease liabilities

64,757

10,590

66,052

58,084

10,339

58,901

10,621

Lease Term and Discount Rate of Operating leases:

Weighted-average remaining lease term (years)

7.41

8.33

7.36

7.11

7.83

7.27

8.08

Weighted-average discount rate ⁽¹⁾

2.26
%

1.17
%

2.69
%

2.61
%

1.17
%

2.66
%

1.17
%
(1) An incremental borrowing rate is used based on information available at commencement date of lease or at remeasurement date.

Nine months ended September 30,

Three months ended March 31,

2020

2019

2021

2020
Cash paid for amounts included in measurement of lease liabilities:

Operating Cash Flows from Finance Leases

$
41

$
-

$
30

$
0
Operating Cash Flows from Operating Leases

10,398

10,327

3,015

3,517
Financing Cash Flows from Finance Leases

283

0
Right-of-use assets obtained in exchange for lease obligations:





Operating leases

7,566

5,979

1,820

1,216
Finance leases

10,549

-

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

2020

2019

2020

2019

2021

2020
Net Operating Lease Cost

$
2,536

$
2,928

$
8,383

$
8,940

$
2,541

$
2,918
Finance Lease Cost:

Amortization of right-of-use assets

230

-

306

-

230

0
Interest on lease liabilities

31

-

41

-

30

0
Total Lease Cost

$
2,797

$
2,928

$
8,730

$
8,940

$
2,801

$
2,918

-28-

Table of Contents

The maturities of lessor and lessee arrangements outstanding at ~~September 30, 2020~~March 31, 2021 are presented in the tables below (dollars in thousands):

September 30, 2020

March 31, 2021

Lessor

Lessee

Lessor

Lessee

Sales-type and Direct Financing

Operating

Finance

Sales-type and Direct Financing

Operating

Finance
For the remaining three months of 2020

$
7,416

$
3,193

$
0
2021

28,883

12,500

1,261
For the remaining nine months of 2021

$
24,693

$
8,966

$
948
2022

29,799

11,289

1,292

34,150

11,322

1,292
2023

28,136

10,324

1,325

32,487

10,172

1,325
2024

26,185

9,007

1,358

30,537

9,178

1,358
2025

17,780

6,712

1,392

22,110

6,864

1,392
2026

6,630

4,318

1,427
Thereafter

13,594

17,701

4,515

11,757

13,369

3,088
Total undiscounted cash flows

151,793

70,726

11,143

162,364

64,189

10,830
Less: Adjustments ⁽¹⁾

9,645

5,969

553

12,377

6,105

491
Total ⁽²⁾

$
142,148

$
64,757

$
10,590

$
149,987

$
58,084

$
10,339
(1) Lessor – unearned income and unearned guaranteed residual value; Lessee – imputed interest.
(2) Represents lease receivables for lessor arrangements and lease liabilities for lessee arrangements

~~-38-~~-29-

Table of Contents

7.6. 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, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (dollars in thousands):


September 30,

December 31,


March 31,

December 31,

2020

2019

2021

2020

Securities sold under agreements to repurchase

$
91,086

$
66,053

$
105,522

$
100,888

Federal Funds Purchased

25,000

0

168,000

150,000

FHLB Advances

150,200

370,200

0

100,000

Total short-term borrowings

$
266,286

$
436,253

$
273,522

$
350,888

Average outstanding balance during the period

$
223,068

$
673,116

$
149,761

$
213,932

Average interest rate (during the period)

0.96
%

2.30
%

0.13
%

0.79
%
Average interest rate at end of period

0.25
%

1.52
%

0.08
%

0.13
%

The Bank maintains federal funds lines with several correspondent banks, the remaining available balance was ~~$942.0~~$829.0 million and ~~$682.0~~$847.0 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The Company maintains an alternate line of credit at a correspondent bank, which had an available balance of $25.0 million at both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with such covenants as of ~~September 30, 2020.~~March 31, 2021 and December 31, 2020. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $5.9 billion and ~~$5.2~~$6.0 billion at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.
Long-term Borrowings
In ~~connection with several previous bank acquisitions,~~response to the current rate environment, the Company ~~issued and acquired trust preferred capital notes of $58.5~~prepaid a $200.0 million ~~and $87.0 million, respectively. Most recently, in connection with the acquisition of Access~~long-term FHLB advance on February ~~1, 2019, the Company acquired additional trust preferred capital notes totaling $5.0 million. The remaining fair value discount on all acquired trust preferred capital notes was $14.3~~26, 2021 and $550.0 million ~~at September 30, 2020.~~
~~On August 23, 2012, the Company modified its fixed rate~~of long-term FHLB advances ~~to floating rate advances,~~in 2020, which resulted in ~~reducing the Company’s FHLB borrowing costs.~~prepayment penalties of $14.7 million and $31.2 million, respectively. In ~~connection with this modification,~~addition, on November 30, 2020, the Company ~~incurred a prepayment penalty of $19.6~~redeemed $8.5 million ~~on the original advances which~~in subordinated debt that was ~~deferred and to be amortized over the term of the modified advances using the effective rate method. On August 29, 2019, the Company repaid the floating rate FHLB advances. In connection with this~~ ~~repayment, the remaining unamortized prepayment penalty of $7.4 million was immediately recognized as a component of noninterest expense during the third quarter of 2019.~~
~~During the second quarter of 2020, in connection with the loans originated~~originally acquired as part of the PPP, the Company borrowed under the Federal Reserve’s PPPLF. Under the terms of the PPPLF, the Company can borrow funds which are secured by the Company’s PPP loans, and the interest rate on these borrowings is fixed.Xenith acquisition.

~~-39-~~-30-

Table of Contents

Total long-term borrowings consist of the following as of ~~September 30, 2020~~March 31, 2021 (dollars in thousands):

Spread to

Spread to

Principal

3-Month LIBOR

Rate ⁽¹⁾

Maturity

Investment ⁽²⁾

Principal

3-Month LIBOR

Rate ⁽¹⁾

Maturity

Investment ⁽²⁾
Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$
22,500

2.75
%
2.98
%
6/17/2034

$
696

$
22,500

2.75
%
2.94
%
6/17/2034

$
696
Trust Preferred Capital Note - Statutory Trust II

36,000

1.40
%
1.63
%
6/15/2036

1,114

36,000

1.40
%
1.59
%
6/15/2036

1,114
VFG Limited Liability Trust I Indenture

20,000

2.73
%
2.96
%
3/18/2034

619

20,000

2.73
%
2.92
%
3/18/2034

619
FNB Statutory Trust II Indenture

12,000

3.10
%
3.33
%
6/26/2033

372

12,000

3.10
%
3.29
%
6/26/2033

372
Gateway Capital Statutory Trust I

8,000

3.10
%
3.33
%
9/17/2033

248

8,000

3.10
%
3.29
%
9/17/2033

248
Gateway Capital Statutory Trust II

7,000

2.65
%
2.88
%
6/17/2034

217

7,000

2.65
%
2.84
%
6/17/2034

217
Gateway Capital Statutory Trust III

15,000

1.50
%
1.73
%
5/30/2036

464

15,000

1.50
%
1.69
%
5/30/2036

464
Gateway Capital Statutory Trust IV

25,000

1.55
%
1.78
%
7/30/2037

774

25,000

1.55
%
1.74
%
7/30/2037

774
MFC Capital Trust II

5,000

2.85
%
3.08
%
1/23/2034

155

5,000

2.85
%
3.04
%
1/23/2034

155
Total Trust Preferred Capital Securities

$
150,500







$
4,659

$
150,500







$
4,659
FHLB Advances⁽³⁾

Convertible Flipper

$
50,000

-
%
0.85
%
8/17/2029

Convertible Flipper

150,000

(0.75)
%
-
%
5/22/2029

Convertible Flipper

50,000

(0.75)
%
-
%
5/30/2029

Convertible Flipper

100,000

(0.75)
%
-
%
6/21/2029

Fixed Rate Convertible

200,000

-
%
1.78
%
10/26/2028

Fixed Rate Credit

10,000

-
%
1.54
%
10/2/2020

Total FHLB Advances

$
560,000

Subordinated Debt⁽⁴⁾⁽⁵⁾

2025 Subordinated Debt

$
8,500

-
%
6.75
%
6/30/2025

2026 Subordinated Debt⁽⁶⁾

150,000

-
%
5.00
%
12/15/2026

Subordinated Debt⁽³⁾⁽⁴⁾

2026 Subordinated Debt⁽⁵⁾

150,000

-
%
5.00
%
12/15/2026

Total Subordinated Debt

$
158,500

$
150,000

PPPLF Advances⁽⁷⁾

PPPLF Advance 4/8/2022

$
55,422

-
%
0.35
%
4/8/2022

PPPLF Advance 4/11/2022

134,523

-
%
0.35
%
4/11/2022

Total PPPLF Advances

$
189,945

Fair Value Premium (Discount)⁽⁸⁾

(15,568)

Fair Value Premium (Discount)⁽⁶⁾

(15,081)

Investment in Trust Preferred Capital Securities

4,659

4,659

Total Long-term Borrowings

$
1,048,036

$
290,078

(1) Rate as of ~~September 30, 2020.~~March 31, 2021. Calculated using non-rounded numbers.
(2) The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other Assets" on the Company’s Consolidated Balance Sheets.
(3) ~~Convertible Flippers have interest rate floors of~~ 0%.
~~(4)~~ The remaining issuance discount as of ~~September 30, 2020~~March 31, 2021 is $~~1.2~~1.1 million.
~~(5)~~(4) Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.
~~(6)~~(5) Fixed-to-floating rate notes. On December 15, 2021, the interest rate will change to a floating rate of LIBOR plus 3.175% through its maturity date.
~~(7)~~ ~~The Company’s available borrowing capacity under the PPPLF as of September 30, 2020 was~~ ~~$1.4~~ ~~billion.~~
~~(8)~~(6) Includes discount on issued subordinated notes.

~~-40-~~-31-

Table of Contents

Total long-term borrowings consist of the following as of December 31, ~~2019~~2020 (dollars in thousands):

Spread to

Principal

3-Month LIBOR

Rate ⁽¹⁾

Maturity

Investment ⁽²⁾
Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$
22,500

2.75
%
4.66
%
6/17/2034

$
696
Trust Preferred Capital Note - Statutory Trust II

36,000

1.40
%
3.31
%
6/15/2036

1,114
VFG Limited Liability Trust I Indenture

20,000

2.73
%
4.64
%
3/18/2034

619
FNB Statutory Trust II Indenture

12,000

3.10
%
5.01
%
6/26/2033

372
Gateway Capital Statutory Trust I

8,000

3.10
%
5.01
%
9/17/2033

248
Gateway Capital Statutory Trust II

7,000

2.65
%
4.56
%
6/17/2034

217
Gateway Capital Statutory Trust III

15,000

1.50
%
3.41
%
5/30/2036

464
Gateway Capital Statutory Trust IV

25,000

1.55
%
3.46
%
7/30/2037

774
MFC Capital Trust II

5,000

2.85
%
4.76
%
1/23/2034

155
Total Trust Preferred Capital Securities

$
150,500







$
4,659
FHLB Advances⁽³⁾

Convertible Flipper

$
50,000

(0.75)
%
1.16
%
8/17/2029

Convertible Flipper

200,000

(0.50)
%
1.41
%
5/15/2024

Convertible Flipper

150,000

(0.75)
%
1.16
%
5/22/2029

Convertible Flipper

50,000

(0.75)

1.16

5/30/2029

Convertible Flipper

100,000

(0.75)
%
1.16
%
6/21/2029

Fixed Rate Convertible

200,000

-
%
1.78
%
10/26/2028

Fixed Rate Hybrid

20,000

-
%
1.58
%
5/18/2020

Fixed Rate Credit

10,000

-
%
1.54
%
10/2/2020

Total FHLB Advances

$
780,000

Subordinated Debt⁽⁴⁾⁽⁵⁾

2025 Subordinated Debt

$
8,500

-
%
6.75
%
6/30/2025

2026 Subordinated Debt⁽⁶⁾

150,000

-
%
5.00
%
12/15/2026

Total Subordinated Debt

$
158,500

Fair Value Premium (Discount)⁽⁷⁾

(16,164)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

$
1,077,495

Spread to

Principal

3-Month LIBOR

Rate ⁽¹⁾

Maturity

Investment ⁽²⁾
Trust Preferred Capital Securities

Trust Preferred Capital Note - Statutory Trust I

$
22,500

2.75
%
2.99
%
6/17/2034

$
696
Trust Preferred Capital Note - Statutory Trust II

36,000

1.40
%
1.64
%
6/15/2036

1,114
VFG Limited Liability Trust I Indenture

20,000

2.73
%
2.97
%
3/18/2034

619
FNB Statutory Trust II Indenture

12,000

3.10
%
3.34
%
6/26/2033

372
Gateway Capital Statutory Trust I

8,000

3.10
%
3.34
%
9/17/2033

248
Gateway Capital Statutory Trust II

7,000

2.65
%
2.89
%
6/17/2034

217
Gateway Capital Statutory Trust III

15,000

1.50
%
1.74
%
5/30/2036

464
Gateway Capital Statutory Trust IV

25,000

1.55
%
1.79
%
7/30/2037

774
MFC Capital Trust II

5,000

2.85
%
3.09
%
1/23/2034

155
Total Trust Preferred Capital Securities

$
150,500







$
4,659
FHLB Advances

Fixed Rate Convertible

200,000

-
%
1.78
%
10/26/2028

Total FHLB Advances

$
200,000

Subordinated Debt⁽³⁾⁽⁴⁾

2026 Subordinated Debt⁽⁵⁾

150,000

-
%
5.00
%
12/15/2026

Total Subordinated Debt

$
150,000

Fair Value Premium (Discount)⁽⁶⁾

(15,330)

Investment in Trust Preferred Capital Securities

4,659

Total Long-term Borrowings

$
489,829

(1) Rate as of December 31, ~~2019.~~2020. Calculated using non-rounded numbers.
(2) The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company’s investment in the trusts is reported in "Other Assets" on the Company’s Consolidated Balance Sheets.
(3) ~~Convertible Flippers have interest rate floors of~~ 0%.
~~(4)~~ The remaining issuance discount as of December 31, ~~2019~~2020 is $~~1.4~~1.2 million.
~~(5)~~(4) Subordinated notes qualify as Tier 2 capital for the Company for regulatory purposes.
~~(6)~~(5) Fixed-to-floating rate notes. On December 15, 2021, the interest rate will change to a floating rate of LIBOR plus 3.175% through its maturity date.
~~(7)~~(6) Includes discount on issued subordinated notes.

~~-41-~~

~~Table of Contents~~

As of ~~September 30, 2020,~~March 31, 2021, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):


Trust











Trust







Preferred







Fair Value

Total

Preferred



Fair Value

Total


Capital

Subordinated

PPPLF

FHLB

Premium

Long-term

Capital

Subordinated

Premium

Long-term


Notes

Debt

Advances

Advances

(Discount) ⁽¹⁾

Borrowings

Notes

Debt

(Discount) ⁽¹⁾

Borrowings
For the remaining three months of 2020

$
0

$
0

$
—

$
10,000

$
(238)

$
9,762
2021

0

0

—

0

(1,008)

(1,008)
For the remaining nine months of 2021

$
0

$
0

$
(760)

$
(760)
2022

0

0

189,945

0

(1,030)

188,915

0

0

(1,030)

(1,030)
2023

0

0

—

0

(1,053)

(1,053)

0

0

(1,053)

(1,053)
2024

0

0

—

0

(1,078)

(1,078)

0

0

(1,078)

(1,078)
2025

0

0

(1,102)

(1,102)
Thereafter

155,159

158,500

—

550,000

(11,161)

852,498

155,159

150,000

(10,058)

295,101
Total long-term borrowings

$
155,159

$
158,500

$
189,945

$
560,000

$
(15,568)

$
1,048,036

$
155,159

$
150,000

$
(15,081)

$
290,078

(1) Includes discount on issued subordinated notes.

~~-42-~~-32-

Table of Contents

8.7. COMMITMENTS AND CONTINGENCIES
Litigation Matters
In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and 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 and funding information, current and future economic conditions, risk ratings, and past due status among other factors in the consideration of expected credit losses in the Company’s off-balance sheet commitments to extend credit. The Company also records an indemnification reserve that includes balances relating to mortgage loans previously sold based on historical statistics and loss rates.
As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company’s reserves for ~~off-balance sheet credit risk~~unfunded commitment and indemnification were ~~$14.0~~$13.6 million and ~~$2.6~~$10.8 million, respectively.
Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
The following table presents the balances of commitments and contingencies as of the following dates (dollars in thousands):


September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020
Commitments with off-balance sheet risk:








Commitments to extend credit ⁽¹⁾

$
4,631,361

$
4,691,272

$
5,550,942

$
4,722,412
Letters of credit

164,303

209,658

160,644

161,827
Total commitments with off-balance sheet risk

$
4,795,664

$
4,900,930

$
5,711,586

$
4,884,239
(1) Includes unfunded overdraft protection.

Prior to the first quarter of 2020, the Company was required to maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. On March 15, 2020, the Federal Reserve Board announced that reserve requirement ratios would be reduced to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
~~As of September 30, 2020, the Company had approximately $296.2~~ ~~million in deposits in other financial institutions, of which $276.8 million served as collateral for cash flow and loan swap derivatives. The Company had approximately $16.3~~ million in deposits in other financial institutions that were uninsured at September 30, 2020. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

~~-43-~~-33-

Table of Contents

As of March 31, 2021, the Company had approximately $176.5 million in deposits in other financial institutions, of which $153.8 million served as collateral for cash flow and loan swap derivatives. As of December 31, 2020, the Company had approximately $290.5 million in deposits in other financial institutions, of which $251.0 million served as collateral for cash flow and loan swap derivatives. The Company had approximately $19.7 million and $36.4 million in deposits in other financial institutions that were uninsured at March 31, 2021 and December 31, 2020, respectively. At least annually, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.
For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. Refer to Note 98 “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, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (dollars in thousands):

Pledged Assets as of September 30, 2020

Pledged Assets as of March 31, 2021




AFS

HTM







AFS

HTM




Cash

Securities ⁽¹⁾

Securities ⁽¹⁾

Loans ⁽²⁾

Total

Cash

Securities ⁽¹⁾

Securities ⁽¹⁾

Loans ⁽²⁾

Total
Public deposits

$
0

$
476,167

$
432,791

$
0

$
908,958

$
0

$
495,680

$
426,897

$
0

$
922,577
Repurchase agreements

0

111,781

0

0

111,781

0

107,620

0

0

107,620
FHLB advances

0

54,195

0

4,354,063

4,408,258

0

50,382

0

4,339,460

4,389,842
Derivatives

276,786

939

0

0

277,725

153,849

690

0

0

154,539
Fed Funds

0

0

0

316,561

316,561

0

0

0

367,342

367,342
PPP Loans

0

0

0

189,945

189,945
Other purposes

0

124,517

8,862

0

133,379

0

96,728

979

0

97,707
Total pledged assets

$
276,786

$
767,599

$
441,653

$
4,860,569

$
6,346,607

$
153,849

$
751,100

$
427,876

$
4,706,802

$
6,039,627

(1) Balance represents market value.

(2) Balance represents book value.

Pledged Assets as of December 31, 2019

Pledged Assets as of December 31, 2020




AFS

HTM







AFS

HTM




Cash

Securities ⁽¹⁾

Securities ⁽¹⁾

Loans ⁽²⁾

Total

Cash

Securities ⁽¹⁾

Securities ⁽¹⁾

Loans ⁽²⁾

Total
Public deposits

$
0

$
467,266

$
292,096

$
0

$
759,362

$
0

$
469,864

$
436,449

$
0

$
906,313
Repurchase agreements

0

79,299

7,602

0

86,901

0

116,876

0

0

116,876
FHLB advances

0

63,812

0

3,846,934

3,910,746

0

52,323

0

4,374,383

4,426,706
Derivatives

116,839

1,260

0

0

118,099

251,047

785

0

0

251,832
Fed Funds

0

0

0

292,738

292,738

0

0

0

340,847

340,847
Other purposes

0

122,358

10,654

0

133,012

0

123,388

8,634

0

132,022
Total pledged assets

$
116,839

$
733,995

$
310,352

$
4,139,672

$
5,300,858

$
251,047

$
763,236

$
445,083

$
4,715,230

$
6,174,596

(1) Balance represents book value.

(2) Balance represents market value.

⁽¹⁾ Balance represents market value.

⁽²⁾ Balance represents book value.

~~-44-~~-34-

Table of Contents

9.8. 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 derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.

Derivatives Counterparty Credit Risk

Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract. The Company’s exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on the Company’s Consolidated Balance Sheets, assuming no recoveries of underlying collateral.

Effective January 1, 2019, as required under the Dodd-Frank Act, the Company clears eligible derivative transactions through CCPs such as the CME and LCH, which are often referred to as “central clearinghouses”. The Company clears certain OTC derivatives with central clearinghouses through FCMs ~~as part of the~~due to applicable regulatory ~~requirement. The use of the CCPs and the FCMs~~requirement, which reduces the Company’s ~~bilateral~~ counterparty credit exposures while it increases the Company’s credit exposures to CCPs and FCMs. The Company is required by CCPs to post initial and variation margin to mitigate the risk of non-payment through the Company’s FCMs. The Company’s FCM agreements governing these derivative transactions generally include provisions that may require the Company to post more collateral or otherwise change terms in the Company’s agreements under certain circumstances. For CME and LCH-cleared OTC derivatives, the Company characterizes variation margin cash payments as settlements.risk.

The Company also enters into legally enforceable master netting agreements and collateral agreements, where possible, with certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset exposures and require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty.

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 financial instruments. 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 or commercial loans, for fixed-rate interest based on benchmarked interest rates. The original terms and conditions of the interest rate swaps vary and range in length. Amounts receivable or payable are recognized as accrued under the terms of the agreements.

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

~~The Company assesses~~For derivatives designated and qualifying as cash flow hedges, ineffectiveness is not measured or separately disclosed. Rather, as long as the ~~effectiveness of each~~ hedging relationship ~~on a periodic basis using statistical regression analysis. The Company also measures~~continues to qualify for hedge accounting, the ~~ineffectiveness of each hedging relationship using the~~entire change in ~~variable cash flows method which compares~~ the ~~cumulative changes in cash flows~~fair value of the hedging instrument ~~relative~~is recorded in OCI and recognized in earnings as the hedged transaction affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item.

During the quarter ended March 31, 2021, the Company executed two interest rate swaps designated and qualifying as cash flow hedges of the Company’s forecasted variable interest receipts on variable rate loans due to ~~cumulative~~ changes in the ~~hedged item’s cash flows. In accordance~~LIBOR rate with ~~ASC 815,~~a total notional amount of $200 million. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. ~~Derivatives and Hedging~~

,During the ~~effective portions of~~quarter ended March 31, 2020, the ~~derivatives’ unrealized gains or losses are recorded~~Company terminated interest rate swaps designated as ~~a component of other comprehensive income. For the period ended December 31, 2019, the Company’s~~ cash flow hedges ~~were highly effective.~~

prior to their respective maturity dates resulting in net losses of approximately $1.8 million, which resulted in the losses being recognized immediately in earnings as the forecasted transactions will not occur. The Company did 0tnot have any derivatives designated as cash flow hedges outstanding at ~~September 30,~~December 31, 2020.

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.

~~-45-~~-35-

Table of Contents

Loans: During the normal course of business, the Company enters into swap agreements 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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the aggregate notional amount of the related hedged items for certain long-term fixed rate loans totaled ~~$75.9~~$121.3 million and ~~$83.1~~$74.7 million, respectively, and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of ~~$5.9 million~~$672,000 and ~~$2.0~~$5.1 million, respectively.
AFS Securities: The Company has entered into a swap agreement to hedge the interest rate risk on a portion of its fixed rate available for sale securities. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the aggregate notional amount of the related hedged items of the AFS securities totaled $50 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of ~~$8.0~~$5.1 million and ~~$4.1~~$7.3 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~~The Company assesses the effectiveness ~~both at inception~~ of ~~the~~each hedging relationship by comparing the changes in fair value or cash flows on the derivative hedging instrument with the changes in fair value or cash flows on the designated hedged item or transactions for the risk being hedged. If a hedging relationship ceases to qualify for hedge accounting, the relationship is discontinued and ~~on an ongoing basis. The regression analysis involves regressing~~future changes in the ~~periodic change in~~ fair value of the ~~hedging~~derivative instrument ~~against the periodic changes~~are recognized in current period earnings. For a discontinued or terminated fair value hedging relationship, all remaining basis adjustments to the carrying amount of the ~~asset being~~ hedged ~~due~~item are amortized to ~~changes in~~interest income or expense over the remaining life of the hedged ~~risk.~~item consistent with the amortization of other discounts or premiums. Previous balances deferred in AOCI from discontinued or terminated cash flow hedges are reclassified to interest income or expense as the hedged transactions affect earnings or over the originally specified term of the hedging relationship. 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 offers interest rate swap loan relationships (“loan swaps”) to its borrowers to help 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.
The following table summarizes key elements of the Company’s derivative instruments as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):


September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020

Derivative ⁽²⁾

Derivative ⁽²⁾

Derivative ⁽²⁾

Derivative ⁽²⁾


Notional or





Notional or





Notional or





Notional or




Contractual

Contractual

Contractual

Contractual

Amount ⁽¹⁾

Assets

Liabilities

Amount ⁽¹⁾

Assets

Liabilities

Amount ⁽¹⁾

Assets

Liabilities

Amount ⁽¹⁾

Assets

Liabilities
Derivatives designated as accounting hedges:

Interest rate contracts:
















Cash flow hedges

$
0

$
0

$
0

$
100,000

$
0

$
1,147

$
200,000

$
0

$
1,808

$
0

$
0

$
0
Fair value hedges

125,856

—

13,912

133,078

182

6,256

171,323

2,139

7,949

124,726

—

12,483
Derivatives not designated as accounting hedges:

Loan Swaps :
























Pay fixed - receive floating interest rate swaps

2,192,085

—

187,299

1,575,149

753

53,592

2,393,919

22,420

84,030

2,356,453

212

163,148
Pay floating - receive fixed interest rate swaps

2,192,085

187,299

—

1,575,149

53,592

753

2,393,919

84,030

22,420

2,356,453

163,148

212

(1) Notional amounts are not recorded on the Company’s Consolidated Balance Sheets 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.

~~-46-~~-36-

Table of Contents

The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (dollars in thousands):

September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020




Cumulative



Cumulative



Cumulative



Cumulative

Amount of Basis

Amount of Basis

Amount of Basis

Amount of Basis

Adjustments

Adjustments

Adjustments

Adjustments

Included in the

Included in the

Included in the

Included in the

Carrying Amount

Carrying

Carrying Amount

Carrying

Carrying Amount

Carrying

Carrying Amount

Carrying

of Hedged

Amount of the

of Hedged

Amount of the

of Hedged

Amount of the

of Hedged

Amount of the

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Assets/(Liabilities)

Hedged

Amount ⁽¹⁾

Assets/(Liabilities)

Amount ⁽¹⁾

Assets/(Liabilities)

Amount ⁽¹⁾

Assets/(Liabilities)

Amount ⁽¹⁾

Assets/(Liabilities)
Line items on the Consolidated Balance Sheets in which the hedged item is included:
















Securities available-for-sale ^{(1) (2)}

$
179,908

$
7,992

$
206,799

$
4,072

$
150,545

$
5,115

$
166,413

$
7,297
Loans

75,856

5,830

83,078

1,972

121,323

598

74,726

5,088

(1) These amounts include the amortized cost basis of the investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the amortized cost basis of this portfolio was $151~~180~~ million and $166~~207~~ million, respectively, and the cumulative basis adjustment associated with this hedge was $~~8.0~~5.1 million and $~~4.1~~7.3 million, respectively. The amount of the designated hedged item ~~was~~at March 31, 2021 and December 31, 2020 totaled $50 million.

(2) Carrying value represents amortized cost.

~~-47-~~-37-

Table of Contents

~~10.~~9. STOCKHOLDERS’ EQUITY
Series A Preferred Stock
On June 9, 2020, the Company issued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its ~~6.875% Perpetual Non-Cumulative Preferred Stock,~~ Series A ~~par value $10.00 per share (the “Series A~~ preferred ~~stock”),~~stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.

Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 is summarized as follows, net of tax (dollars in thousands):




Unrealized Gains






(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses) on

Securities

HTM

Flow Hedge

BOLI

Total
Balance - December 31, 2020

$
74,161

$
55

$
0

$
(3,201)

$
71,015
Other comprehensive income (loss):


Other comprehensive income (loss) before reclassification

(33,125)

0

(1,428)

0

(34,553)
Amounts reclassified from AOCI into earnings

(62)

(5)

(47)

153

39
Net current period other comprehensive income (loss)

(33,187)

(5)

(1,475)

153

(34,514)
Balance - March 31, 2021

$
40,974

$
50

$
(1,475)

$
(3,048)

$
36,501

The change in accumulated other comprehensive income (loss) for the three months ended March 31, 2020 is summarized as follows, net of tax (dollars in thousands):




Unrealized Gains






(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses) on

Securities

HTM

Flow Hedge

BOLI

Total
Balance - June 30, 2020

$
63,886

$
65

$
0

$
(2,647)

$
61,304
Other comprehensive income (loss):


Other comprehensive income (loss) before reclassification

1,250

0

0

0

1,250
Amounts reclassified from AOCI into earnings

(14)

(5)

0

127

108
Net current period other comprehensive income (loss)

1,236

(5)

0

127

1,358
Balance - September 30, 2020

$
65,122

$
60

$
0

$
(2,520)

$
62,662




Unrealized Gains






(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses) on

Securities

HTM

Flow Hedge

BOLI

Total
Balance - December 31, 2019

$
37,877

$
75

$
(782)

$
(1,595)

$
35,575
Other comprehensive income (loss):


Other comprehensive income (loss) before reclassification

36,956

0

(699)

(1,289)

34,968
Amounts reclassified from AOCI into earnings

(9,711)

(15)

1,481

364

(7,881)
Net current period other comprehensive income (loss)

27,245

(15)

782

(925)

27,087
Balance - September 30, 2020

$
65,122

$
60

$
0

$
(2,520)

$
62,662




Unrealized Gain






(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses)

Securities

HTM

Flow Hedge

on BOLI

Total
Balance - December 31, 2019

$
37,877

$
75

$
(782)

$
(1,595)

$
35,575
Other comprehensive income (loss):

Other comprehensive income (loss) before reclassification

14,687

0

(699)

(1,289)

12,699
Amounts reclassified from AOCI into earnings

(1,529)

(5)

1,481

108

55
Net current period other comprehensive income (loss)

13,158

(5)

782

(1,181)

12,754
Balance - March 31, 2020

$
51,035

$
70

$
0

$
(2,776)

$
48,329

~~-48-~~

~~Table of Contents~~

~~The change in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 is summarized as follows, net of tax (dollars in thousands):~~




Unrealized Gain






(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses)

Securities

HTM

Flow Hedge

on BOLI

Total
Balance - June 30, 2019

$
36,125

$
85

$
(7,155)

$
(988)

$
28,067
Other comprehensive income (loss):

Other comprehensive income (loss) before reclassification

12,364

0

6,025

(647)

17,742
Amounts reclassified from AOCI into earnings

(5,612)

(5)

158

19

(5,440)
Net current period other comprehensive income (loss)

6,752

(5)

6,183

(628)

12,302
Balance - September 30, 2019

$
42,877

$
80

$
(972)

$
(1,616)

$
40,369




Unrealized Gain






(Losses)

Unrealized

for AFS

Unrealized

Gains (Losses)

Securities

Change in Fair

Gains

on AFS

Transferred to

Value of Cash

(Losses)

Securities
��
HTM

Flow Hedge

on BOLI

Total
Balance - December 31, 2018

$
(5,949)

$
95

$
(3,393)

$
(1,026)

$
(10,273)
Other comprehensive income (loss):

Other comprehensive income (loss) before reclassification

54,598

0

1,970

(647)

55,921
Amounts reclassified from AOCI into earnings

(5,772)

(15)

451

57

(5,279)
Net current period other comprehensive income (loss)

48,826

(15)

2,421

(590)

50,642
Balance - September 30, 2019

$
42,877

$
80

$
(972)

$
(1,616)

$
40,369

~~-49-~~-38-

Table of Contents

~~11.~~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. ASC 820 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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 98 “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~~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. No material differences were identified during the validation as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. 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. Mortgage banking derivatives as of ~~September 30,~~March 31, 2021 and December 31, 2020 did not have a material impact on the Company’s Consolidated Financial Statements.

AFS Securities

AFS securities 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~~third-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is ICE Data Services, which evaluates securities based on market data. ICE Data Services 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.

~~-50-~~-39-

Table of Contents

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, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.
The carrying value of restricted ~~Federal Reserve Bank~~FRB and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the table below.
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 in current period earnings as a component of "Mortgage banking income" 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, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (dollars in thousands):


Fair Value Measurements at September 30, 2020 using

Fair Value Measurements at March 31, 2021 using




Significant







Significant




Quoted Prices in

Other

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Identical Assets

Inputs

Inputs

Level 1

Level 2

Level 3

Balance

Level 1

Level 2

Level 3

Balance
ASSETS
















AFS securities:
















U.S. government and agency securities

$
0

$
13,878

$
0

$
13,878

$
0

$
11,677

$
0

$
11,677
Obligations of states and political subdivisions

0

796,856

0

796,856

0

899,098

0

899,098
Corporate and other bonds⁽¹⁾

0

148,918

0

148,918

0

147,608

0

147,608
Mortgage-backed securities

0

1,482,067

0

1,482,067

0

1,637,035

0

1,637,035
Other securities

0

1,621

0

1,621

0

1,625

0

1,625
Loans held for sale

0

52,607

0

52,607

0

49,082

0

49,082
Derivatives:
















Interest rate swap

0

187,299

0

187,299

0

106,450

0

106,450
Fair value hedges

0

2,139

0

2,139

LIABILITIES
















Derivatives:
















Interest rate swap

$
0

$
187,299

$
0

$
187,299

$
0

$
106,450

$
0

$
106,450
Cash flow hedges

0

1,808

0

1,808
Fair value hedges

0

13,912

0

13,912

0

7,949

0

7,949
(1) Other bonds include asset-backed securities.

~~-51-~~-40-

Table of Contents

Fair Value Measurements at December 31, 2019 using

Fair Value Measurements at December 31, 2020 using




Significant







Significant




Quoted Prices in

Other

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Identical Assets

Inputs

Inputs

Level 1

Level 2

Level 3

Balance

Level 1

Level 2

Level 3

Balance
ASSETS
















AFS securities:
















U.S. government and agency securities

$
—

$
21,320

$
—

$
21,320

$
0

$
13,394

$
0

$
13,394
Obligations of states and political subdivisions

0

447,091

0

447,091

0

837,326

0

837,326
Corporate and other bonds⁽¹⁾

0

135,959

0

135,959

0

151,078

0

151,078
Mortgage-backed securities

0

1,337,996

0

1,337,996

0

1,536,996

0

1,536,996
Other securities

0

3,079

0

3,079

0

1,625

0

1,625
Loans held for sale

0

55,405

0

55,405

0

96,742

0

96,742
Derivatives:
















Interest rate swap

0

54,345

0

54,345

0

163,360

0

163,360
Fair value hedges

0

182

0

182

LIABILITIES
















Derivatives:
















Interest rate swap

$
0

$
54,345

$
0

$
54,345

$
0

$
163,360

$
0

$
163,360
Cash flow hedges

0

1,147

0

1,147
Fair value hedges

0

6,256

0

6,256

0

12,483

0

12,483
(1) Other bonds include asset-backed securities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
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 after they are evaluated for impairment. The primary assets accounted for at fair value on a nonrecurring basis are related to foreclosed properties, former bank premises, and collateral-dependent loans that are individually assessed. When the asset is secured by real estate, the Company measures the fair value utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. Management may discount the value from the appraisal in determining the fair value if, based on its understanding of the market conditions, the collateral had been impaired below the appraised value (Level 3). The assets for which a nonrecurring fair value measurement was recorded during the period ended ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was $~~14.0~~12.2 million and ~~$11.9~~$12.7 million, respectively. The nonrecurring valuation adjustments for these assets did not have a material impact on the Company’s consolidated financial statements.
Fair Value of Financial Instruments
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.
HTM 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~~third-party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is ICE Data Services, which evaluates securities based on market data. ICE Data Services 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.

~~-52-~~-41-

Table of Contents

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, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The Company’s level 3 securities are a result of the Access acquisition and are comprised of asset-backed securities and municipal bonds. Valuations of the asset-backed securities are provided by a third party vendor specializing in the SBA markets, and are based on underlying loan pool information, market data, and recent trading activity for similar securities. Valuations of the municipal bonds are provided by a third party vendor that specializes in hard-to-value securities, and are based on a discounted cash flow model and considerations for the complexity of the instrument, likelihood it will be called and credit ratings. The Company reviews the valuation of both security types for reasonableness in the context of market conditions and to similar bonds in the Company’s portfolio. 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, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Loans and Leases

The fair value of loans ~~was~~and leases were estimated using an exit price, representing the amount that would be expected to be received if the Company sold the ~~loans.~~loans and leases. The fair value of performing loans ~~was~~and leases were estimated through use of discounted cash flows. Credit loss assumptions were based on market PD/LGD for loan and lease cohorts. The discount rate was based primarily on recent market origination rates. Fair value of loans and leases individually assessed ~~for impairment~~ and their respective levels within the fair value hierarchy are described in the previous section related to fair value measurements of assets that are measured on a nonrecurring basis.

Bank ~~owned life insurance~~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 fair value of certificates of deposits 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.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

~~-53-~~-42-

Table of Contents

The carrying values and estimated fair values of the Company’s financial instruments at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows (dollars in thousands):

Fair Value Measurements at September 30, 2020 using

Fair Value Measurements at March 31, 2021 using




Quoted Prices

Significant







Quoted Prices

Significant




in Active

Other

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Total Fair

Markets for

Observable

Unobservable

Total Fair

Identical Assets

Inputs

Inputs

Value

Identical Assets

Inputs

Inputs

Value

Carrying

Carrying

Value

Level 1

Level 2

Level 3

Balance

Value

Level 1

Level 2

Level 3

Balance
ASSETS

Cash and cash equivalents

$
520,966

$
520,966

$
0

$
0

$
520,966

$
400,880

$
400,880

$
0

$
0

$
400,880
AFS securities

2,443,340

0

2,443,340

0

2,443,340

2,697,043

0

2,697,043

0

2,697,043
HTM securities

546,661

0

600,679

13,494

614,173

543,575

0

593,589

12,770

606,359
Restricted stock

112,216

0

112,216

0

112,216

76,824

0

76,824

0

76,824
Loans held for sale

52,607

0

52,607

0

52,607

49,082

0

49,082

0

49,082
Net loans

14,209,093

0

0

14,102,010

14,102,010

14,129,369

0

0

13,950,754

13,950,754
Derivatives:




















Interest rate swap

187,299

0

187,299

0

187,299

106,450

0

106,450

0

106,450
Fair value hedges

2,139

0

2,139

0

2,139
Accrued interest receivable

71,475

0

71,475

0

71,475

74,603

0

74,603

0

74,603
BOLI

325,538

0

325,538

0

325,538

328,627

0

328,627

0

328,627

LIABILITIES




















Deposits

$
15,576,098

$
0

$
15,624,786

$
0

$
15,624,786

$
16,298,017

$
0

$
16,328,962

$
0

$
16,328,962
Borrowings

1,314,322

0

1,279,838

0

1,279,838

563,600

0

538,488

0

538,488
Accrued interest payable

5,126

0

5,126

0

5,126

3,561

0

3,561

0

3,561
Derivatives:




















Interest rate swap

187,299

0

187,299

0

187,299

106,450

0

106,450

0

106,450
Cash flow hedges

1,808

0

1,808

0

1,808
Fair value hedges

13,912

0

13,912

0

13,912

7,949

0

7,949

0

7,949


Fair Value Measurements at December 31, 2019 using

Fair Value Measurements at December 31, 2020 using

Quoted Prices

Significant

Quoted Prices

Significant

in Active

Other

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Total Fair

Markets for

Observable

Unobservable

Total Fair

Identical Assets

Inputs

Inputs

Value

Identical Assets

Inputs

Inputs

Value

Carrying

Carrying

Value

Level 1

Level 2

Level 3

Balance

Value

Level 1

Level 2

Level 3

Balance
ASSETS

Cash and cash equivalents

$
436,032

$
436,032

$
0

$
0

$
436,032

$
493,294

$
493,294

$
0

$
0

$
493,294
AFS securities

1,945,445

0

1,945,445

0

1,945,445

2,540,419

0

2,540,419

0

2,540,419
HTM securities

555,144

0

585,820

17,683

603,503

544,851

0

606,496

13,269

619,765
Restricted stock

130,848

0

130,848

0

130,848

94,782

0

94,782

0

94,782
Loans held for sale

55,405

0

55,405

0

55,405

96,742

0

96,742

0

96,742
Net loans

12,568,642

0

0

12,449,505

12,449,505

13,860,774

0

0

13,710,640

13,710,640
Derivatives:




















Interest rate swap

54,345

0

54,345

0

54,345

163,360

0

163,360

0

163,360
Fair value hedges

182

0

182

0

182
Accrued interest receivable

52,721

0

52,721

0

52,721

75,757

0

75,757

0

75,757
BOLI

322,917

0

322,917

0

322,917

326,892

0

326,892

0

326,892

LIABILITIES




















Deposits

$
13,304,981

$
0

$
13,349,943

$
0

$
13,349,943

$
15,722,765

$
0

$
15,763,991

$
0

$
15,763,991
Borrowings

1,513,748

0

1,479,606

0

1,479,606

840,717

0

821,516

0

821,516
Accrued interest payable

6,108

0

6,108

0

6,108

2,516

0

2,516

0

2,516
Derivatives:




















Interest rate swap

54,345

0

54,345

0

54,345

163,360

0

163,360

0

163,360
Cash flow hedges

1,147

0

1,147

0

1,147
Fair value hedges

6,256

0

6,256

0

6,256

12,483

0

12,483

0

12,483

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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.

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~~12.~~11. REVENUE
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 mortgage banking 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.
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. For the majority of income related to wealth management income, the Company is an agent, responsible for arranging for the provision of goods and services by another party. Mortgage banking income is earned when the originated loans are sold to an investor on the secondary market. The loans are classified as loans held for sale prior to being sold. Additionally, the changes in fair value of the loans held for sale, loan commitments, and related derivatives are included in mortgage banking income.
Noninterest income disaggregated by major source, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ consisted of the following (dollars in thousands):


Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

September 30,

September 30,

March 31,

March 31,

2020

2019

2020

2019

2021

2020
Noninterest income:












Deposit Service Charges ⁽¹⁾:












Overdraft fees

$
4,231

$
6,021

$
13,240

$
17,847

$
3,081

$
5,765
Maintenance fees & other

1,810

1,654

5,309

4,484

2,428

1,813
Other service charges, commissions, and fees ⁽¹⁾

1,621

1,513

4,600

4,879

1,701

1,624
Interchange fees⁽¹⁾

1,979

2,108

5,300

12,765

1,847

1,625
Fiduciary and asset management fees ⁽¹⁾:

Trust asset management fees

2,729

2,661

8,026

5,977

2,908

2,827
Registered advisor management fees

2,224

2,219

6,402

7,919

2,327

2,088
Brokerage management fees

1,092

1,202

3,115

2,938

1,240

1,069
Mortgage banking income

8,897

3,374

16,744

7,614

8,255

2,022
Gains on securities transactions

18

7,104

12,293

7,306

78

1,936
Bank owned life insurance income

3,421

2,062

7,498

6,191

2,265

2,049
Loan-related interest rate swap fees

3,170

5,480

12,602

10,656

1,754

3,948
Other operating income ⁽³⁾⁽²⁾

3,215

12,708

4,116

15,045

3,101

2,141
Total noninterest income ⁽⁴⁾

$
34,407

$
48,106

$
99,245

$
103,621

$
30,985

$
28,907
⁽¹⁾~~(1)~~   Income within scope of Topic 606.
⁽²⁾~~(2)~~    Includes income within the scope of Topic 606 of $~~1.2~~1.0 million and $~~343,000~~2.4 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and~~ $~~2.4~~ ~~million and~~ $~~2.2~~ ~~million for the nine months ended September 30, 2020 and 2019,~~ respectively. The remaining balance is outside the scope of Topic ~~606.~~606 and includes a
~~(3)~~ ~~For~~$1.8 million loss related to the termination of a cash flow hedge that occurred during the three ~~and nine~~ months ended ~~September 30, 2019, the remaining balance outside the scope of Topic 606 includes~~ ~~$9.3~~ ~~million from life insurance proceeds received during that period related to a Xenith acquired loan that had been charged off prior to the Company’s acquisition of Xenith.~~
~~(4)~~   ~~Noninterest income for the discontinued mortgage segment is reported in Note 14 "Segment Reporting & Discontinued Operations."~~March 31, 2020.

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~~13.~~12. EARNINGS PER SHARE
Basic EPS is computed by dividing net income available to common shareholders ~~after deducting dividends on preferred stock~~ 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.

The following table presents basic and diluted EPS ~~from continuing operations, discontinued operations and total net income available to common shareholders~~calculations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (dollars in thousands except per share data):

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,

2020

2019

2020

2019

2021

2020
Net Income:

Income from continuing operations

$
61,000

$
53,196

$
98,798

$
137,820
Income (loss) from discontinued operations

0

42

0

(128)
Net Income

61,000

53,238

98,798

137,692

56,189

7,089
Preferred Stock Dividends

2,691

—

2,691

—

2,967

—
Net income available to common shareholders

$
58,309

$
53,238

$
96,107

$
137,692

$
53,222

$
7,089

Weighted average shares outstanding, basic

78,714

81,769

78,905

80,121

78,863

79,290
Dilutive effect of stock awards and warrants

11

64

16

63
Dilutive effect of stock awards

21

27
Weighted average shares outstanding, diluted

78,725

81,833

78,921

80,184

78,884

79,317

Basic EPS:

EPS from continuing operations

$
0.74

$
0.65

$
1.22

$
1.72
EPS from discontinued operations

0

0

0

0
EPS available to common shareholders

$
0.74

$
0.65

$
1.22

$
1.72

Diluted EPS:

EPS from continuing operations

$
0.74

$
0.65

$
1.22

$
1.72
EPS from discontinued operations

0

0

0

0
EPS available to common shareholders

$
0.74

$
0.65

$
1.22

$
1.72
Earnings per common share, basic

$
0.67

$
0.09
Earnings per common share, diluted

$
0.67

$
0.09

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13. SEGMENT REPORTING

Operating segments are components of a business about which separate financial information is available and evaluated regularly by the chief operating decision makers in deciding how to allocate resources and assessing performance. The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance. While the Company’s chief operating decision makers do have some limited financial information about its various financial products and services, that information is not complete since it does not include a full allocation of revenue, costs, and capital from key corporate functions; therefore, the Company evaluates financial performance on the Company-wide basis. Management continues to evaluate these business units for separate reporting as facts and circumstances change.

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14. ~~SEGMENT REPORTING & DISCONTINUED OPERATIONS~~
On May 23, 2018, the Bank announced that it had entered into an agreement with a third-party mortgage company TFSB to allow TFSB to offer residential mortgages from certain Bank locations on the terms and conditions set forth in the agreement. Concurrently with that arrangement, the Bank began the process of winding down the operations of UMG, the Company’s reportable mortgage segment. Effective at the close of business June 1, 2018, UMG was no longer originating mortgages in its name. The decision to wind down the operations of UMG was based on a number of strategic priorities and other factors, including the additional investment in the business required to achieve the necessary scale to be competitive. As a result of this decision, the community bank segment is the only remaining reportable segment and does not require separate reporting disclosures.
On May 30, 2019, the Bank notified TFSB that the Bank was terminating its primary agreement with TFSB and will no longer allow TFSB to offer residential mortgages from Bank locations. UMG operations remain discontinued, although the Company continues to offer residential mortgages through a division of the Bank.

As of and for the three and nine months ended September 30, 2020, the assets and liabilities, as well as the operating results, of the discontinued mortgage segment were not considered material. As of December 31, 2019, the Company’s Consolidated Balance Sheets included assets and liabilities from discontinued operations of $668,000 and $640,000, respectively. Management believes there are no material on-going obligations with respect to UMG’s business that have not been recorded in the Company’s consolidated financial statements.
~~The following table presents summarized operating results of the discontinued mortgage segment for the three and nine months ended September 30, 2019 (dollars in thousands):~~

Three Months Ended

Nine Months Ended

September 30, 2019

September 30, 2019
Net interest income
$
0

$
0
Provision for credit losses

0

0
Net interest income after provision for credit losses

0

0
Noninterest income

0

1
Noninterest expenses

(56)

174
Income before income taxes

56

(173)
Income tax expense (benefit)

14

(45)
Net income (loss) on discontinued operations
$
42

$
(128)

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~~15.~~ SUBSEQUENT EVENTS

On ~~October 29, 2020,~~May 4, 2021, the Company’s Board of Directors declared a quarterly dividend of ~~$0.25~~$0.28 per share of common stock. The common stock dividend amount is an increase of $0.03, or 12.0% from the ~~same as that~~dividend paid in the prior quarter and the ~~fourth~~second quarter of ~~2019.~~2020. The common stock dividend is payable on ~~November 27, 2020~~June 4, 2021 to common shareholders of record as of ~~November 13, 2020.~~May 21, 2021.

The Board also declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400^th ownership interest in a share of Series A preferred stock. The dividend of $171.88 per share (equivalent to $0.43 per outstanding depositary share) is consistent with the prior quarter. The preferred stock dividend is payable on ~~December~~June 1, ~~2020~~2021 to preferred shareholders of record as of ~~November 16, 2020.~~May 17, 2021.

On May 4, 2021, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $125 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. This new share repurchase program expires on June 30, 2022 and replaces the prior repurchase program that was due to expire on June 30, 2021.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Atlantic Union Bankshares Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of Atlantic Union Bankshares Corporation (the Company) as of ~~September 30, 2020,~~March 31, 2021, the related consolidated statements of income and comprehensive income for the ~~three and nine-month~~three-month periods ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the consolidated statements of changes in stockholders’ equity and cash flows for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ and 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 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) (PCAOB), the consolidated balance sheet of the Company as of December 31, ~~2019,~~2020, 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 ~~25, 2020,~~26, 2021, 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, ~~2019,~~2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~Adoption of ASC 326~~

As discussed in Note 1 to the consolidated interim financial statements, the Company changed its method of accounting for the allowance for credit losses effective January 1, 2020 due to the adoption of ASU No. 2016-13, ~~Financial Instruments – Credit Losses~~ ~~(Topic 326 in the Accounting Standards Codification).~~

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 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 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.

/s/ Ernst & Young LLP

Richmond, Virginia
~~November 3, 2020~~May 6, 2021

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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 the Company. This discussion and analysis should be read with the Company’s consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s ~~2019~~2020 Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section therein. Highlighted in the discussion are material changes from prior reporting periods and identifiable trends materially affecting the Company. Results of operations for the interim periods are not necessarily indicative of results that may be expected for the full year or 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~~including without limitation, statements ~~that~~regarding the future impacts of debt prepayments, future impacts of PPP fee accretion, future interest rate enviornments, and future impacts of cost reduction initiatives, may include ~~without limitation,~~ projections, predictions, expectations, or beliefs about future events or results that are not statements of historical fact. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties, and other factors, some of which cannot be predicted or quantified, that may cause actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes 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, or trends affecting, the Company will not differ materially from any projected future results, performance, ~~achievements~~ or ~~trends~~achievements expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited ~~to:~~to the effects of or changes in:
● ~~changes in~~market interest rates;
● general economic and financial market conditions, in the United States generally and particularly in the markets in which the Company operates and which its loans are concentrated, including the effects of declines in real estate values, an increase in unemployment levels and slowdowns in economic growth, including as a result of ~~the COVID-19 pandemic;~~COVID-19;
● the quality or composition of the loan or investment portfolios and changes therein;
● demand for loan products and financial services in the Company’s market area;
● the Company’s ability to manage its growth or implement its growth strategy;
● the effectiveness of expense reduction plans;
● the introduction of new lines of business or new products and services;
● the Company’s ability to recruit and retain key employees;
● the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets;
● real estate values in the Bank’s lending area;
● an insufficient ACL;
● changes in accounting ~~principles relating to the CECL methodology;~~principles;
● the Company’s liquidity and capital positions;
● 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;
● the Company’s ability to compete in the market for financial services and increased competition from fintech companies;
● technological risks and developments, and cyber threats, attacks, or events;
● the potential adverse effects of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts or public health events (such as ~~the COVID-19 pandemic)~~COVID-19), and of governmental and societal responses thereto; these potential adverse effects may include, without limitation, adverse effects on the ability of the Company's borrowers to satisfy their obligations to the Company, on the value of collateral securing loans, on the demand for the Company's loans or

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its other products and services, on supply chains and methods used to distribute products and

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services, on incidents of cyberattack and fraud, on the Company’s liquidity or capital positions, on risks posed by reliance on third-party service providers, on other aspects of the Company's business operations and on financial markets and economic growth;

●

the effect of steps the Company takes in response to ~~the~~ COVID-19, ~~pandemic,~~ the severity and duration of the pandemic, ~~including whether there is a resurgence~~the uncertainty regarding new variants of COVID-19 ~~infections,~~that have emerged, the speed and efficacy of vaccine and treatment developments, the impact of loosening or tightening of government restrictions, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein;

●

the discontinuation of LIBOR and its impact on the financial markets, and the Company’s ability to manage operational, legal and compliance risks related to the discontinuation of LIBOR and implementation of one or more alternate reference rates,

●

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, including the impact of the CARES Act, as amended by the CAA, and other legislative and regulatory reactions to ~~the COVID-19 pandemic;~~COVID-19;

●

potential claims, damages, and fines related to litigation or government actions, including litigation or actions arising from the Company’s participation in and administration of programs related to ~~the~~ COVID-19, ~~pandemic,~~ including, among other things, the CARES ~~Act;~~

●

Act, as amended by the CAA, and other legislative orand regulatory ~~changes and requirements;~~reactions to COVID-19;

●

the effects of changes in federal, state or local tax laws and regulations;

●

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

●

changes to applicable accounting principles and guidelines; and

●

other factors, many of which are beyond the control of the Company.

Please refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the ~~Company’s 2019~~2020 Form 10-K ~~and comparable sections of this Quarterly Report~~ and related disclosures in other filings, ~~including the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020~~,

which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements made in this ~~Quarterly Report~~press release are expressly qualified by the cautionary statements contained or referred to in this Quarterly Report. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its businesses or operations. Readers are cautioned not to rely too heavily on the forward-looking statements contained in this Quarterly Report. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

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 of the Company.
The critical accounting and reporting policies include the Company’s accounting for the ACL, acquired loans, business combinations and divestitures, 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 ~~2019~~2020 Form 10-K.

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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 ~~2019~~2020 Form 10-K and in Note 1 ~~“Accounting~~“Summary of Signficant Accounting Policies” within Part I, of Item I1 of this Quarterly Report.

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RECENT ACCOUNTING PRONOUNCEMENTS (ISSUED BUT NOT ADOPTED)

In August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This guidance was issued to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those years. The Company ~~is still evaluating the impacts from this standard.~~

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”~~ This guidance was issued to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company evaluated the impacts from this standard and ~~does~~determined it was not ~~expect a material financial statement impact.~~applicable.

ABOUT ATLANTIC UNION BANKSHARES CORPORATION
Headquartered in Richmond, Virginia, Atlantic Union Bankshares Corporation (Nasdaq: AUB) is the holding company for Atlantic Union Bank. Atlantic Union Bank has ~~135~~129 branches and approximately 155150 ATMs located throughout Virginia, and in portions of Maryland and North Carolina. ~~Middleburg Financial~~Atlantic Union Bank Wealth Management is a brand name used by Atlantic Union Bank and certain affiliates when providing trust, wealth management, private banking, and investment advisory products and services. Certain non-bank affiliates of Atlantic Union Bank include: Old Dominion Capital Management, Inc., and its subsidiary, Outfitter Advisors, Ltd., and Dixon, Hubard, Feinour, & Brown, Inc., which provide investment advisory services; ~~Middleburg Investment Services,~~Atlantic Union Financial Consultants, LLC, which provides brokerage services; and Union Insurance Group, LLC, which offers various lines of insurance products.
Shares of the Company’s common stock are traded on the Nasdaq Global Select Market under the symbol "AUB". Additional information is available on the Company’s website at https://investors.atlanticunionbank.com. The information contained on the Company’s website is not a part of or incorporated into this Quarterly Report.

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RESULTS OF OPERATIONS

Executive Overview

~~On February 1, 2019,~~The Company’s financial condition and results of operations as of and for the quarter ended March 31, 2021 have been meaningfully impacted by COVID-19 and governmental programs and initiatives that have responded to COVID-19, including the PPP.

The Company participated in PPP Round One under the CARES Act, which was intended to provide economic relief to small businesses that have been adversely impacted by COVID-19. The Company processed over 11,000 PPP loans totaling $1.7 billion in 2020 pursuant to the CARES Act. The loans carry a 1% interest rate. As of March 31, 2021, PPP Round One loans have a recorded investment of $1.0 billion and unamortized deferred fees of $10.7 million. In addition to an insignificant amount of PPP loan pay offs, the Company ~~completed the acquisition~~has processed approximately $600 million of ~~Access, a bank holding company based~~loan forgiveness on approximately 5,600 PPP loans, of which approximately 2,500 PPP loans totaling approximately $165 million were processed for forgiveness in ~~Reston, Virginia. The Company’s results for~~ the first quarter of ~~2019 include two months of financial results of Access.~~

On May 20, 2019, the Company re-branded to Atlantic Union Bankshares Corporation and successfully completed the integration of Access National Bank branches and operations into Atlantic Union Bank. Rebranding-related costs amounted to $1.1 million and $5.6 million during the three and nine months ended September 30, 2019, respectively. There were no rebranding costs during the nine months ended September 30, 2020.

On January 1, 2020, the Company adopted ASC 326, which resulted in an increase of $51.7 million in the ACL on January 1, 2020. The impact of the worsening economic forecast related to COVID-19 subsequent to the adoption of ASC 326 has further increased the ACL by $91.3 million to $186.1 million at September 30, 2020. The ACL included an ALLL of $174.1 million and an RUC of $12.0 million at September 30, 2020.2021.

~~On June 9,~~Certain provisions of the CARES Act, including additional PPP funding, were extended as a result of the CAA, which was signed into law on December 27, 2020 ~~the~~and is currently set to expire on May 31, 2021. The Company ~~announced the closing of an offering of 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock,~~has processed approximately 4,800 loans pursuant to PPP Round Two, with a ~~liquidation preference~~recorded investment of ~~$10,000 per share~~$511.7 million and unamortized deferred fees of ~~Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares~~$22.4 million as of March 31, 2021. The loans carry a 1% interest rate.

The Company has made certain loan modifications pursuant to ~~the exercise in full~~joint guidance issued and subsequently updated by the ~~underwriters~~five federal bank regulatory agencies and the Conference of ~~their option to purchase additional depositary shares. The total net proceeds to~~State Bank Supervisors regarding loan modifications for borrowers affected by COVID-19 and Section 4013 of the ~~Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable~~CARES Act (as amended by the ~~Company.~~CAA). At March 31, 2021, total loans that remain under their modified terms was approximately $68.1 million or less than 1% of total loans. The ~~Company intends to use the net proceeds~~majority of the ~~offering for general corporate purposes~~Company’s modifications as of March 31, 2021 were in the ~~ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures~~residential 1-4 family – commercial, construction and ~~investments in~~land development, and commercial real estate portfolios, which includes the Company’s ~~subsidiaries.~~hotel portfolio. Most loans that were modified under the Company’s short-term loan modification program and whose deferral agreements have expired remain current with only $7.1 million of former COVID-19 loan modifications at March 31, 2021 being more than 30 days past due.

During 2020, the Company ~~undertook~~launched several ~~expense reduction actions, including the consolidation of 14 branches, which was completed in September 2020,~~initiatives to reduce expenses in light of the current and expected operating ~~environment.~~environment, including the consolidation of certain branch locations. The Company completed the consolidation of 15 branches in 2020, and five additional branches were consolidated in February 2021. These actions resulted in ~~expenses~~branch closure costs of ~~$2.6~~approximately $1.1 million in the first quarter of 2021 primarily related to lease termination costs, severance costs, and real estate ~~related write-downs, during~~write-downs.

On February 25, 2021, the ~~three months ended September 30, 2020,~~Company prepaid a $200.0 million, 1.78% fixed rate long term FHLB advance with a remaining maturity of approximately 7.5 years, which resulted in a $14.7 million and ~~expenses~~$11.6 million pre-tax and after tax, respectively, prepayment penalty in the first quarter of ~~$6.0 million, primarily related to real estate related write-downs and severance, during the nine months ended September 30, 2020~~.2021.

~~Third Quarter~~ Net Income and Performance Metrics

●

Net income available to common shareholders was ~~$58.3~~$53.2 million and EPS was ~~$0.~~$740.67 for the ~~third~~first quarter of ~~2020~~2021, compared to ~~net income of $53.2~~$7.1 million and ~~EPS of $0.~~$650.09 for the ~~third~~first quarter of ~~2019.~~2020.

●

Adjusted operating earnings available to common shareholders⁽¹⁾, which exclude gains on sales of securities, and net loss on balance sheet repositioning, were $64.8 million for the first quarter of 2021, compared to $7.0 million for the first quarter of 2020.

●

Pre-tax pre-provision adjusted operating earnings⁽¹⁾, which exclude provision for credit losses, ~~merger and rebranding-related costs,~~gains on sales of securities, net loss on balance sheet repositioning, and income tax expense, were ~~$78.6~~$68.6 million for the ~~third~~first quarter of ~~2020~~2021, compared to ~~$76.6~~$68.1 million for the ~~third~~first quarter of ~~2019.~~2020.

~~Nine Month Net Income and Performance Metrics~~

●

Net income available to common shareholders was $96.1 million and EPS was $1.22 for the nine months ended September 30, 2020 compared to net income of $137.7 million and EPS of $1.72 for the nine months ended September 30, 2019.

●

~~Pre-tax pre-provision operating earnings~~⁽¹⁾ ~~were $217.3 million for the nine months ended September 30, 2020 compared to $214.7 million for the nine months ended September 30, 2019.~~

~~Balance Sheet~~

●

~~Loans held for investment (net of deferred fees and costs) were $14.4~~ ~~billion at September 30, 2020, an increase of $1.8 billion, or 18.8% (annualized), from December 31,~~ ~~2019. Excluding the impact of the PPP~~⁽¹⁾~~, loans held for investment grew $171.7 million, or 1.8% (annualized).~~

●

~~Total deposits were $15.6~~ ~~billion at September 30, 2020, an increase of $2.3 billion, or 22.8% (annualized), from December 31, 2019.~~

⁽¹⁾Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

~~-64-~~-53-

Table of Contents

Balance Sheet

●

Loans held for investment (net of deferred fees and costs) were $14.3 billion, including $1.5 billion in PPP loans at March 31, 2021, an increase of $251.0 million or 7.3% (annualized) from December 31, 2020. Excluding the impact of the PPP⁽¹⁾, loans held for investment decreased $82.2 million or 2.6% (annualized) from the prior quarter.

●

Total deposits were $16.3 billion at March 31, 2021, an increase of $575.3 million or 14.8% (annualized) from December 31, 2020.

~~Recent Developments~~

COVID-19 ~~Pandemic~~

. The Company’s financial performance generally, and in particular the ability of its borrowers to repay their loans, the value of collateral securing those loans, as well as demand for loans and other products and services the Company offers, is highly dependent on the business environment in its primary markets where it operates and in the United States as a whole.

~~In December 2019,~~ COVID-19 was reported in Wuhan, China. The WHO declared the COVID-19 outbreak to constitute a Public Health Emergency of International Concern on January 30, 2020. Over the course of the first quarter of 2020, COVID-19 developed into a worldwide outbreak and, on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, the President of the United States issued a proclamation declaring a national state of emergency in response to COVID-19. During the final two weeks of March 2020, the governors of multiple U.S. states, including Virginia, where the Company has its principal place of business, issued stay-at-home orders that directed the closing of non-essential businesses and restricted public gatherings. Beginning in the second quarter of 2020, businesses began to re-open in many areas of the United States under government social distancing and other restrictions. However, the COVID-19 pandemic will likely continue to be a significant health concern in the Company’s areas of operation, the United States and across the globe.

~~The pandemic~~ is having a wide range of economic impacts, involving the possibility of an extended economic recession. The COVID-19 pandemic has severely disrupted supply chains and adversely affected production, demand, sales, and employee productivity across a range of industries. It has ~~dramatically~~ increased unemployment in the Company’s areas of operation and nationally. ~~It is expected that the~~The national economy and economies in the Company’s areas of operations ~~will~~were impacted during 2020 and continue to be ~~affected throughout the remainder of fiscal year 2020,~~impacted into 2021, despite the fact that many businesses have ~~opened~~re-opened to one degree or another. In addition, ~~the pandemic~~COVID-19 may have social and other impacts that are not yet known but may affect the Company’s customers, employees, and vendors. These events have adversely affected the Company’s ~~operations during the first nine months of 2020 and are expected to impact its~~ business, financial condition, and results of operations ~~throughout~~during the ~~remainder of~~ fiscal year ~~2020.~~2020 and the period ended March 31, 2021. The duration, nature, and severity of the impact of ~~the~~ COVID-19 ~~pandemic~~ on the Company’s operational and financial performance will depend on certain developments, including the duration, spread, and severity of the outbreak, the efficacy of vaccine and treatment developments, the uncertainty regarding new variants of COVID-19 that have emerged, the pandemic’s impact on its customers, employees, and vendors and the nature and effect of past and future federal and state governmental and private sector responses to the pandemic, all of which are uncertain and cannot be predicted. New information may emerge concerning the severity of the outbreak and the actions taken to contain COVID-19 infections or treat its impact may change or become more restrictive if a resurgence of COVID-19 infections occurs as a result of the loosening of governmental restrictions or otherwise.

Future developments with respect to COVID-19 remain highly uncertain and cannot be predicted and new information may emerge concerning the nature and severity of the outbreak, short- and long-term health impacts, the actions to contain the outbreak or treat its impact, and unforeseen effects of the pandemic, among others. Other national health concerns, including the outbreak of other contagious diseases or pandemics, may adversely affect the Company in the future.

During 2020 and into 2021, the ~~Bank participated in~~Company has taken and is continuing to take precautions to protect the ~~SBA PPP under~~safety and well-being of the ~~CARES Act, which was intended to provide economic relief to small businesses that have been adversely impacted by~~Bank’s employees and customers during COVID-19. The Bank ~~processed over 11,000 PPP loans, which totaled $1.7 billion~~has closed corporate offices and encouraged employees to work from home where possible. Branches remained and continue to remain open for lobby or drive-thru service where possible to serve customer needs; however, the Bank has and will likely continue to intermittently close bank branches in response to potential COVID-19 exposures or confirmed COVID-19 infection in accordance with applicable health and safety guidance and legal requirements, and to help reduce transmission of COVID-19. The Bank has implemented additional safety policies and procedures and follows guidance issued by the Centers for Disease Control and Prevention, state health authorities, and state and local executive orders where our branches and corporate offices are located. The Bank remains very focused on the safety and well-being of its employees and customers during COVID-19 and is committed to safely and responsibly operating its branch network and maintaining appropriate staffing in each branch.

⁽¹⁾ Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a ~~recorded investment~~reconciliation of ~~$1.6 billion as of September 30, 2020, which included unamortized deferred fees of $32.6 million.~~these measures to the most directly comparable financial measures in accordance with GAAP.

Loans under the PPP generally have a two-year term, earn interest at 1.00%, and are forgivable to the extent that the proceeds are used for payroll costs and other qualifying expenses in accordance with the terms of the program. Lenders participating in the program are scheduled to receive loan processing fees from the SBA ranging from 1.00% to 5.00% of the initial principal amount of the loan. Beginning in the third quarter of 2020, the Bank began to work with these borrowers and the SBA to achieve forgiveness and repayment of these loans.

The Bank has also implemented a short-term loan modification program that is intended to provide temporary relief for certain of our borrowers who expected to be or may have already been adversely affected by the outbreak of COVID-19 by providing short-term deferrals of loan payments on amortizing loans. The Bank offered a three- to six-month full payment deferral option or a three- to six-month interest-only payment option. In accordance with the March 22 Guidance and the CARES Act, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.

~~-65-~~-54-

Table of Contents

As of September 30, 2020, approximately $769.6 million remained under their modified loan terms. As of October 16, 2020, the loans that remained under their modified terms declined from September 30, 2020 by approximately 32% to approximately $522.6 million, over 90% of which were related to the commercial portfolio. The significant majority of the commercial loans that rolled off of their initial modification did not require a subsequent modification. Subsequent modification requests have been primarily concentrated in the Company’s hotel portfolio.

~~Additionally, the Bank has offered a greater than six-month interest-only payment option, although the Bank currently expects minimal use of that option by customers.~~

~~The Bank has not registered as a lender under the MSLP but continues to monitor developments related thereto.~~

Net Interest Income

For the Three Months Ended

September 30,


2020

2019

Change


(Dollars in thousands)

Average interest-earning assets

$
17,748,152

$
15,191,792

$
2,556,360


Interest and dividend income

$
157,414

$
178,345

$
(20,931)


Interest and dividend income (FTE) ⁽¹⁾

$
160,315

$
181,149

$
(20,834)


Yield on interest-earning assets

3.53
%

4.66
%

(113)

bps
Yield on interest-earning assets (FTE) ⁽¹⁾

3.59
%

4.73
%

(114)

bps
Average interest-bearing liabilities

$
12,444,083

$
11,427,305

$
1,016,778


Interest expense

$
20,033

$
41,744

$
(21,711)


Cost of interest-bearing liabilities

0.64
%

1.45
%

(81)

bps
Cost of funds

0.45
%

1.09
%

(64)

bps
Net interest income

$
137,381

$
136,601

$
780


Net interest income (FTE) ⁽¹⁾

$
140,282

$
139,405

$
877


Net interest margin

3.08
%

3.57
%

(49)

bps
Net interest margin (FTE) ⁽¹⁾

3.14
%

3.64
%

(50)

bps

For the Three Months Ended

March 31,


2021

2020

Change


(Dollars in thousands)

Average interest-earning assets

$
17,692,095

$
15,563,670

$
2,128,425


Interest and dividend income

$
147,673

$
171,325

$
(23,652)


Interest and dividend income (FTE) ⁽¹⁾

$
150,726

$
174,083

$
(23,357)


Yield on interest-earning assets

3.39
%

4.43
%

(104)

bps
Yield on interest-earning assets (FTE) ⁽¹⁾

3.46
%

4.50
%

(104)

bps
Average interest-bearing liabilities

$
12,065,807

$
11,863,944

$
201,863


Interest expense

$
12,775

$
36,317

$
(23,542)


Cost of interest-bearing liabilities

0.43
%

1.23
%

(80)

bps
Cost of funds

0.30
%

0.94
%

(64)

bps
Net interest income

$
134,898

$
135,008

$
(110)


Net interest income (FTE) ⁽¹⁾

$
137,951

$
137,766

$
185


Net interest margin

3.09
%

3.49
%

(40)

bps
Net interest margin (FTE) ⁽¹⁾

3.16
%

3.56
%

(40)

bps
⁽¹⁾ Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these measures, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with GAAP.
For the ~~third~~first quarter of ~~2020,~~2021, net interest income was ~~$137.4~~$134.9 million, ~~an increase of $780,000 from the third quarter of 2019. For the third quarter of 2020,~~and net interest income (FTE) was ~~$140.3~~$138.0 million, ~~an increase~~both of ~~$877,000 from~~which were in line with the third quarter of 2019. The increases in both net interest income and net interest income (FTE) were primarily driven by higher average loan balances partially offset by lower purchased loan discount accretion. Net accretion related to acquisition accounting decreased $1.4 million from the third quarter of 2019 to $3.7 million in the thirdfirst quarter of 2020. In the ~~third~~first quarter of ~~2020,~~2021, net interest margin decreased 4940 basis points to ~~3.08%~~3.09% from ~~3.57%~~3.49% in the ~~third~~first quarter of ~~2019,~~2020, and net interest margin (FTE) decreased 5040 basis points compared to the ~~third~~first quarter of ~~2019.~~2020. The net decline in net interest margin and net interest margin (FTE) measures were primarily driven by a decrease in the yield on interest-earning assets, partially offset by a decrease in the ~~Bank’s~~ cost of funds. The decline in the Company’s earning asset yields was driven by lower loan accretion income, an increase in the earning asset mix of lower yielding investment securities and the impact of the lower interest rate environment. The cost of funds decline was driven by lower deposit costs and wholesale borrowing costs driven by lower market interest rates and a favorable funding mix.

~~-66-~~

~~Table of Contents~~

For the Nine Months Ended

September 30,


2020

2019

Change


(Dollars in thousands)

Average interest-earning assets

$
16,809,423

$
14,700,019

$
2,109,404


Interest and dividend income

$
491,607

$
525,122

$
(33,515)


Interest and dividend income (FTE) ⁽¹⁾

$
500,069

$
533,590

$
(33,521)


Yield on interest-earning assets

3.91
%

4.78
%

(87)

bps
Yield on interest-earning assets (FTE) ⁽¹⁾

3.97
%

4.85
%

(88)

bps
Average interest-bearing liabilities

$
12,200,209

$
11,161,458

$
1,038,751


Interest expense

$
81,913

$
122,379

$
(40,466)


Cost of interest-bearing liabilities

0.90
%

1.47
%

(57)

bps
Cost of funds

0.65
%

1.11
%

(46)

bps
Net interest income

$
409,694

$
402,743

$
6,951


Net interest income (FTE) ⁽¹⁾

$
418,156

$
411,211

$
6,945


Net interest margin

3.26
%

3.66
%

(40)

bps
Net interest margin (FTE) ⁽¹⁾

3.32
%

3.74
%

(42)

bps
~~(1)~~ Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these measures, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with GAAP.
For the first nine months of 2020, net interest income was $409.7 million, an increase of $7.0 million from the same period of 2019. For the first nine months of 2020, net interest income (FTE) was $418.2 million, an increase of $6.9 million from the same period of 2019. The increases in both net interest income and net interest income (FTE) were primarily driven by ~~higher average~~declines in loan ~~balances~~ and ~~higher purchased loan discount accretion. Net accretion related to acquisition accounting increased $769,000 from~~investment securities yields, as a result of the first nine months of 2019 to $19.5 million in the first nine months of 2020. In the first nine months of 2020, net interest margin decreased 40 basis points to 3.26% from 3.66% in the first nine months of 2019, and net interest margin (FTE) decreased 42 basis points compared to the first nine months of 2019. The net decline in net interest margin and net interest margin (FTE) measures were primarily driven by a decrease in the yield on interest-earning assets, partially offset by a decrease in cost of funds. The decline in the Company’s earning asset yields was driven by an increase in the earning asset mix of lower yielding investment securities and the impact of the lowermarket interest ~~rate environment.~~rates. The cost of funds decline was driven by lower deposit costs and wholesale borrowing costs driven by lower market interest rates and a favorable funding mix.
The Federal Open Markets Committee lowered Federal Funds target rates for the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined decrease of 75 basis points during 2019.
In response ~~to market volatility related~~ to the COVID-19 pandemic, the FOMC ~~again lowered~~reduced its Federal Funds target rates ~~twice~~to its current range of 0% to 0.25%, compared to an upper bound in ~~March 2020, for a combined decrease of 150 basis points. The FOMC’s current~~the Federal Funds target rate ~~range is currently 0% to 0.25%.~~of 1.75% during the first quarter of 2020. As a consequence ~~long-term interest~~of reduced short-term rates, ~~have decreased. The~~the Company ~~anticipates that these actions by the FOMC will continue to put downward pressure~~has seen compression on its net interest ~~margin.~~margin as earning asset yields have decreased by more than the decrease in the Company’s cost of funds. The Company expects its net interest margin to be stable as short-term rates are projected to remain low.

~~-67-~~-55-

Table of Contents

The following ~~tables show~~table shows 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,

2020

2019




Interest





Interest


Average

Income /

Yield /

Average

Income /

Yield /

Balance

Expense ⁽¹⁾

Rate ⁽¹⁾⁽²⁾

Balance

Expense⁽¹⁾

Rate ⁽¹⁾⁽²⁾

(Dollars in thousands)

Assets:













Securities:













Taxable

$
1,738,033

$
10,275

2.35
%
$
1,670,270

$
12,625

3.00
%
Tax-exempt

1,153,177

10,886

3.76
%

990,000

10,181

4.08
%
Total securities

2,891,210

21,161

2.91
%

2,660,270

22,806

3.40
%
Loans, net ^{(3) (4)}

14,358,666

138,635

3.84
%

12,240,254

156,471

5.07
%
Other earning assets

498,276

519

0.41
%

291,268

1,872

2.55
%
Total earning assets

17,748,152

$
160,315

3.59
%

15,191,792

$
181,149

4.73
%
Allowance for credit losses

(174,171)



(46,229)





Total non-earning assets

2,211,186



2,057,765





Total assets

$
19,785,167



$
17,203,328





Liabilities and Stockholders' Equity:













Interest-bearing deposits:













Transaction and money market accounts

$
7,834,317

$
4,684

0.24
%
$
6,290,112

$
16,389

1.03
%
Regular savings

845,936

128

0.06
%

743,938

266

0.14
%
Time deposits ⁽⁵⁾

2,579,991

10,756

1.66
%

2,769,574

14,194

2.03
%
Total interest-bearing deposits

11,260,244

15,568

0.55
%

9,803,624

30,849

1.25
%
Other borrowings ⁽⁶⁾

1,183,839

4,465

1.50
%

1,623,681

10,895

2.66
%
Total interest-bearing liabilities

12,444,083

$
20,033

0.64
%

11,427,305

$
41,744

1.45
%
Noninterest-bearing liabilities:













Demand deposits

4,320,225



3,008,587





Other liabilities

372,082



239,001





Total liabilities

17,136,390



14,674,893





Stockholders' equity

2,648,777



2,528,435





Total liabilities and stockholders' equity

$
19,785,167



$
17,203,328





Net interest income

$
140,282





$
139,405



Interest rate spread

2.95
%





3.28
%
Cost of funds

0.45
%





1.09
%
Net interest margin

3.14
%





3.64
%

For the Three Months Ended March 31,

2021

2020




Interest





Interest


Average

Income /

Yield /

Average

Income /

Yield /

Balance

Expense ⁽¹⁾

Rate ⁽¹⁾⁽²⁾

Balance

Expense⁽¹⁾

Rate ⁽¹⁾⁽²⁾

(Dollars in thousands)

Assets:













Securities:













Taxable

$
1,906,585

$
10,353

2.20
%
$
1,664,449

$
11,627

2.81
%
Tax-exempt

1,302,792

11,693

3.64
%

956,988

9,759

4.10
%
Total securities

3,209,377

22,046

2.79
%

2,621,437

21,386

3.28
%
Loans, net ^{(3) (4)}

14,064,123

128,122

3.69
%

12,593,923

151,313

4.83
%
Other earning assets

418,595

558

0.54
%

348,310

1,384

1.60
%
Total earning assets

17,692,095

$
150,726

3.46
%

15,563,670

$
174,083

4.50
%
Allowance for loan and lease losses

(157,802)



(90,141)





Total non-earning assets

2,152,561



2,086,392





Total assets

$
19,686,854



$
17,559,921





Liabilities and Stockholders' Equity:













Interest-bearing deposits:













Transaction and money market accounts

$
8,060,328

$
2,152

0.11
%
$
6,933,345

$
14,521

0.84
%
Regular savings

940,369

59

0.03
%

732,574

157

0.09
%
Time deposits ⁽⁵⁾

2,490,432

6,917

1.13
%

2,755,500

13,835

2.02
%
Total interest-bearing deposits

11,491,129

9,128

0.32
%

10,421,419

28,513

1.10
%
Other borrowings ⁽⁶⁾

574,678

3,647

2.57
%

1,442,525

7,804

2.18
%
Total interest-bearing liabilities

12,065,807

$
12,775

0.43
%

11,863,944

$
36,317

1.23
%
Noninterest-bearing liabilities:













Demand deposits

4,583,521



2,925,438





Other liabilities

317,585



284,893





Total liabilities

16,966,913



15,074,275





Stockholders' equity

2,719,941



2,485,646





Total liabilities and stockholders' equity

$
19,686,854



$
17,559,921





Net interest income

$
137,951





$
137,766



Interest rate spread

3.03
%





3.27
%
Cost of funds

0.30
%





0.94
%
Net interest margin

3.16
%





3.56
%
⁽¹⁾ Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21% .
⁽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 ~~$3.8~~$4.3 million and ~~$5.0~~$9.5 million for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019,~~, respectively, in accretion of the fair market value adjustments related to acquisitions.
⁽⁵⁾ Interest expense on time deposits includes ~~$26,000~~$20,000 and ~~$179,000~~$50,000 for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019,~~, respectively, in accretion of the fair market value adjustments related to acquisitions.
⁽⁶⁾ Interest expense on borrowings includes ~~$167,000~~$198,000 and ~~$97,000~~$138,000 for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019,~~, respectively, in amortization of the fair market value adjustments related to acquisitions.

~~-68-~~

~~Table of Contents~~

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

For the Nine Months Ended September 30,

2020

2019




Interest





Interest


Average

Income /

Yield /

Average

Income /

Yield /

Balance

Expense ⁽¹⁾

Rate ⁽¹⁾⁽²⁾

Balance

Expense⁽¹⁾

Rate ⁽¹⁾⁽²⁾

(Dollars in thousands)

Assets:













Securities:













Taxable

$
1,676,528

$
33,170

2.64
%
$
1,680,570

$
39,059

3.11
%
Tax-exempt

1,044,633

31,038

3.97
%

1,000,893

30,916

4.13
%
Total securities

2,721,161

64,208

3.15
%

2,681,463

69,975

3.49
%
Loans, net ^{(3) (4)}

13,639,401

433,286

4.24
%

11,821,612

459,905

5.20
%
Other earning assets

448,861

2,575

0.77
%

196,944

3,710

2.52
%
Total earning assets

16,809,423

$
500,069

3.97
%

14,700,019

$
533,590

4.85
%
Allowance for loan losses

(138,524)



(43,480)





Total non-earning assets

2,166,681



1,982,502





Total assets

$
18,837,580



$
16,639,041





Liabilities and Stockholders' Equity:













Interest-bearing deposits:













Transaction and money market accounts

$
7,415,491

$
26,508

0.48
%
$
6,102,783

$
46,895

1.03
%
Regular savings

792,994

409

0.07
%

751,341

1,083

0.19
%
Time deposits ⁽⁵⁾

2,667,267

37,026

1.85
%

2,554,058

36,110

1.89
%
Total interest-bearing deposits

10,875,752

63,943

0.79
%

9,408,182

84,088

1.19
%
Other borrowings ⁽⁶⁾

1,324,457

17,970

1.81
%

1,753,276

38,291

2.92
%
Total interest-bearing liabilities

12,200,209

$
81,913

0.90
%

11,161,458

$
122,379

1.47
%
Noninterest-bearing liabilities:













Demand deposits

3,756,957



2,842,017





Other liabilities

338,558



205,654





Total liabilities

16,295,724



14,209,129





Stockholders' equity

2,541,856



2,429,912





Total liabilities and stockholders' equity

$
18,837,580



$
16,639,041





Net interest income

$
418,156





$
411,211



Interest rate spread

3.07
%





3.38
%
Cost of funds

0.65
%





1.11
%
Net interest margin

3.32
%





3.74
%
~~(1)~~ ~~Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21%.~~
~~(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 $19.8 million and $18.2 million for the nine months ended September 30, 2020 and 2019, respectively, in accretion of the fair market value adjustments related to acquisitions.
~~(5)~~ Interest expense on time deposits includes $110,000 and $684,000 the nine months ended September 30, 2020 and 2019, respectively, in accretion of the fair market value adjustments related to acquisitions.
~~(6)~~ Interest expense on borrowings includes $445,000 and $237,000 for the nine months ended September 30, 2020 and 2019, respectively, in amortization of the fair market value adjustments related to acquisitions.

~~-69-~~-56-

Table of Contents

The 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

Nine Months Ended

September 30, 2020 vs. September 30, 2019

September 30, 2020 vs. September 30, 2019

Increase (Decrease) Due to Change in:

Increase (Decrease) Due to Change in:


Volume

Rate

Total

Volume

Rate

Total
Earning Assets:

Securities:

Taxable

$
494

$
(2,844)

$
(2,350)

$
(94)

$
(5,795)

$
(5,889)
Tax-exempt

1,587

(882)

705

1,324

(1,202)

122
Total securities

2,081

(3,726)

(1,645)

1,230

(6,997)

(5,767)
Loans, net ⁽¹⁾

24,335

(42,171)

(17,836)

64,803

(91,422)

(26,619)
Other earning assets

819

(2,172)

(1,353)

2,608

(3,743)

(1,135)
Total earning assets

$
27,235

$
(48,069)

$
(20,834)

$
68,641

$
(102,162)

$
(33,521)
Interest-Bearing Liabilities:












Interest-bearing deposits:












Transaction and money market accounts

$
3,274

$
(14,979)

$
(11,705)

$
8,540

$
(28,927)

$
(20,387)
Regular savings

32

(170)

(138)

56

(730)

(674)
Time Deposits ⁽²⁾

(923)

(2,515)

(3,438)

1,580

(664)

916
Total interest-bearing deposits

2,383

(17,664)

(15,281)

10,176

(30,321)

(20,145)
Other borrowings ⁽³⁾

(2,457)

(3,973)

(6,430)

(7,973)

(12,348)

(20,321)
Total interest-bearing liabilities

(74)

(21,637)

(21,711)

2,203

(42,669)

(40,466)
Change in net interest income

$
27,309

$
(26,432)

$
877

$
66,438

$
(59,493)

$
6,945

Three Months Ended

March 31, 2021 vs. March 31, 2020

Increase (Decrease) Due to Change in:


Volume

Rate

Total
Earning Assets:

Securities:

Taxable

$
1,543

$
(2,817)

$
(1,274)
Tax-exempt

3,209

(1,275)

1,934
Total securities

4,752

(4,092)

660
Loans, net ⁽¹⁾

16,273

(39,464)

(23,191)
Other earning assets

236

(1,062)

(826)
Total earning assets

$
21,261

$
(44,618)

$
(23,357)
Interest-Bearing Liabilities:






Interest-bearing deposits:






Transaction and money market accounts

$
2,037

$
(14,406)

$
(12,369)
Regular savings

36

(134)

(98)
Time Deposits ⁽²⁾

(1,226)

(5,692)

(6,918)
Total interest-bearing deposits

847

(20,232)

(19,385)
Other borrowings ⁽³⁾

(5,344)

1,187

(4,157)
Total interest-bearing liabilities

(4,497)

(19,045)

(23,542)
Change in net interest income

$
25,758

$
(25,573)

$
185
⁽¹⁾~~(1)~~ The rate-related change in interest income on loans includes the impact of lower accretion of the acquisition-related fair market value adjustments of ~~$1.2 million for the three month change, and higher accretion of $1.6 million for the nine month change, respectively.~~$5.2 million.
⁽²⁾~~(2)~~ The rate-related change in interest expense on deposits includes the impact of lower accretion of the acquisition-related fair market value adjustments of ~~$153,000 and $574,000 for the three-and-nine-month change, respectively.~~$30,000.
⁽³⁾~~(3)~~ The rate-related change in interest expense on other borrowings includes the impact of higher amortization of the acquisition-related fair market value adjustments of ~~$70,000 and $208,000 for the three-and-nine-month change, respectively.~~$60,000.
The Company’s net interest margin (FTE) includes the impact of acquisition accounting fair value adjustments. The impact of net accretion for the first ~~three quarters~~quarter of ~~2019,~~2020, and the first ~~three quarters~~quarter of ~~2020~~2021 are reflected in the following table (dollars in thousands):




Deposit

Borrowings


Loan

Accretion

Accretion

Accretion

(Amortization)

(Amortization)

Total
For the quarter ended March 31, 2019

$
5,557

$
292

$
(70)

$
5,779
For the quarter ended June 30, 2019

7,659

213

(70)

7,802
For the quarter ended September 30, 2019

5,018

179

(97)

5,100
For the quarter ended March 31, 2020

9,528

50

(138)

9,440
For the quarter ended June 30, 2020

6,443

34

(140)

6,337
For the quarter ended September 30, 2020

3,814

26

(167)

3,673









Loan

Deposit

Borrowings

Accretion

Accretion

Amortization

Total
For the quarter ended March 31, 2020

$
9,528

$
50

$
(138)

$
9,440
For the quarter ended March 31, 2021

4,287

20

(198)

4,109

~~-70-~~-57-

Table of Contents

Noninterest Income

For the Three Months Ended

September 30,

Change


2020

2019⁽¹⁾

$

%

(Dollars in thousands)

Noninterest income:

Service charges on deposit accounts

$
6,041

$
7,675

$
(1,634)

(21.3)
%
Other service charges, commissions, and fees

1,621

1,513

108

7.1
%
Interchange fees

1,979

2,108

(129)

(6.1)
%
Fiduciary and asset management fees

6,045

6,082

(37)

(0.6)
%
Mortgage banking income

8,897

3,374

5,523

163.7
%
Gains on securities transactions

18

7,104

(7,086)

(99.7)
%
Bank owned life insurance income

3,421

2,062

1,359

65.9
%
Loan-related interest rate swap fees

3,170

5,480

(2,310)

(42.2)
%
Other operating income

3,215

12,708

(9,493)

(74.7)
%
Total noninterest income

$
34,407

$
48,106

$
(13,699)

(28.5)
%
~~(1)~~ Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.

For the Three Months Ended

March 31,

Change


2021

2020

$

%

(Dollars in thousands)

Noninterest income:

Service charges on deposit accounts

$
5,509

$
7,578

$
(2,069)

(27.3)
%
Other service charges, commissions, and fees

1,701

1,624

77

4.7
%
Interchange fees

1,847

1,625

222

13.7
%
Fiduciary and asset management fees

6,475

5,984

491

8.2
%
Mortgage banking income

8,255

2,022

6,233

308.3
%
Gains on securities transactions

78

1,936

(1,858)

(96.0)
%
Bank owned life insurance income

2,265

2,049

216

10.5
%
Loan-related interest rate swap fees

1,754

3,948

(2,194)

(55.6)
%
Other operating income

3,101

2,141

960

44.8
%
Total noninterest income

$
30,985

$
28,907

$
2,078

7.2
%

Noninterest income ~~decreased $13.7~~increased $2.1 million or ~~28.5%,~~7.2% to ~~$34.4~~$31.0 million for the quarter ended ~~September 30, 2020~~March 31, 2021, compared to ~~$48.1~~$28.9 million for the quarter ended ~~September 30,~~ March 31, 2020. Excluding gains on securities transactions and losses related to balance sheet repositioning, adjusted operating noninterest income⁽¹⁾~~2019. The decrease in~~ for the ~~third~~ quarter ~~of 2020~~ended March 31, 2021 increased $2.2 million or 7.5%, compared to the quarter ended March 31, 2020. This was primarily driven by ~~approximately $9.3~~an increase of $6.2 million in life insurance proceeds received during the third quarter of 2019 related to a Xenith-acquired loan that had been charged off prior to the Company’s acquisition of Xenith. In addition, there was a decline of $7.1 million in gains on securities transactions, a decline of $2.3 million in loan-related interest rate swapmortgage banking income due to ~~lower transaction~~increased mortgage loan origination volumes ~~and~~resulting from the current low interest rate environment. Partially offsetting this increase was a ~~decline~~decrease in service charges on deposit accounts of ~~$1.6~~$2.1 million ~~primarily~~ due to lower NSF and overdraft fees. Partially offsetting these decreases was an increase in mortgage banking income of $5.5 million primarily due to increased mortgage loan origination volumes due to the current low interest rate environment, and an increase in bank owned life insurance income of $1.4 million primarily related to death benefit proceeds received during the third quarter of 2020.

For the Nine Months Ended

September 30,

Change


2020

2019⁽¹⁾

$

%

(Dollars in thousands)

Noninterest income:

Service charges on deposit accounts

$
18,549

$
22,331

$
(3,782)

(16.9)
%
Other service charges, commissions, and fees

4,600

4,879

(279)

(5.7)
%
Interchange fees

5,300

12,765

(7,465)

(58.5)
%
Fiduciary and asset management fees

17,543

16,834

709

4.2
%
Mortgage banking income

16,744

7,614

9,130

119.9
%
Gains on securities transactions

12,293

7,306

4,987

68.3
%
Bank owned life insurance income

7,498

6,191

1,307

21.1
%
Loan-related interest rate swap fees

12,602

10,656

1,946

18.3
%
Other operating income

4,116

15,045

(10,929)

(72.6)
%
Total noninterest income

$
99,245

$
103,621

$
(4,376)

(4.2)
%
~~(1)~~ Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.

Noninterest income decreased $4.4 million, or 4.2%, to $99.2 million for the nine months ended September 30, 2020 compared to $103.6 million for the nine months ended September 30, 2019. The decrease was primarily driven by approximately $9.3 million in life insurance proceeds received during the third quarter of 2019 related to a Xenith-acquired loan that had been charged off prior to the Company’s acquisition of Xenith. In addition, there was a decline in ~~service charges on deposit accounts of $3.8 million primarily due to lower~~ NSF and overdraft fees and a ~~decline~~decrease in loan-related interest swap income of ~~$7.5~~$2.2 million ~~in interchange fees~~

~~-71-~~

~~Table of Contents~~

~~primarily~~ due to ~~reduced debit card interchange~~lower transaction fees as a result of the Durbin Amendment which was effective for the Company on July 1, 2019. Partially offsetting these decreases was a $5.0 million increase in gains on securities transactions, an increase of $1.9 million in loan related interest rate swap income, and an increase in bank owned life insurance income of $1.3 million primarily related to death benefit proceeds received during the third quarter of 2020. In addition, mortgage banking income increased $9.1 million primarily due to increased mortgage loan origination volumes due to the current low interest rate environment.

~~Noninterest Expense~~

For the Three Months Ended

September 30,

Change


2020

2019⁽¹⁾

$

%

(Dollars in thousands)

Noninterest expense:

Salaries and benefits

$
49,000

$
49,718

$
(718)

(1.4)
%
Occupancy expenses

7,441

7,493

(52)

(0.7)
%
Furniture and equipment expenses

3,895

3,719

176

4.7
%
Printing, postage, and supplies

904

1,268

(364)

(28.7)
%
Technology and data processing

6,564

5,787

777

13.4
%
Professional services

2,914

2,681

233

8.7
%
Marketing and advertising expense

2,631

2,600

31

1.2
%
FDIC assessment premiums and other insurance

1,811

381

1,430

375.3
%
Other taxes

4,124

3,971

153

3.9
%
Loan-related expenses

2,314

2,566

(252)

(9.8)
%
OREO and credit-related expenses

413

1,005

(592)

(58.9)
%
Amortization of intangible assets

4,053

4,764

(711)

(14.9)
%
Training and other personnel costs

746

1,618

(872)

(53.9)
%
Merger-related costs

—

2,435

(2,435)

(100.0)
%
Rebranding expense

—

1,133

(1,133)

(100.0)
%
Loss on debt extinguishment

—

16,397

(16,397)

(100.0)
%
Other expenses

6,412

4,151

2,261

54.5
%
Total noninterest expense

$
93,222

$
111,687

$
(18,465)

(16.5)
%
~~(1)~~ Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.

Noninterest expense decreased $18.5 million, or 16.5%, to $93.2 million for the quarter ended September 30, 2020 compared to $111.7 million for the quarter ended September 30, 2019. Excluding merger-related costs, amortization of intangible assets, and rebranding-related costs, operating noninterest expense⁽²⁾ for the quarter ended September 30, 2020 decreased $14.2 million, or 13.7%, compared to the third quarter of 2019. The decrease in the third quarter of 2020 was primarily driven by the recognition of an approximately $16.4 million loss on debt extinguishment resulting from the repayment of approximately $140.0 million in FHLB advances and the termination of the related cash flow hedges in the third quarter of 2019. This decrease was partially offset by an increase in FDIC assessment premiums of $1.4 million. Noninterest expense also included approximately $2.6 million in costs related to the Company’s expense reduction plans, including the closure of 14 branches in September 2020, approximately $639,000 in costs related to the Company’s response to COVID-19, and marketing expenses related to donations made by the Company to support organizations that fight the injustices of inequality and contribute to change in our communities.volumes.
~~(2)~~⁽¹⁾ Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP financial measure, including a reconciliation of these measures to the most directly comparable financial measures calculated in accordance with ~~GAAP.~~GAAP

Noninterest Expense

For the Three Months Ended

March 31,

Change


2021

2020

$

%

(Dollars in thousands)

Noninterest expense:

Salaries and benefits

$
52,660

$
50,117

$
2,543

5.1
%
Occupancy expenses

7,315

7,133

182

2.6
%
Furniture and equipment expenses

3,968

3,741

227

6.1
%
Technology and data processing

6,904

6,169

735

11.9
%
Professional services

4,960

3,307

1,653

50.0
%
Marketing and advertising expense

2,044

2,739

(695)

(25.4)
%
FDIC assessment premiums and other insurance

2,307

2,861

(554)

(19.4)
%
Other taxes

4,436

4,120

316

7.7
%
Loan-related expenses

1,877

2,697

(820)

(30.4)
%
OREO and credit-related expenses

(114)

688

(802)

(116.6)
%
Amortization of intangible assets

3,730

4,401

(671)

(15.2)
%
Loss on debt extinguishment

14,695

—

14,695

NM

Other expenses

7,155

7,672

(517)

(6.7)
%
Total noninterest expense

$
111,937

$
95,645

$
16,292

17.0
%
NM - Not meaningful

~~-72-~~-58-

Table of Contents

For the Nine Months Ended

September 30,

Change


2020

2019⁽¹⁾

$

%

(Dollars in thousands)

Noninterest expense:

Salaries and benefits

$
149,013

$
148,116

$
897

0.6
%
Occupancy expenses

21,798

22,427

(629)

(2.8)
%
Furniture and equipment expenses

11,042

10,656

386

3.6
%
Printing, postage, and supplies

3,194

3,763

(569)

(15.1)
%
Technology and data processing

19,187

17,203

1,984

11.5
%
Professional services

9,211

8,269

942

11.4
%
Marketing and advertising expense

7,413

7,891

(478)

(6.1)
%
FDIC assessment premiums and other insurance

7,578

5,620

1,958

34.8
%
Other taxes

12,364

11,779

585

5.0
%
Loan-related expenses

7,512

7,250

262

3.6
%
OREO and credit-related expenses

1,512

3,162

(1,650)

(52.2)
%
Amortization of intangible assets

12,676

13,919

(1,243)

(8.9)
%
Training and other personnel costs

3,192

4,240

(1,048)

(24.7)
%
Merger-related costs

—

26,928

(26,928)

(100.0)
%
Rebranding expense

—

5,553

(5,553)

(100.0)
%
Loss on debt extinguishment

10,306

16,397

(6,091)

(37.1)
%
Other expenses

15,683

10,849

4,834

44.6
%
Total noninterest expense

$
291,681

$
324,022

$
(32,341)

(10.0)
%
~~(1)~~ Amounts exclude discontinued operations. Refer to Note 14 "Segment Reporting & Discontinued Operations" in Item 1 "Financial Statements", of this Quarterly Report for further discussion regarding discontinued operations.

Noninterest expense ~~decreased $32.3~~increased $16.3 million or ~~10.0%,~~17.0% to ~~$291.7~~$111.9 million for the ~~nine months~~quarter ended ~~September 30, 2020~~March 31, 2021, compared to ~~$324.0~~$95.6 million for the ~~nine months~~quarter ended ~~September 30, 2019.~~March 31, 2020, primarily driven by the loss on debt extinguishment of $14.7 million during the first quarter of 2021. Excluding ~~merger-related costs,~~ amortization of intangible assets and ~~rebranding-related costs,~~losses on debt extinguishment, adjusted operating noninterest expense⁽²⁾⁽¹⁾ for the ~~nine months~~quarter ended ~~September 30, 2020~~March 31, 2021 increased ~~$1.4~~$2.3 million or ~~0.5%,~~2.5% compared to the ~~same period~~first quarter of 2020. The increase in ~~2019. The increase~~the first quarter of 2021 was primarily driven by ~~$6.0~~an increase of $2.5 million in salaries and benefits due to increases in performance based variable incentive compensation and an increase in professional services costs of $1.7 million driven by an increase in legal and audit fees and costs related to strategic projects. This increase was partially offset by a decrease in OREO and credit-related expenses of approximately $802,000, primarily driven by a $575,000 gain on the sale of closed branches, a decrease of approximately $820,000 in loan-related expenses primarily due to decreased third party lending expenses, and a decrease in training and other personnel costs of approximately $831,000. Noninterest expense for the first quarter of 2021 also included approximately $1.1 million in costs related to the Company’s ~~expense reduction plans, including the~~ closure of 14five branches in ~~September 2020, and~~February 2021, approximately ~~$1.6 million~~$300,000 in costs related to the Company’s response to the COVID-19 pandemic, and approximately $500,000 in expenses related to PPP loan forgiveness processing and PPP Round Two loan set-up costs incurred during the ~~nine months ended September 30, 2020. In addition, both technology and data processing costs and FDIC assessment premiums increased by $2.0 million. Noninterest expense also included the recognition~~first quarter of an approximately $10.3 million loss on debt extinguishment during the nine months ended September 30, 2020, resulting from the prepayment of approximately $200.0 million in long-term FHLB advances.The increases were partially offset by a decline in OREO and credit-related expenses of approximately $1.7 million due to lower OREO valuation adjustments, and a decline in training and personnel costs of $1.0 million.2021.
~~(2)~~⁽¹⁾ Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about this non-GAAP
financial measure, including a reconciliation of these measures to the most directly comparable financial measures
calculated in accordance with GAAP.

~~-73-~~

~~Table of Contents~~

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.

The 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 for state income tax 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, 2021 and 2020 was 16.8% and ~~2019 was 15.3% and 16.8%~~12.2%, respectively. The ~~effective tax rate for the nine months~~ ~~ended~~ ~~September 30, 2020 and 2019 was 15.1% and 16.0%, respectively.~~ ~~The decrease~~increase in the effective tax rates is primarily due to the lower proportion of tax-exempt income to pre-tax ~~income.~~income in the first quarter of 2021.

-59-

Table of Contents

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

Overview

Assets

At ~~September 30, 2020,~~March 31, 2021, total assets were $19.9 billion, an increase of ~~$2.4 billion,~~$226.2 million or approximately ~~18.0%~~4.7% (annualized), from ~~$17.5~~$19.6 billion at December 31, ~~2019.~~2020. The increase in assets was primarily a result of ~~both organic and~~ PPP loan ~~growth.~~growth, as well as growth in investment securities.

Loans held for investment (net of deferred fees and costs) were ~~$14.4~~$14.3 billion, including $1.5 billion in PPP loans, at ~~September 30, 2020,~~March 31, 2021, an increase of ~~$1.8 billion,~~$251.0 million or ~~18.8%~~7.3% (annualized), from December 31, ~~2019.~~ 2020. Excluding the effects of the PPP, loans held for investment (net of deferred fees and costs) ~~increased $171.7~~decreased $82.2 million or ~~1.8%~~2.6% (annualized) during this period. ~~Quarterly~~For the quarter ended March 31, 2021, quarterly average loans increased ~~$2.1~~$1.5 billion or ~~17.3%~~11.7%, ~~for the quarter ended September 30, 2020~~ compared to the quarter ended ~~September 30, 2019.~~ March 31, 2020. Excluding the effects of the PPP, quarterly average loans for the quarter ended March 31, 2021 increased ~~$480.2~~$160.9 million or ~~3.9%~~1.3% from ~~the prior year.~~ quarter ended March 31, 2020. Refer to "Loan Portfolio" within Item 2 and Note 43 "Loans and Allowance for Loan and Lease Losses" in Part I, of Item I1 for additional information on the Company’s loan activity. Refer to "Non-GAAP Financial Measures" within Item 2 for additional information on PPP adjusted impacts, including a reconciliation of ~~this~~these non-GAAP financial ~~measure~~measures to the most directly comparable financial ~~measure~~measures calculated in accordance with GAAP.

Liabilities and Stockholders’ Equity

At ~~September 30, 2020,~~March 31, 2021, total liabilities were ~~$17.3~~$17.1 billion, an increase of ~~$2.2 billion~~$224.9 million from ~~$15.1~~$16.9 billion at December 31, ~~2019.~~2020.

Total deposits were ~~$15.6~~$16.3 billion at ~~September 30, 2020,~~March 31, 2021, an increase of ~~$2.3 billion,~~$575.3 million or approximately ~~22.8%~~14.8% (annualized), from December 31, ~~2019. Quarterly~~2020. For the quarter ended March 31, 2021, quarterly average deposits increased ~~$2.8~~$2.7 billion or ~~21.6%, for the quarter ended September 30, 2020~~20.4% compared to the quarter ended ~~September 30, 2019~~March 31, 2020 primarily due to the impact of PPP loan related deposits and government stimulus. Refer to “Deposits” within this Item 2 for further discussion on this topic.

Total short-term and long-term borrowings decreased from $739.8 million at December 31, 2020 to $458.1 million at March 31, 2021. The Company prepaid a $200.0 million long-term FHLB advance during the quarter and no longer has any short-term advances with the FHLB at March 31, 2021. Refer to Note 6 “Borrowings” in Part I of Item I for further discussion on this topic.

At ~~September 30, 2020,~~March 31, 2021, stockholders’ equity was $2.7 billion, an increase of ~~$147.8~~$1.2 million from December 31, ~~2019. The increase in stockholders’ equity is primarily related to the issuance and sale of Series A preferred stock that took place on June 9,~~ 2020. Refer to “Capital Resources” within this Item 2, ~~and~~as well as Note 109 "Stockholders’ Equity" in Part I, of Item I1 for additional information on the Company’s capital ratios.

The Company declared and paid a cash dividend of $0.25 per share during both the ~~third~~first quarter of ~~2020~~2021 and the ~~third~~first quarter of ~~2019. Dividends for the nine months ended September 30, 2020 were $0.75, an increase of $0.04 per share, or 5.6% compared to the nine months ended September 30, 2019.~~2020. During the ~~third~~first quarter of ~~2020,~~2021, the Board also declared and paid a quarterly dividend on the outstanding shares of Series A Preferred Stock of ~~$156.60~~$171.88 per share (equivalent to ~~$0.39~~$0.43 per outstanding depositary share).

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Securities

At ~~September 30, 2020,~~March 31, 2021, the Company had total investments in the amount of ~~$3.1~~$3.3 billion, or ~~15.6%~~16.7% of total assets, as compared to ~~$2.6~~$3.2 billion, or ~~15.0%~~16.2% of total assets, at December 31, ~~2019.~~2020. 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 agency-backed securities, which have a government guarantee. The investment portfolio has a high percentage of municipal securities; therefore, the Company earns a higher taxable equivalent yield on its portfolio as compared to many of its peers. For information regarding the hedge transaction related to available for sale securities, see Note 98 "Derivatives" in Part I, of Item I1 of this Quarterly Report.
The table below sets forth a summary of the AFS securities, HTM securities, and restricted stock as of the dates indicated (dollars in thousands):


September 30,

December 31,

2020

2019
Available for Sale:




U.S. government and agency securities

$
13,878

$
21,320
Obligations of states and political subdivisions

796,856

447,091
Corporate and other bonds

148,918

135,959
Mortgage-backed securities

Commercial

388,965

425,047
Residential

1,093,102

912,949
Total mortgage-back securities

1,482,067

1,337,996
Other securities

1,621

3,079
Total AFS securities, at fair value

2,443,340

1,945,445
Held to Maturity:




U.S. government and agency securities

2,767

2,813
Obligations of states and political subdivisions, at carrying value

538,352

545,148
Mortgage-backed securities

Commercial

5,542

7,183
Residential

—

—
Total mortgage-back securities

5,542

7,183
Total held to maturity securities

546,661

555,144
Restricted Stock:




Federal Reserve Bank stock

67,032

66,964
FHLB stock

45,184

63,884
Total restricted stock, at cost

112,216

130,848
Total investments

$
3,102,217

$
2,631,437


March 31,

December 31,

2021

2020
Available for Sale:




U.S. government and agency securities

$
11,677

$
13,394
Obligations of states and political subdivisions

899,098

837,326
Corporate and other bonds

147,608

151,078
Mortgage-backed securities

Commercial

384,832

388,684
Residential

1,252,203

1,148,312
Total mortgage-back securities

1,637,035

1,536,996
Other securities

1,625

1,625
Total AFS securities, at fair value

2,697,043

2,540,419
Held to Maturity:




U.S. government and agency securities

2,676

2,751
Obligations of states and political subdivisions

535,634

536,767
Mortgage-backed securities

Commercial

5,265

5,333
Residential

—

—
Total mortgage-back securities

5,265

5,333
Total held to maturity securities, at carrying value

543,575

544,851
Restricted Stock:




Federal Reserve Bank stock

67,032

67,032
FHLB stock

9,792

27,750
Total restricted stock, at cost

76,824

94,782
Total investments

$
3,317,442

$
3,180,052

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The following table summarizes the contractual maturity of AFS securities at fair value and their weighted average yields as of ~~September 30, 2020~~March 31, 2021 (dollars in thousands):


1 Year or



5 – 10

Over 10


Less

1 - 5 Years

Years

Years

Total

U.S. government and agency securities











Amortized cost

$
—

$
—

$
13,463

$
—

$
13,463

Fair value

—

—

13,878

—

13,878

Weighted average yield ⁽¹⁾

—
%

—
%

2.29
%

—
%

2.29
%

Obligations of states and political subdivisions:

Amortized cost

$
2,484

$
9,030

$
47,380

$
701,042

$
759,936

Fair value

2,505

9,401

49,785

735,165

796,856

Weighted average yield ⁽¹⁾

5.27
%

4.02
%

2.66
%

3.00
%

2.99
%

Corporate bonds and other securities:

Amortized cost

$
1,621

$
5,208

$
103,292

$
38,938

$
149,059

Fair value

1,621

5,155

105,178

38,585

150,539

Weighted average yield ⁽¹⁾

1.48
%

2.28
%

4.50
%

1.80
%

3.68
%

Mortgage backed securities:

Commercial

Amortized cost

$
24,445

$
113,359

$
26,713

$
206,548

$
371,065

Fair value

24,676

120,246

27,757

216,286

388,965

Weighted average yield ⁽¹⁾

2.66
%

2.68
%

2.72
%

2.86
%

2.78
%
Residential

Amortized cost

$
31

$
13,247

$
60,653

$
985,462

$
1,059,393

Fair value

32

13,312

62,208

1,017,550

1,093,102

Weighted average yield ⁽¹⁾

2.90
%

2.74
%

2.54
%

2.21
%

2.23
%
Total mortgage-backed securities

Amortized cost

$
24,476

$
126,606

$
87,366

$
1,192,010

$
1,430,458

Fair value

24,708

133,558

89,965

1,233,836

1,482,067

Weighted average yield ⁽¹⁾

2.66
%

2.69
%

2.60
%

2.32
%

2.38
%

Total AFS securities:

Amortized cost

$
28,581

$
140,844

$
251,501

$
1,931,990

$
2,352,916

Fair value

28,834

148,114

258,806

2,007,586

2,443,340

Weighted average yield ⁽¹⁾

2.82
%

2.76
%

3.37
%

2.55
%

2.66
%


1 Year or



5 – 10

Over 10


Less

1 - 5 Years

Years

Years

Total

U.S. government and agency securities











Amortized cost

$
—

$
—

$
11,470

$
—

$
11,470

Fair value

—

—

11,677

—

11,677

Weighted average yield ⁽¹⁾

—
%

—
%

2.26
%

—
%

2.26
%

Obligations of states and political subdivisions:

Amortized cost

$
2,094

$
12,340

$
46,166

$
807,697

$
868,297

Fair value

2,130

12,897

48,024

836,047

899,098

Weighted average yield ⁽¹⁾

5.28
%

3.34
%

2.56
%

2.86
%

2.86
%

Corporate bonds and other securities:

Amortized cost

$
1,625

$
14,970

$
97,005

$
33,428

$
147,028

Fair value

1,625

15,216

98,672

33,720

149,233

Weighted average yield ⁽¹⁾

—
%

4.04
%

4.34
%

1.76
%

3.67
%

Mortgage backed securities:

Commercial

Amortized cost

$
14,202

$
126,031

$
24,849

$
210,136

$
375,218

Fair value

14,326

131,264

25,271

213,971

384,832

Weighted average yield ⁽¹⁾

2.40
%

3.00
%

2.43
%

2.48
%

2.65
%
Residential

Amortized cost

$
86

$
13,234

$
54,076

$
1,170,654

$
1,238,050

Fair value

87

13,346

56,194

1,182,576

1,252,203

Weighted average yield ⁽¹⁾

2.76
%

2.59
%

2.77
%

2.05
%

2.09
%
Total mortgage-backed securities

Amortized cost

$
14,288

$
139,265

$
78,925

$
1,380,790

$
1,613,268

Fair value

14,413

144,610

81,465

1,396,547

1,637,035

Weighted average yield ⁽¹⁾

2.41
%

2.96
%

2.66
%

2.12
%

2.22
%

Total AFS securities:

Amortized cost

$
18,007

$
166,575

$
233,566

$
2,221,915

$
2,640,063

Fair value

18,168

172,723

239,838

2,266,314

2,697,043

Weighted average yield ⁽¹⁾

2.52
%

3.08
%

3.32
%

2.38
%

2.51
%
(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.

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The following table summarizes the contractual maturity of HTM securities at carrying value and their weighted average yields as of ~~September 30, 2020~~March 31, 2021 (dollars in thousands):


1 Year or



5 – 10

Over 10


Less

1 - 5 Years

Years

Years

Total

U.S. government and agency securities

Carrying value

$
—

$
1,580

$
1,187

$
—

$
2,767

Fair value

—

1,571

1,182

—

2,753

Weighted average yield ⁽¹⁾

—
%

4.60
%

4.17
%

—
%

4.41
%

Obligations of states and political subdivisions:

Carrying value

$
1,005

$
7,496

$
562

$
529,289

$
538,352

Fair value

1,024

7,865

614

596,410

605,913

Weighted average yield ⁽¹⁾

3.35
%

2.49
%

3.16
%

4.10
%

4.07
%

Mortgage backed securities:

Commercial

Amortized cost

$
—

$
—

$
—

$
5,542

$
5,542

Fair value

—

—

—

5,507

5,507

Weighted average yield ⁽¹⁾

—
%

—
%

—
%

4.98
%

4.98
%
Residential

Amortized cost

$
—

$
—

$
—

$
—

$
—

Fair value

—

—

—

—

—

Weighted average yield ⁽¹⁾

—
%

—
%

—
%

—
%

—
%
Total mortgage-backed securities

Amortized cost

$
—

$
—

$
—

$
5,542

$
5,542

Fair value

—

—

—

5,507

5,507

Weighted average yield ⁽¹⁾

—
%

—
%

—
%

4.98
%

4.98
%

Total HTM securities:

Carrying value

$
1,005

$
9,076

$
1,749

$
534,831

$
546,661

Fair value

1,024

9,436

1,796

601,917

614,173

Weighted average yield ⁽¹⁾

3.35
%

2.86
%

3.84
%

4.11
%

4.09
%


1 Year or



5 – 10

Over 10


Less

1 - 5 Years

Years

Years

Total

U.S. government and agency securities

Carrying value

$
—

$
1,553

$
1,123

$
—

$
2,676

Fair value

—

1,534

1,111

—

2,645

Weighted average yield ⁽¹⁾

—
%

4.42
%

4.09
%

—
%

4.29
%

Obligations of states and political subdivisions:

Carrying value

$
1,441

$
6,965

$
557

$
526,671

$
535,634

Fair value

1,449

7,252

608

589,205

598,514

Weighted average yield ⁽¹⁾

3.16
%

2.47
%

3.16
%

4.10
%

4.07
%

Mortgage backed securities:

Commercial

Amortized cost

$
—

$
—

$
—

$
5,265

$
5,265

Fair value

—

—

—

5,200

5,200

Weighted average yield ⁽¹⁾

—
%

—
%

—
%

4.91
%

4.91
%
Residential

Amortized cost

$
—

$
—

$
—

$
—

$
—

Fair value

—

—

—

—

—

Weighted average yield ⁽¹⁾

—
%

—
%

—
%

—
%

—
%
Total mortgage-backed securities

Amortized cost

$
—

$
—

$
—

$
5,265

$
5,265

Fair value

—

—

—

5,200

5,200

Weighted average yield ⁽¹⁾

—
%

—
%

—
%

4.91
%

4.91
%

Total HTM securities:

Carrying value

$
1,441

$
8,518

$
1,680

$
531,936

$
543,575

Fair value

1,449

8,786

1,719

594,405

606,359

Weighted average yield ⁽¹⁾

3.16
%

2.83
%

3.78
%

4.10
%

4.08
%
(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis.
As of ~~September 30, 2020,~~March 31, 2021, the Company maintained a diversified municipal bond portfolio with approximately ~~74%~~63% of its holdings in general obligation issues and the majority of the remainder backed by revenue bonds. Issuances within the ~~states~~state of Texas ~~and Virginia~~ represented ~~25% and 22%~~21% of the municipal ~~portfolio, respectively;~~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.

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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 Federal Reserve Discount Window, the purchase of brokered certificates of deposit, corporate line of credit with a large correspondent bank, and debt and capital issuance. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

On June 9, 2020, the Company ~~announced the closing of an offering of~~issued and sold 6,900,000 depositary shares, each representing a 1/400th ownership interest in a share of its Series A preferred stock, with a liquidation preference of $10,000 per share of Series A preferred stock (equivalent to $25 per depositary share), including 900,000 depositary shares pursuant to the exercise in full by the underwriters of their option to purchase additional depositary shares. The total net proceeds to the Company were approximately $166.4 million, after deducting the underwriting discount and other offering expenses payable by the Company. The Company intends to use the net proceeds of the offering for general corporate purposes in the ordinary course of its business. General corporate purposes may include repayment of debt, loan funding, acquisitions, additions to working capital, capital expenditures and investments in the Company’s subsidiaries.

As a result of adverse market conditions including the impacts of COVID-19, the Company has continued to see elevated customer deposit balances. These increased balances are due primarily to the combination of government stimulus programs, and customer expense and savings habits in response to the pandemic. As a result of the increases in customer deposits, the Company has reduced its wholesale borrowings during ~~2020.~~2020 and in the first quarter of 2021. The Company considers a portion of the increases in customer deposits to be temporary, which it expects will result in outflows in subsequent ~~quarters~~quarters.

~~During the second quarter of 2020, in connection with the loans originated as part of the PPP, the Company borrowed under the Federal Reserve’s PPPLF.~~ Under the terms of the PPPLF, the Company can borrow funds which are secured by the Company’s PPP loans. ~~As of September 30,~~During 2020, the Company’s borrowings pursuant to the PPPLF fluctuated; however, at its peak, the Company borrowed $200.5 million. As of March 31, 2021, the Company had no outstanding advances under the ~~PPPLF, were $189.9 million. The interest rate on the advances is fixed at a rate of 0.35% through the advance maturities in April 2022.~~PPPLF. The Company’s available borrowing capacity under the PPPLF as of ~~September~~March 31, 2021 was $1.5 billion. During March 2021, the Federal Reserve announced that the expiration of the PPPLF was extended from March 31, 2021 to June 30, ~~2020 was $1.4 billion.~~2021.

~~During the second quarter of 2020, in~~In response to the current rate environment, in February 2021 the Company prepaid ~~approximately~~a $200.0 million in long-term FHLB ~~advances,~~advance, which resulted in a pre-tax prepayment penalty of ~~approximately $10.3 million, and sold several securities, which resulted in a gain of approximately $10.3~~$14.7 million.

As of ~~September 30, 2020,~~March 31, 2021, liquid assets totaled ~~$6.2~~$6.6 billion or ~~31.3%,~~33.1% of total assets, and liquid earning assets totaled ~~$6.1~~$6.4 billion or ~~34.0%~~35.9% of total earning assets. Asset liquidity is also provided by managing loan and securities maturities and cash flows. As of ~~September 30, 2020,~~March 31, 2021, approximately ~~$5.2~~$5.8 billion or ~~36.4%~~40.5% of total loans are scheduled to mature within one year based on contractual maturity, adjusted for expected prepayments, and approximately ~~$441.7~~$346.7 million or ~~14.2%~~10.5% 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. Refer to Note 7 “Borrowings” in Part I of Item 1 for~~For additional information and the available balances on various lines of ~~credit.~~credit, please refer to Note 6 “Borrowings” in the “Notes to the Consolidated Financial Statements” contained in Part I of Item 1 of this Quarterly 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. ~~Refer to “Deposits” within this Item 2 for~~For additional information and outstanding balances on purchased certificates of ~~deposits.~~deposits, please refer to “Deposits” within this Item 2.

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Loan Portfolio

Loans held for investment, net of deferred fees and costs, were ~~$14.4~~$14.3 billion at ~~September 30, 2020, $12.6~~March 31, 2021, $14.0 billion at December 31, ~~2019,~~2020, and ~~$12.3~~$12.8 billion at ~~September 30, 2019.~~March 31, 2020. Commercial & industrial loans and commercial real ~~estate~~estate-non-owner occupied loans represented the Company’s largest categories at ~~September 30, 2020.~~March 31, 2021. Commercial and industrial loans included approximately ~~$1.6~~$1.5 billion in loans from the PPP loan program. ~~When adjusting for the impact of PPP loans, commercial real estate – non-owner occupied loans remained the largest category.~~

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 and for the ~~quarter~~quarters ended (dollars in thousands):


	September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
Commercial loans:
Construction and Land Development	$	1,207,190	8.4	%	$	1,247,939	8.7	%	$	1,318,252	10.3	%	$	1,250,924	9.9	%	$	1,201,149	9.8	%	$	884,303	6.2	%	$	925,798	6.6	%	$	1,207,190	8.4	%	$	1,247,939	8.7	%	$	1,318,252	10.3	%
Commercial Real Estate - Owner Occupied		2,107,333	14.7	%		2,067,087	14.4	%		2,051,904	16.1	%		2,041,243	16.2	%		1,979,052	16.1	%		2,083,155	14.6	%		2,128,909	15.2	%		2,107,333	14.7	%		2,067,087	14.4	%		2,051,904	16.1	%
Commercial Real Estate - Non-Owner Occupied		3,497,929	24.3	%		3,455,125	24.1	%		3,328,012	26.1	%		3,286,098	26.1	%		3,198,580	26.0	%		3,671,471	25.7	%		3,657,562	26.1	%		3,497,929	24.3	%		3,455,125	24.1	%		3,328,012	26.1	%
Multifamily Real Estate		731,582	5.1	%		717,719	5.0	%		679,390	5.3	%		633,743	5.0	%		659,946	5.4	%		842,906	5.9	%		814,745	5.8	%		731,582	5.1	%		717,719	5.0	%		679,390	5.3	%
Commercial & Industrial		3,536,249	24.6	%		3,555,971	24.9	%		2,177,932	17.1	%		2,114,033	16.8	%		2,058,133	16.7	%		3,599,884	25.2	%		3,263,460	23.3	%		3,536,249	24.6	%		3,555,971	24.9	%		2,177,932	17.1	%
Residential 1-4 Family - Commercial		696,944	4.8	%		715,384	5.0	%		721,800	5.7	%		724,337	5.7	%		721,185	5.9	%		658,051	4.6	%		671,949	4.8	%		696,944	4.8	%		715,384	5.0	%		721,800	5.7	%
Other Commercial																						529,748	3.7	%		489,975	3.5	%		494,084	3.4	%		389,190	2.7	%		274,255	2.0	%
Total Commercial Loans																					$	12,269,518	85.9	%	$	11,952,398	85.3	%	$	12,271,311	85.3	%	$	12,148,415	84.8	%	$	10,551,545	82.6	%
Consumer loans:
Residential 1-4 Family - Consumer		830,144	5.8	%		841,051	5.9	%		854,550	6.7	%		890,503	7.1	%		913,245	7.4	%	$	816,916	5.7	%		822,866	5.8	%		830,144	5.8	%		841,051	5.9	%		854,550	6.7	%
Residential 1-4 Family - Revolving		618,320	4.3	%		627,765	4.4	%		652,135	5.1	%		659,504	5.2	%		660,963	5.4	%		563,786	4.0	%		596,996	4.2	%		618,320	4.3	%		627,765	4.4	%		652,135	5.1	%
Auto		387,417	2.7	%		380,053	2.7	%		358,039	2.8	%		350,419	2.8	%		328,456	2.7	%		406,349	2.9	%		401,324	2.9	%		387,417	2.7	%		380,053	2.7	%		358,039	2.8	%
Consumer		276,023	1.9	%		311,362	2.2	%		352,572	2.8	%		372,853	3.0	%		386,848	3.1	%		215,711	1.5	%		247,730	1.8	%		276,023	1.9	%		311,362	2.2	%		352,572	2.8	%
Other Commercial		494,084	3.4	%		389,190	2.7	%		274,255	2.0	%		287,279	2.2	%		199,440	1.5	%
Total Consumer Loans																					$	2,002,762	14.1	%	$	2,068,916	14.7	%	$	2,111,904	14.7	%	$	2,160,231	15.2	%	$	2,217,296	17.4	%
Total loans held for investment	$	14,383,215	100.0	%	$	14,308,646	100.0	%	$	12,768,841	100.0	%	$	12,610,936	100.0	%	$	12,306,997	100.0	%	$	14,272,280	100.0	%	$	14,021,314	100.0	%	$	14,383,215	100.0	%	$	14,308,646	100.0	%	$	12,768,841	100.0	%

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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, 2020~~March 31, 2021 (dollars in thousands):

Variable Rate

Fixed Rate


Total

Less than 1





More than 5





More than 5

Maturities

year

Total

1-5 years

years

Total

1-5 years

years
Construction and Land Development

$
1,207,190

$
536,238

$
417,054

$
288,204

$
128,850

$
253,898

$
163,324

$
90,574
Commercial Real Estate - Owner Occupied

2,107,333

172,574

620,319

120,517

499,802

1,314,440

633,692

680,748
Commercial Real Estate - Non-Owner Occupied

3,497,929

414,575

1,590,183

603,718

986,465

1,493,171

1,095,756

397,415
Multifamily Real Estate

731,582

74,989

397,660

78,449

319,211

258,933

196,620

62,313
Commercial & Industrial

3,536,249

431,867

857,897

679,191

178,706

2,246,485

1,959,064

287,421
Residential 1-4 Family - Commercial

696,944

108,451

150,064

21,226

128,838

438,429

354,419

84,010
Residential 1-4 Family - Consumer

830,144

5,213

326,391

2,357

324,034

498,540

15,809

482,731
Residential 1-4 Family - Revolving

618,320

52,370

551,420

61,693

489,727

14,530

1,190

13,340
Auto

387,417

2,707

—

—

—

384,710

162,898

221,812
Consumer

276,023

23,932

19,369

16,243

3,126

232,722

107,253

125,469
Other Commercial

494,084

41,676

82,574

7,611

74,963

369,834

209,030

160,804
Total loans held for investment

$
14,383,215

$
1,864,592

$
5,012,931

$
1,879,209

$
3,133,722

$
7,505,692

$
4,899,055

$
2,606,637

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Variable Rate

Fixed Rate


Total

Less than 1





More than 5





More than 5

Maturities

year

Total

1-5 years

years

Total

1-5 years

years
Construction and Land Development

$
884,303

$
384,640

$
337,799

$
248,782

$
89,017

$
161,864

$
93,545

$
68,319
Commercial Real Estate - Owner Occupied

2,083,155

179,945

647,997

117,545

530,452

1,255,213

562,915

692,298
Commercial Real Estate - Non-Owner Occupied

3,671,471

427,315

1,739,627

686,003

1,053,624

1,504,529

1,082,049

422,480
Multifamily Real Estate

842,906

100,912

532,469

175,646

356,823

209,525

150,788

58,737
Commercial & Industrial

3,599,884

351,334

1,046,124

854,293

191,831

2,202,426

1,870,974

331,452
Residential 1-4 Family - Commercial

658,051

105,098

138,138

25,250

112,888

414,815

312,208

102,607
Residential 1-4 Family - Consumer

816,916

2,885

277,964

2,170

275,794

536,067

15,097

520,970
Residential 1-4 Family - Revolving

563,786

38,102

509,419

50,859

458,560

16,265

1,316

14,949
Auto

406,349

3,026

—

—

—

403,323

170,014

233,309
Consumer

215,711

19,689

22,843

19,547

3,296

173,179

69,483

103,696
Other Commercial

529,748

52,213

82,744

8,319

74,425

394,791

203,395

191,396
Total loans held for investment

$
14,272,280

$
1,665,159

$
5,335,124

$
2,188,414

$
3,146,710

$
7,271,997

$
4,531,784

$
2,740,213

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, 2020,~~March 31, 2021, the largest components of the Company’s loan portfolio consisted of commercial real estate, commercial & industrial, 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.
The majority of the Company’s loan portfolio is comprised of segments not disrupted by the COVID-19 pandemic. Of those segments disrupted by COVID-19, the hospitality segment makes up the largest portion of the Company’s portfolio (less than 5%6% of total loans), followed by health care, retail trade, senior living, and restaurants. The Company has no significant exposure to the energy, cruise, or passenger aviation sectors.

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Asset Quality

Overview

At ~~September 30, 2020,~~March 31, 2021, the Company experienced ~~increases~~slight decreases in NPAs compared to December 31, ~~2019, primarily due to the inclusion of assets not previously reported as nonperforming that are now considered such under the CECL methodology. Total~~2020. Accruing past due loan levels as a percentage of total loans held for investment at ~~September 30,~~ ~~2020~~March 31, 2021 were down from total past due loan levels at December 31, ~~2019.~~2020 and March 31, 2020.

Net charge-offs decreased for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. Total net charge-offs as a percentage of total average loans on an annualized basis also decreased for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The allowance for credit losses ~~increased~~decreased from December 31, ~~2019, as a result~~2020 due primarily to improvements in the macroeconomic outlook.

The Company believes its continued proactive efforts to effectively manage its loan portfolio, combined with the unprecedented government stimulus and programs and regulatory support, have contributed to the sustained historically low levels of ~~the adoption of ASC 326~~NPAs. The Company’s efforts included identifying potential problem credits as well as ~~a worsening economic forecast due~~generating new business relationships. Through early identification and diligent monitoring of specific problem credits where the uncertainty has been realized, or conversely, has been reduced or eliminated, the Company’s management has been able to quantify the ~~impact~~credit risk in its loan portfolio, adjust collateral dependent credits to appropriate reserve levels, and further identify those credits that are not recoverable, the volumes of ~~COVID-19,~~ which ~~also led~~have been immaterial. The Company continues to ~~an increase in the provision for credit losses.~~refrain from originating or purchasing loans from foreign entities. The Company selectively originates loans to higher risk borrowers. The Company’s loan portfolio generally does not include exposure to option adjustable rate mortgage products, high loan-to-value ratio mortgages, interest only mortgage loans, subprime mortgage loans or mortgage loans with initial teaser rates, which are all considered higher risk instruments.

As discussed under ~~“Recent Developments”~~“Executive Overview” within this Item 2, the COVID-19 pandemic is having a wide range of economic impacts, including impacts in the Company’s area of operations and on the Company’s clients and borrowers. ~~While the~~The Company has not yet experienced material deterioration in asset quality as compared to ~~pre-pandemic performance, the Company does expect that at some point~~ asset quality ~~will~~before COVID-19. The Company’s asset quality may in the future be adversely ~~affected~~impacted to some degree due to ~~pandemic-related bankruptcies, business closures, unemployment, and other effects. At~~the effects of COVID-19, although at this time it is impossible for the Company to estimate either the timing or the magnitude of any such adverse changes in asset quality. The Company continues to monitor asset quality trends and economic and market conditions for indications that COVID-19 may have more significant impacts on the Company’s asset quality than experienced to date. As of March 31, 2021, the Company’s management believes that the ultimate impact of COVID-19 on the Company’s asset quality will be less severe than initially projected at the start of the pandemic.

Loan Modifications for Borrowers Affected by COVID-19

The Joint Guidance encourages banks, savings associations, and credit unions to make loan modifications for borrowers affected by COVID-19 and, importantly, assures those financial institutions that they will not (i) receive supervisory criticism for such prudent loan modifications and (ii) be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The federal banking regulators have confirmed with the FASB that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) when the modification program was implemented are not considered TDRs.

In addition, Section 4013 of the CARES Act, as amended by the CAA, provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans that were not more than thirty days past due as of December 31, 2019. The relief afforded by Section 4013 of the CARES Act, as amended by the CAA, is available to loans modified between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency and January 1, 2022.

The Company has made certain loan modifications pursuant to the Joint Guidance and Section 4013 of the CARES Act (as amended by the CAA). At March 31, 2021 approximately $68.1 million, or less than 1% of total loans remain under their modified terms, compared to $146.1 million at December 31, 2020. The majority of the Company’s modifications as of March 31, 2021 were in the residential 1-4 family – commercial, construction and land development, and commercial real estate

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portfolios, which includes the Company’s hotel portfolio. The Company’s modification program included payment deferrals and interest only modifications. A majority of the modifications were three month deferrals.

Nonperforming Assets

At March 31, 2021, NPAs totaled $44.2 million, a decrease of $1.0 million from December 31, 2020. NPAs as a percentage of total outstanding loans at March 31, 2021 were 0.31%, a decrease of 1 basis point from 0.32% at December 31, 2020. Excluding the impact of the PPP loans⁽¹⁾, NPAs as a percentage of total adjusted loans held for investment were 0.35% at March 31, 2021, consistent with December 31, 2020.

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

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Nonaccrual loans

$
41,866

$
42,448

$
39,023

$
39,624

$
44,022

Foreclosed properties

2,344

2,773

4,159

4,397

4,444

Total NPAs

44,210

45,221

43,182

44,021

48,466

Loans past due 90 days and accruing interest

9,776

13,634

15,661

19,255

12,876

Total NPAs and loans past due 90 days and accruing interest

$
53,986

$
58,855

$
58,843

$
63,276

$
61,342

Performing TDRs

$
13,670

$
13,961

$
14,515

$
15,303

$
14,865

Balances











Allowance for loan and lease losses

$
142,911

$
160,540

$
174,122

$
169,977

$
141,043

Average loans, net of deferred fees and costs

14,064,123

13,777,467

14,358,666

13,957,711

12,593,923

Loans, net of deferred fees and costs

14,272,280

14,021,314

14,383,215

14,308,646

12,768,841

Ratios











Nonaccrual loans to total loans

0.29
%

0.30
%

0.27
%

0.28
%

0.34
%
NPAs to total loans

0.31
%

0.32
%

0.30
%

0.31
%

0.38
%
NPAs to total adjusted loans⁽¹⁾

0.35
%

0.35
%

0.34
%

0.35
%

0.38
%
NPAs & loans 90 days past due to total loans

0.38
%

0.42
%

0.41
%

0.44
%

0.48
%
NPAs to total loans & foreclosed property

0.31
%

0.32
%

0.30
%

0.31
%

0.38
%
NPAs & loans 90 days past due to total loans & foreclosed property

0.38
%

0.42
%

0.41
%

0.44
%

0.48
%
ALLL to nonaccrual loans

341.35
%

378.20
%

446.20
%

428.97
%

320.39
%
ALLL to nonaccrual loans & loans 90 days past due

276.73
%

286.26
%

318.41
%

288.69
%

247.89
%
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

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The following table shows the activity in nonaccrual loans for the quarters ended (dollars in thousands):

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020
Beginning Balance

$
42,448

$
39,023

$
39,624

$
44,022

$
28,232
Impact of ASC 326 adoption

—

—

—

—

14,381
Additions

3,821

8,211

2,790

3,206

6,059
Net customer payments

(4,133)

(4,640)

(2,803)

(6,524)

(3,451)
Charge-offs

(270)

(146)

(588)

(1,088)

(1,199)
Loans returning to accruing status

—

—

—

8

—
Ending Balance

$
41,866

$
42,448

$
39,023

$
39,624

$
44,022

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


March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020
Construction and Land Development

$
2,637

$
3,072

$
3,520

$
3,977

$
3,234
Commercial Real Estate - Owner Occupied

7,016

7,128

9,267

8,924

11,250
Commercial Real Estate - Non-owner Occupied

1,958

2,317

1,992

1,877

1,642
Multifamily Real Estate

—

33

33

33

53
Commercial & Industrial

2,023

2,107

1,592

2,708

3,431
Residential 1-4 Family - Commercial

9,190

9,993

5,743

5,784

7,040
Residential 1-4 Family - Consumer

14,770

12,600

12,620

12,029

13,088
Residential 1-4 Family - Revolving

3,853

4,629

3,664

3,626

3,547
Auto

303

500

517

584

550
Consumer

116

69

75

81

91
Other Commercial

—

—

—

1

96
Total

$
41,866

$
42,448

$
39,023

$
39,624

$
44,022

NPAs at March 31, 2021 also included $2.3 million in foreclosed property, a decrease of $429,000, or 15.5%, from December 31, 2020. The following table shows the activity in foreclosed property for the quarters ended (dollars in thousands):


March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020
Beginning Balance

$
2,773

$
4,159

$
4,397

$
4,444

$
4,708
Additions of foreclosed property

—

—

—

—

615
Valuation adjustments

—

(35)

—

—

(44)
Proceeds from sales

(419)

(1,357)

(254)

(55)

(854)
Gains (losses) from sales

(10)

6

16

8

19
Ending Balance

$
2,344

$
2,773

$
4,159

$
4,397

$
4,444

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


March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020
Land

$
1,227

$
1,227

$
1,238

$
1,245

$
1,251
Land Development

894

1,323

1,965

1,965

1,965
Residential Real Estate

60

60

793

793

834
Commercial Real Estate

163

163

163

394

394
Total

$
2,344

$
2,773

$
4,159

$
4,397

$
4,444

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Past Due Loans

At March 31, 2021, total accruing past due loans were $36.0 million, or 0.25% of total loans held for investment, compared to $49.8 million, or 0.36% of total loans held for investment, at December 31, 2020 and $75.1 million, or 0.59% of total loans held for investment, at March 31, 2020. Excluding the impact of the PPP loans⁽¹⁾, past due loans still accruing interest were 0.28% of total adjusted loans held for investment at March 31, 2021, compared to 0.39% of total adjusted loans held for investment at December 31, 2020 and 0.59% of total adjusted loans held for investment at March 31, 2020. Of the total past due loans still accruing interest $9.8 million, or 0.07% of total loans held for investment, were past due 90 days or more at March 31, 2021, compared to $13.6 million, or 0.10% of total loans held for investment, at December 31, 2020 and $12.9 million, or 0.10% of total loans held for investment, at March 31, 2020.

Troubled Debt Restructurings

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. Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, extension of terms that are considered to be below market, conversion to interest only, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

The total recorded investment in TDRs asat March 31, 2021 was $19.7 million, a decrease of ~~September 30, 2020 was $21.6 million, an increase of $2.1 million,~~$888,000 or ~~10.6%,~~4.3% from ~~$19.5~~$20.6 million at December 31, ~~2019 and an increase of $2.8 million, or 15.1%, from $18.7 million at September 30, 2019.~~2020. Of the ~~$21.6~~$19.7 million of TDRs at ~~September 30, 2020, $14.5~~March 31, 2021, $13.7 million or ~~67.3%,~~69.3% were considered performing while the remaining ~~$7.1~~$6.0 million were considered nonperforming.

~~Loan Modifications for Borrowers Affected by COVID-19~~

~~On March 22, 2020,~~ Of the ~~five federal bank regulatory agencies and the Conference~~$20.6 million of ~~State Bank Supervisors issued joint~~

guidance (subsequently revised on April 7, 2020) with respect to loan modifications for borrowers affected by COVID-19 (the “March 22 Joint Guidance”). The March 22 Joint Guidance encourages banks, savings associations, and credit unions to make loan modifications for borrowers affected by COVID-19 and, importantly, assures those financial institutions that they will not (i) receive supervisory criticism for such prudent loan modifications and (ii) be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The federal banking regulators have confirmed with the FASB that short-term loan modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due on contractual payments) when the modification program was implemented are not considered TDRs.

In addition, Section 4013 of the CARES Act, provides banks, savings associations, and credit unions with the ability to make loan modifications related to COVID-19 without categorizing the loan as a TDR or conducting the analysis to make the determination, which is intended to streamline the loan modification process. Any such suspension is effective for the term of the loan modification; however, the suspension is only permitted for loan modifications made during the effective period of Section 4013 and only for those loans that were not more than thirty days past due as of December 31, 2019.

The Company has made certain loan modifications pursuant to the March 22 Joint Guidance or Section 4013 of the CARES Act and as of September 30, 2020 approximately $769.6 million remain under their modified terms. The majority of the Company’s modifications as of September 30, 2020 were in the commercial real estate portfolios.

~~The Company’s modification program included payment deferrals and interest only modifications. A majority of the modifications were three-month deferrals.~~

~~Nonperforming Assets~~

At September 30, 2020, NPAs totaled $43.2 million, an increase of $10.2 million from December 31, 2019. NPAs as a percentage of total outstanding loans at September 30, 2020 were 0.30%, an increase of 4 basis points from ~~0.26~~%TDRs at December 31, ~~2019.~~ E~~xcluding~~2020, $14.0 million or 68.0% were considered performing while the ~~impact~~remaining $6.6 million were considered nonperforming. Loans are removed from TDR status in accordance with the established policy described in Note 1 “Summary of ~~the PPP loans~~⁽²⁾~~, NPAs as a percentage of total outstanding loans were 0.34%, an~~

~~-81-~~

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~~increase of 8 basis points from December 31, 2019. The Company’s adoption of ASC 326 resulted in a change~~Significant Accounting Policies” in the accounting and reporting related to PCI loans which are now defined as PCD and evaluated at the loan level instead of being evaluated in pools under PCI accounting. All prior period nonaccrual and past due loan metrics discussed herein have not been restated for CECL accounting and exclude PCI-related loan balances.

~~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,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Nonaccrual loans⁽¹⁾

$
39,023

$
39,624

$
44,022

$
28,232

$
30,032

Foreclosed properties

4,159

4,397

4,444

4,708

6,385

Total NPAs

43,182

44,021

48,466

32,940

36,417

Loans past due 90 days and accruing interest⁽¹⁾

15,661

19,255

12,876

13,396

12,036

Total NPAs and loans past due 90 days and accruing interest

$
58,843

$
63,276

$
61,342

$
46,336

$
48,453

Performing TDRs

$
14,515

$
15,303

$
14,865

$
15,686

$
15,156

Balances











Allowance for loan and lease losses

$
174,122

$
169,977

$
141,043

$
42,294

$
43,820

Average loans, net of deferred fees and costs

14,358,666

13,957,711

12,593,923

12,327,692

12,240,254

Loans, net of deferred fees and costs

14,383,215

14,308,646

12,768,841

12,610,936

12,306,997

Ratios











NPAs to total loans

0.30
%

0.31
%

0.38
%

0.26
%

0.30
%
NPAs to total adjusted loans⁽²⁾

0.34
%

0.35
%

0.38
%

0.26
%

0.30
%
NPAs & loans 90 days past due to total loans

0.41
%

0.44
%

0.48
%

0.37
%

0.39
%
NPAs to total loans & foreclosed property

0.30
%

0.31
%

0.38
%

0.26
%

0.30
%
NPAs & loans 90 days past due to total loans & foreclosed property

0.41
%

0.44
%

0.48
%

0.37
%

0.39
%
ALL to nonaccrual loans

446.20
%

428.97
%

320.39
%

149.81
%

145.91
%
ALL to nonaccrual loans & loans 90 days past due

318.41
%

288.69
%

247.89
%

101.60
%

104.16
%
~~(1)~~ ~~Amounts are not directly comparable due to the~~ Company’s adoption of ASC 326 on January 1, 2020. Prior to January 1, 2020, nonaccrual and past due loan information excluded PCI-related loan balances. These balances also reflect the impact of Section 4013 of the CARES Act and the March 22 Guidance.
~~(2)~~ Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

~~-82-~~

~~Table of Contents~~

~~The following table shows the activity in nonaccrual loans for the quarters ended (dollars in thousands):~~

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019
Beginning Balance

$
39,624

$
44,022

$
28,232

$
30,032

$
27,462
Impact of ASC 326 adoption

—

—

14,381

—

—
Additions

2,790

3,206

6,059

5,631

8,327
Net customer payments

(2,803)

(6,524)

(3,451)

(5,741)

(3,612)
Charge-offs

(588)

(1,088)

(1,199)

(1,690)

(884)
Loans returning to accruing status

—

8

—

—

(1,103)
Transfers to foreclosed property

—

—

—

—

(158)
Ending Balance

$
39,023

$
39,624

$
44,022

$
28,232

$
30,032

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


September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019
Construction and Land Development

$
3,520

$
3,977

$
3,234

$
3,703

$
7,785
Commercial Real Estate - Owner Occupied

9,267

8,924

11,250

6,003

5,684
Commercial Real Estate - Non-owner Occupied

1,992

1,877

1,642

381

381
Multifamily Real Estate

33

33

53

—

—
Commercial & Industrial

1,592

2,708

3,431

1,735

1,585
Residential 1-4 Family - Commercial

5,743

5,784

7,040

4,301

3,879
Residential 1-4 Family - Consumer

12,620

12,029

13,088

9,292

8,292
Residential 1-4 Family - Revolving

3,664

3,626

3,547

2,080

1,641
Auto

517

584

550

563

604
Consumer

75

81

91

77

84
Other Commercial

—

1

96

97

97
Total

$
39,023

$
39,624

$
44,022

$
28,232

$
30,032

~~NPAs at September 30,~~ 2020 also included $4.2 million in foreclosed property, a decrease of $549,000, or 11.7%, from December 31, 2019. The following table shows the activity in foreclosed property for the quarters ended (dollars in thousands):


September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019
Beginning Balance

$
4,397

$
4,444

$
4,708

$
6,385

$
6,506
Additions of foreclosed property

—

—

615

62

645
Valuation adjustments

—

—

(44)

(375)

(62)
Proceeds from sales

(254)

(55)

(854)

(1,442)

(737)
Gains (losses) from sales

16

8

19

78

33
Ending Balance

$
4,159

$
4,397

$
4,444

$
4,708

$
6,385

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


September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019
Land

$
1,238

$
1,245

$
1,251

$
1,615

$
1,842
Land Development

1,965

1,965

1,965

1,978

2,788
Residential Real Estate

793

793

834

721

1,214
Commercial Real Estate

163

394

394

394

541
Total

$
4,159

$
4,397

$
4,444

$
4,708

$
6,385

~~-83-~~

~~Table of Contents~~

~~Past Due Loans~~

At September 30, 2020, total accruing past due loans were $50.9 million, or 0.35% of total loans held for investment, compared to $76.6 million, or 0.61% of total loans held for investment, at December 31, 2019 and $55.1 million, or 0.45% of total loans held for investment, at September 30, 2019. Excluding the impact of the PPP loans⁽¹⁾, past due loans still accruing interest were 0.40% of total loans held for investment at September 30, 2020. Of the total past due loans still accruing interest at September 30, 2020, $15.6 million, or 0.11% of total loans held for investment, were past due 90 days or more, compared to $13.4 million, or 0.11% of total loans held for investment, at December 31, 2019 and $12.0 million, or 0.10% of total loans held for investment, at September 30, 2019.Form 10-K.

Net Charge-offs

For the quarter ended ~~September 30, 2020,~~March 31, 2021, net charge-offs were ~~$1.4~~$1.2 million, or ~~0.04%~~0.03% of total average loans on an annualized basis, compared to ~~$7.7~~$5.0 million, or ~~0.25%~~0.16%, for the same quarter last year. Excluding the impact of the PPP loans⁽¹⁾, net charge-offs were 0.04% of total adjusted average loans on an annualized ~~basis. For the nine months ended September 30, 2020, net~~ ~~charge-offs were $9.7~~ ~~million, or~~ ~~0.09%~~ basis at March 31, 2021 compared to 0.16% of total ~~average loans on annualized basis, compared to $16.2 million, or 0.18%, for the same period in 2019.~~ ~~Excluding the impact of the PPP loans~~⁽¹⁾~~, net charge-offs were 0.11% of total~~adjusted average loans on an annualized ~~basis.~~basis at March 31, 2020. The majority of net charge-offs in ~~2020~~the first quarter of 2021 were related to the third-party consumer loan portfolio.

Provision for Credit Losses

The Company recoded a negative provision for credit losses of $13.6 million for the first quarter ~~ended September 30, 2020~~of 2021, which was ~~$6.6 million,~~ a decline of ~~$2.5~~$73.8 million compared ~~with~~to the provision for credit losses of $60.2 million recorded during the same quarter ~~last year.~~of 2020. The provision for credit losses for the ~~third~~first quarter of ~~2020 included $5.6~~2021 reflected a negative provision of $16.4 million in provision for loan losses and ~~$1.0~~$2.8 million in provision for unfunded commitments. The ~~provision for credit losses for the nine months ended September 30, 2020 was $100.9 million compared to $18.2 million for the nine months ended September 30, 2019.~~ ~~The provision for credit losses for the nine months ended September 30, 2020 included $94.0 million in provision for loan losses and $6.9 million in provision for unfunded commitments~~. ~~The increase~~decrease in the provision for credit losses ~~for the nine months ended September 30, 2020~~as compared to the same ~~period~~quarter in ~~2019~~2020 was ~~due to~~driven by the ~~impact of~~benign credit impacts since the ~~worsening~~pandemic began, the significant recovery in the economy since last year as well as the improvement in the economic forecast ~~due to~~utilized in estimating the ~~impact~~ACL as of ~~COVID-19 under CECL accounting for credit losses.~~March 31, 2021.

Allowance for Credit Losses

At ~~September 30, 2020,~~March 31, 2021, the ACL was ~~$186.1~~$155.7 million and included an ALLL of ~~$174.1~~$142.9 million and an RUC of ~~$12.0~~$12.8 million. The ACL ~~increased $142.9~~decreased $14.8 million from December 31, ~~2019,~~2020, primarily due to lower expected losses than previously estimated as a result of benign credit quality metrics to date and an improved economic outlook due to the ~~adoption~~roll-out of ~~CECL (the “CECL Day 1 impact”)~~COVID-19 vaccines, as well as ~~the impact~~additional government stimulus inclusive of ~~the worsening economic forecast related to COVID-19 subsequent to the adoption of CECL (the “CECL Day 2 impact”).~~

The ALLL increased $131.8 million from December 31, 2019, due to the CECL Day 1 impact of $47.5 million and the CECL Day 2 impact of $84.3 million. The ALLL as a percentage of the total loan portfolio was 1.21% at September 30, 2020 and 0.34% at December 31, 2019. When excludingmore PPP ~~loans~~⁽¹⁾, which are 100% guaranteed by the SBA, the ALLL as a percentage of adjusted loans increased 102 bps to 1.36% from December 31, 2019. The ratio of the ALLL to nonaccrual loans was 446.20% at September 30, 2020 and 149.81% at December 31, 2019.

~~The ACL as a percentage of the total loan portfolio was 1.29% at September 30, 2020 and 0.34% at December 31, 2019. The ACL as a percentage of adjusted loans~~⁽¹⁾ ~~increased 112 bps to 1.46% from December 31, 2019.~~

~~The RUC increased $11.1 million from December 31, 2019, due to the CECL Day 1 impact of $4.2 million and the CECL Day 2 impact of $6.9 million.~~

funding.

~~-84-~~-70-

Table of Contents

The ALLL decreased $17.6 million from December 31, 2020. The ALLL as a percentage of the total loan portfolio was 1.00% at March 31, 2021 and 1.14% at December 31, 2020. When excluding PPP loans⁽¹⁾, which are 100% guaranteed by the SBA, the ALLL as a percentage of total adjusted loans decreased 13 bps to 1.12% from December 31, 2020. The ratio of the ALLL to nonaccrual loans was 341.4% at March 31, 2021 and 378.2% at December 31, 2020.

The ACL as a percentage of the total loan portfolio was 1.09% at March 31, 2021 and 1.22% at December 31, 2020. The ACL as a percentage of total adjusted loans⁽¹⁾ decreased 11 bps to 1.22% from December 31, 2020.

The RUC increased $2.8 million from December 31, 2020, primarily due to increased funding assumptions on construction projects in the first quarter of 2021, attributable to less uncertainty related to COVID-19.

The following table summarizes activity in the ALLL during the quarters ended (dollars in thousands):

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Balance, beginning of period

$
169,977

$
141,043

$
42,294

$
43,820

$
42,463

Day 1 impact from adoption of CECL

—

—

47,484

—

—

Loans charged-off:











Commercial

995

1,590

2,968

2,092

4,184

Consumer

1,983

3,087

4,183

4,826

5,133

Total loans charged-off

2,978

4,677

7,151

6,918

9,317

Recoveries:











Commercial

718

708

1,154

1,096

611

Consumer

848

703

1,006

1,196

963

Total recoveries

1,566

1,411

2,160

2,292

1,574

Net charge-offs

1,412

3,266

4,991

4,626

7,743

Provision for loan losses

5,557

32,200

56,256

3,100

9,100

Balance, end of period

$
174,122

$
169,977

$
141,043

$
42,294

$
43,820

Total ACL

$
186,122

$
180,977

$
150,043

$
43,194

$
44,920

ACL to loans

1.29
%

1.26
%

1.18
%

0.34
%

0.36
%
ACL to adjusted loans⁽¹⁾

1.46
%

1.42
%

1.18
%

0.34
%

0.36
%
ALLL to loans

1.21
%

1.19
%

1.10
%

0.34
%

0.36
%
ALLL to adjusted loans⁽¹⁾

1.36
%

1.34
%

1.10
%

0.34
%

0.36
%
Net charge-offs to average loans

0.04
%

0.09
%

0.16
%

0.15
%

0.25
%
Net charge-offs to adjusted average loans⁽¹⁾

0.04
%

0.10
%

0.16
%

0.15
%

0.25
%
Provision for loan losses to average loans

0.15
%

0.93
%

1.80
%

0.10
%

0.29
%
Provision for loan losses to adjusted average loans⁽¹⁾

0.17
%

1.02
%

1.80
%

0.10
%

0.29
%

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

September 30,

June 30,

March 31,

December 31,

September 30,


March 31,

December 31,

September 30,

June 30,

March 31,

2020

2020

2020

2019

2019

2021

2020

2020

2020

2020


$

% ⁽²⁾

$

% ⁽²⁾

$

% ⁽²⁾

$

% ⁽²⁾

$

% ⁽²⁾

ALLL Balance, beginning of period

$
160,540

$
174,122

$
169,977

$
141,043

$
42,294

Day 1 impact from adoption of CECL

—

—

—

—

47,484

Loans charged-off:











Commercial

$
126,655

85.3
%
$
111,954

84.8
%
$
77,843

82.6
%
$
30,941

81.9
%
$
31,936

81.4
%

1,974

1,118

995

1,590

2,968

Consumer

47,467

14.7
%

58,023

15.2
%

63,200

17.4
%

11,353

18.1
%

11,884

18.6
%

1,667

2,268

1,983

3,087

4,183

Total

$
174,122

100.0
%
$
169,977

100.0
%
$
141,043

100.0
%
$
42,294

100.0
%
$
43,820

100.0
%
Total loans charged-off

3,641

3,386

2,978

4,677

7,151

Recoveries:











Commercial

1,606

937

718

708

1,154

Consumer

863

680

848

703

1,006

Total recoveries

2,469

1,617

1,566

1,411

2,160

Net charge-offs

1,172

1,769

1,412

3,266

4,991

Provision for loan losses

(16,457)

(11,813)

5,557

32,200

56,256

ALLL Balance, end of period

$
142,911

$
160,540

$
174,122

$
169,977

$
141,043

Total RUC

$
12,833

$
10,000

$
12,000

$
11,000

$
9,000

Total ACL

$
155,744

$
170,540

$
186,122

$
180,977

$
150,043

ALLL to loans

1.00
%

1.14
%

1.21
%

1.19
%

1.10
%
ALLL to adjusted loans⁽¹⁾

1.12
%

1.25
%

1.36
%

1.34
%

1.10
%
ACL to loans

1.09
%

1.22
%

1.29
%

1.26
%

1.18
%
ACL to adjusted loans⁽¹⁾

1.22
%

1.33
%

1.46
%

1.42
%

1.18
%
Net charge-offs to average loans

0.03
%

0.05
%

0.04
%

0.09
%

0.16
%
Net charge-offs to adjusted average loans⁽¹⁾

0.04
%

0.06
%

0.04
%

0.10
%

0.16
%
Provision for loan losses to average loans

(0.47)
%

(0.33)
%

0.15
%

0.93
%

1.80
%
Provision for loan losses to adjusted average loans⁽¹⁾

(0.52)
%

(0.37)
%

0.17
%

1.02
%

1.80
%
(1) Refer to the “Non-GAAP Financial Measures” section within this Item 2 for more information about these non-GAAP financial measures, including a reconciliation of these measures to the most directly comparable financial measures in accordance with GAAP.

-71-

Table of Contents

The following table shows the ALLL by loan segment and the percentage of the loan portfolio that the related ALLL covers as of the quarters ended (dollars in thousands):

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020


$

% ⁽¹⁾

$

% ⁽¹⁾

$

% ⁽¹⁾

$

% ⁽¹⁾

$

% ⁽¹⁾

Commercial

$
106,432

85.9
%
$
117,403

85.3
%
$
126,655

85.3
%
$
111,954

84.8
%
$
77,843

82.6
%
Consumer

36,479

14.1
%

43,137

14.7
%

47,467

14.7
%

58,023

15.2
%

63,200

17.4
%
Total

$
142,911

100.0
%
$
160,540

100.0
%
$
174,122

100.0
%
$
169,977

100.0
%
$
141,043

100.0
%
~~(2)~~(1) Represents the loan balance divided by total loans held for ~~investment.~~investment.

~~-85-~~

~~Table of Contents~~

Deposits

As of ~~September 30, 2020,~~March 31, 2021, total deposits were ~~$15.6~~$16.3 billion, an increase of ~~$2.3 billion,~~$575.3 million, or ~~22.8%~~14.8% annualized, from December 31, ~~2019.~~2020. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of ~~$2.6~~$2.4 billion accounted for ~~23.0%~~21.2% of total interest-bearing deposits at ~~September 30,~~March 31, 2021, compared to $2.6 billion and 22.7% at December 31, 2020.

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


	September 30, 2020				December 31, 2019				March 31, 2021				December 31, 2020
			% of total				% of total				% of total				% of total
Deposits:	Amount		deposits		Amount		deposits		Amount		deposits		Amount		deposits
Non-interest bearing	$	4,420,665	28.4	%	$	2,970,139	22.3	%	$	5,066,399	31.1	%	$	4,368,703	27.8	%
NOW accounts		3,460,480	22.2	%		2,905,714	21.8	%		3,612,135	22.2	%		3,621,181	23.0	%
Money market accounts		4,269,696	27.4	%		3,951,856	29.7	%		4,244,092	26.0	%		4,248,335	27.0	%
Savings accounts		861,685	5.5	%		727,847	5.5	%		991,418	6.1	%		904,095	5.8	%
Time deposits of $100,000 and over⁽¹⁾		1,474,171	9.5	%		1,618,637	12.2	%		1,391,517	8.5	%		1,532,082	9.7	%
Other time deposits		1,089,401	7.0	%		1,130,788	8.5	%		992,456	6.1	%		1,048,369	6.7	%
Total Deposits	$	15,576,098	100.0	%	$	13,304,981	100.0	%	$	16,298,017	100.0	%	$	15,722,765	100.0	%

(1)	Includes time deposits of $250,000 and over of ~~$633.3~~$619.0 million and ~~$684.8~~$654.2 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there were ~~$86.4~~$9.9 million and ~~$190.7~~$145.9 million, respectively, purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance Sheets.

Maturities of time deposits of $100,000 or more as of ~~September 30, 2020~~March 31, 2021 were as follows (dollars in thousands):


	Amount		Amount
Within 3 Months	$	273,681	$	361,731
3 - 6 Months		230,818		235,636
6 - 12 Months		530,793		416,597
Over 12 Months		438,879		377,553
Total	$	1,474,171	$	1,391,517

~~-86-~~-72-

Table of Contents

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 shareholders.

On October 29, 2020 the Company announced that its Board of Directors declared a quarterly dividend of $0.25 per share of common stock. The common stock dividend is payable on November 27, 2020 to common shareholders on record as of November 13, 2020. The Board also declared a quarterly dividend on the outstanding shares of its Series A preferred stock. The Series A preferred stock is represented by depositary shares, each representing a 1/400^th ownership interest in a share of Series A preferred stock. The dividend of $171.88 per share (equivalent to $0.43 per outstanding depositary share) is payable on December 1, 2020 to preferred shareholders of record as of November 16, 2020.

The Federal Reserve requires the Company and the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 7.0% of risk-weighted assets; (ii) a Tier 1 capital ratio of 8.5% of risk-weighted assets; (iii) a total capital ratio of 10.5% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. These ratios, with the exception of the leverage ratio, include a 2.5% capital conservation buffer, which 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.

On July 10, 2019, the Company announced that its Board of Directors has authorized a share repurchase program to purchase up to $150.0 million of the Company’s common stock through June 30, 2021 in open market transactions or privately negotiated transactions. On March 20, 2020, the Company suspended its share repurchase program, which had approximately $20 million remaining in authorization at the time. The Company repurchased an aggregate of approximately 3.7 million shares, at an average price of $35.48 per share, under the authorization prior to suspension. On May 4, 2021, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $125 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. This new share repurchase program expires on June 30, 2022 and replaces the prior repurchase program that was due to expire on June 30, 2021.

On March 27, 2020, the banking agencies issued an interim final rule that allows the Company to phase in the impact of adopting the CECL methodology up to two years, with a three-year transition period to phase out the cumulative benefit to regulatory capital provided during the two-year delay. The Company is allowed to include the impact of the CECL transition, which is defined as the CECL Day 1 impact to capital plus 25% of the Company’s provision for credit losses during 2020, in regulatory capital through 2021. The Company elected to phase-in the regulatory capital impact as permitted under the aforementioned interim final rule. Beginning in 2022, the transition amount will begin to impact regulatory capital by phasing it in over a three-year period ending in 2024.

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Table of Contents

The table summarizes the Company’s capital and related ratios for the periods presented ⁽³⁾(dollars in thousands):

September 30,
December 31,
September 30,

2020
2019
2019
Common equity Tier 1 capital
$ 1,470,639
$ 1,437,908
$ 1,441,259
Tier 1 capital
1,636,995
1,437,908
1,441,259
Tier 2 capital
401,456
335,927
337,436
Total risk-based capital
2,038,451
1,773,835
1,778,695
Risk-weighted assets
14,644,960
14,042,949
13,751,401
Capital ratios:

Common equity Tier 1 capital ratio
10.04%
10.24%
10.48%
Tier 1 capital ratio
11.18%
10.24%
10.48%
Total capital ratio
13.92%
12.63%
12.93%
Leverage ratio (Tier 1 capital to average assets)
8.82%
8.79%
8.94%
Capital conservation buffer ratio ⁽¹⁾
5.18%
4.24%
4.48%
Common equity to total assets
12.52%
14.31%
14.48%
Tangible common equity to tangible assets ⁽²⁾
7.91%
9.08%
9.23%

March 31,
December 31,
March 31,

2021
2020
2020
Common equity Tier 1 capital
$ 1,547,675
$ 1,512,507
$ 1,394,240
Tier 1 capital
1,714,031
1,678,863
1,394,240
Tier 2 capital
374,101
384,494
376,315
Total risk-based capital
2,088,132
2,063,356
1,770,555
Risk-weighted assets
14,651,486
14,739,253
14,316,058
Capital ratios:

Common equity Tier 1 capital ratio
10.56%
10.26%
9.74%
Tier 1 capital ratio
11.70%
11.39%
9.74%
Total capital ratio
14.25%
14.00%
12.37%
Leverage ratio (Tier 1 capital to average assets)
9.18%
8.95%
8.44%
Capital conservation buffer ratio ⁽¹⁾
5.70%
5.39%
3.74%
Common equity to total assets
12.81%
12.95%
13.59%
Tangible common equity to tangible assets ⁽²⁾
8.24%
8.31%
8.43%
(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 Financial Measures” section within this Item 2 for more information about this non-GAAP financial measure, including a reconciliation of this measure to the most directly comparable financial measure calculated in accordance with GAAP.
(3) All ratios and amounts at ~~September 30, 2020~~March 31, 2021 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

~~SUPERVISION AND REGULATION~~

The following information is intended to update, and should be read in conjunction with, the information contained under the caption “Supervision and Regulation” in the Company’s 2019 Form 10-K and the supplemental disclosure related thereto contained under the same caption in the Company’s first quarter Form 10-Q filed on May 8, 2020 and the Company’s second quarter Form 10-Q filed on August 4, 2020.
~~The CARES Act~~
On March 27, 2020, the CARES Act was passed by Congress and signed into law by the President. The CARES Act provided approximately $2.2 trillion in direct economic relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs are, and remain, dependent upon the direct involvement of U.S. financial institutions like the Company and the Bank. These programs have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve, and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including new bills comparable in scope to the CARES Act, prior to the end of 2020.

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~~Table of Contents~~

Set forth below is a brief overview of select provisions of the CARES Act and other regulations and supervisory guidance related to the COVID-19 pandemic that are applicable to the operations and activities of the Company and its subsidiaries, including the Bank. The following description is qualified in its entirety by reference to the full text of the CARES Act and the statutes, regulations, and policies described herein. Future legislation and/or amendments to the provisions of the CARES Act or changes to any of the statutes, regulations, or regulatory policies applicable to the Company and its subsidiaries could have a material effect on the Company. Such legislation and related regulations and supervisory guidance will be implemented over time and will remain subject to review by Congress and the implementing regulations issued by federal regulatory authorities. The Company continues to assess the impact of the CARES Act, the potential impact of new COVID-19 legislation, and other statutes, regulations, and supervisory guidance related to the COVID-19 pandemic.

~~Paycheck Protection Program~~. A principal provision of the CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations, and self-employed persons during COVID-19. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act into law, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of the COVID-19 pandemic, the President signed additional legislation authorizing the SBA to resume accepting PPP applications on July 6, 2020 and extending the PPP application deadline to August 8, 2020. It is anticipated that additional revisions to the SBA’s interim final rules on forgiveness and loan review procedures will be forthcoming to address these and related changes. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

~~Troubled Debt Restructuring and Loan Modifications for Affected Borrowers~~. The CARES Act permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so. The Company is applying this guidance to qualifying loan modifications.

~~Regulatory Capital Rule for Revised Transition of the Current Expected Credit Losses Methodology~~. The federal banking agencies have issued a final rule that allows institutions that adopt the current expected credit losses or "CECL" accounting standard in 2020 to mitigate the estimated effects of the CECL methodology on regulatory capital for two years. The CECL final rule is substantially similar to the interim final rule issued in March 2020 in connection with other CARES Act related regulatory relief. The final rule gives eligible institutions the option to mitigate the estimated capital effects of the CECL methodology for two years, followed by a three-year transition period. Taken together, these measures offer a transition period of up to five years. In a change from the interim rule, the final rule expands the pool of eligible institutions to include any institution adopting the CECL methodology in 2020. The Company elected the relief provided under the final rule.

~~Federal Reserve Programs and Other Recent Initiatives~~

~~Main Street Lending Program~~. The CARES Act encouraged the Federal Reserve, in coordination with the Secretary of the Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020, the Federal Reserve proposed the creation of the MSLP to implement certain of these recommendations. On June 15, 2020, the Federal Reserve Bank of Boston opened the MSLP for lender registration. The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. The MSLP operates through five facilities: the Main Street New Loan Facility (“MSNLF”), the Main Street Priority Loan Facility (“MSPLF”), the Main Street Expanded Loan Facility (“MSELF”), the Nonprofit Organization New Loan Facility (“NONLF”), and the Nonprofit Organization Expanded Loan Facility (“NOELF”). The Federal Reserve Bank of Boston maintains the necessary legal forms and agreements for eligible borrowers and eligible lenders to participate in the MSNLF, MSELF, MSPLF, NONLF, and NOELF, and is working to refine the MSLP’s operational infrastructure and facilities. The Bank has not registered as a lender under the MSLP, ~~butcontinues to monitor developments related thereto.~~

~~Supervisory Developments~~.

On June 23, 2020, the federal banking agencies released guidance to promote consistency in the supervision and examination of financial institutions affected by the COVID-19 pandemic. The federal banking agencies – including the Federal Reserve – will continue to assess institutions in accordance with existing policies and procedures. However, in

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conducting their supervisory assessment, federal bank examiners will consider whether institution management has managed risk appropriately, including taking appropriate actions in response to stress caused by COVID-19-related impacts. The interagency guidance instructs examiners to consider the unique, evolving, and potential long-term nature of the issues confronting institutions and to exercise appropriate flexibility in their supervisory response

In addition, on June 25, 2020, the Federal Reserve announced that it would take several actions to ensure large banks, remain resilient despite the ongoing economic impact of COVID-19. Specifically, in the third quarter, the Federal Reserve required large banks to preserve capital by suspending share repurchases, capping dividend payments, and allowing dividends according to a formula based on recent income. On October 6, 2020 the Federal Reserve extended these measures through the end of 2020. The Company and the Bank continue to monitor the Federal Reserve’s evolving supervisory and regulatory responses to the COVID-19 pandemic.

~~Modification of the Volcker Rule~~. Also on June 25, 2020, the Federal Reserve – along with the Commodity Futures Trading Commission, FDIC, the Office of the Comptroller of the Currency, and the SEC – issued a final rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds (“covered funds”). The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring or having certain relationships with a hedge fund or private equity fund. The final rule modifies three areas of the Volcker Rule by: (1) streamlining the covered funds portion of the rule; (2) addressing the extraterritorial treatment of certain foreign funds; and (3) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The new rule became effective October 1, 2020 but did not have a material impact on the Company or the Bank.

NON-GAAP FINANCIAL MEASURES
In ~~reporting the results of the three and nine months ended September 30, 2020 and 2019,~~this Form 10-Q, the Company has provided supplemental performance measures on a tax-equivalent, tangible, operating, adjusted and/or pre-tax pre-provision basis. These ~~non-GAAP financial~~ 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. The Company uses the non-GAAP measures discussed herein in its analysis of the Company’s performance.
Net interest income (FTE), total revenue (FTE) and total adjusted revenue (FTE), which are used in computing net interest margin (FTE) and adjusted operating efficiency ratio (FTE), respectively, provide valuable additional insight into the net interest margin and the efficiency ratio by adjusting for differences in the tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing the yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.

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Table of Contents

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2020			2019			2020			2019			2021			2020
Interest Income (FTE)
Interest and dividend income (GAAP)	$	157,414		$	178,345		$	491,607		$	525,122		$	147,673		$	171,325
FTE adjustment		2,901			2,804			8,462			8,468			3,053			2,758
Interest and dividend income FTE (non-GAAP)	$	160,315		$	181,149		$	500,069		$	533,590		$	150,726		$	174,083
Average earning assets	$	17,748,152		$	15,191,792		$	16,809,423		$	14,700,019		$	17,692,095		$	15,563,670
Yield on interest-earning assets (GAAP)		3.53	%		4.66	%		3.91	%		4.78	%		3.39	%		4.43	%
Yield on interest-earning assets (FTE) (non-GAAP)		3.59	%		4.73	%		3.97	%		4.85	%		3.46	%		4.50	%
Net Interest Income (FTE)
Net Interest Income (GAAP)	$	137,381		$	136,601		$	409,694		$	402,743
Net interest income (GAAP)													$	134,898		$	135,008
FTE adjustment		2,901			2,804			8,462			8,468			3,053			2,758
Net Interest Income FTE (non-GAAP)		140,282			139,405			418,156			411,211
Net interest income FTE (non-GAAP)													$	137,951		$	137,766
Noninterest income (GAAP)		34,407			48,106			99,245			103,621			30,985			28,907
Total Revenue (FTE) (non-GAAP)	$	174,689		$	187,511		$	517,401		$	514,832
Total revenue (FTE) (non-GAAP)													$	168,936		$	166,673
Average earning assets	$	17,748,152		$	15,191,792		$	16,809,423		$	14,700,019		$	17,692,095		$	15,563,670
Net interest margin (GAAP)		3.08	%		3.57	%		3.26	%		3.66	%		3.09	%		3.49	%
Net interest margin (FTE) (non-GAAP)		3.14	%		3.64	%		3.32	%		3.74	%		3.16	%		3.56	%

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. The Company believes tangible common equity and related 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. The Company believes that ROTCE is a meaningful supplement to GAAP financial measures and is useful to investors because it measures the performance of a business consistently across time without regard to whether components of the business were acquired or developed internally.

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~~Table of Contents~~

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,			December 31,			March 31,
	2020			2019			2020			2019			2021			2020			2020
Tangible Assets
Ending Assets (GAAP)	$	19,930,650		$	17,441,035		$	19,930,650		$	17,441,035		$	19,854,612		$	19,628,449		$	17,847,376
Less: Ending goodwill		935,560			929,815			935,560			929,815			935,560			935,560			935,560
Less: Ending amortizable intangibles		61,068			78,241			61,068			78,241			53,471			57,185			69,298
Ending tangible assets (non-GAAP)	$	18,934,022		$	16,432,979		$	18,934,022		$	16,432,979		$	18,865,581		$	18,635,704		$	16,842,518
Tangible Common Equity
Ending Equity (GAAP)	$	2,660,885		$	2,525,031		$	2,660,885		$	2,525,031		$	2,709,732		$	2,708,490		$	2,425,450
Less: Ending goodwill		935,560			929,815			935,560			929,815			935,560			935,560			935,560
Less: Ending amortizable intangibles		61,068			78,241			61,068			78,241			53,471			57,185			69,298
Less: Perpetual preferred stock		166,357			—			166,357			—			166,357			166,357			—
Ending tangible common equity (non-GAAP)	$	1,497,900		$	1,516,975		$	1,497,900		$	1,516,975		$	1,554,344		$	1,549,388		$	1,420,592
Average equity (GAAP)	$	2,648,777		$	2,528,435		$	2,541,856		$	2,429,912		$	2,719,941		$	2,679,170		$	2,485,646
Less: Average goodwill		935,560			930,525			935,560			906,476			935,560			935,560			935,560
Less: Average amortizable intangibles		63,016			80,510			67,130			80,605			55,450			59,031			71,283
Less: Average perpetual preferred stock		166,353			—			69,248			—			166,356			166,356			—
Average tangible common equity (non-GAAP)	$	1,483,848		$	1,517,400		$	1,469,918		$	1,442,831		$	1,562,575		$	1,518,223		$	1,478,803
ROE (GAAP)		9.16	%		8.35	%		5.19	%		7.58	%
Common equity to assets (GAAP)		12.52	%		14.48	%		12.52	%		14.48	%
Tangible common equity to tangible assets (non-GAAP)		7.91	%		9.23	%		7.91	%		9.23	%		8.24	%		8.31	%		8.43	%
Book value per share (GAAP)	$	31.86		$	31.29		$	31.86		$	31.29
Tangible book value per share (non-GAAP)	$	19.13		$	18.80		$	19.13		$	18.80

Three Months Ended

March 31,

2021

2020

ROTCE

Net income available to common shareholders (GAAP)

$
53,222

$
7,089

Plus: Amortization of intangibles, tax effected

2,947

3,477

Net income available to common shareholders before amortization of intangibles (non-GAAP)

$
56,169

$
10,566

Return on average tangible common equity (ROTCE)

14.58
%

2.87
%
ROE (GAAP)

8.38
%

1.15
%
Common equity to assets (GAAP)

12.81
%

13.59
%
Book value per share (GAAP)

$
32.37

$
30.99

Tangible book value per share (non-GAAP)

$
19.78

$
18.15

~~Operating~~

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Table of Contents

Adjusted operating measures exclude ~~merger-related~~the gains or losses related to balance sheet repositioning (principally composed of gains and ~~rebranding-related costs unrelated to the Company’s normal operations.~~losses on debt extinguishment) and gains or losses on sale of securities. The Company believes these measures are useful to investors as they exclude certain costs resulting from acquisition activity as well as the impact of the Tax Act and allow investors to more clearly see the combined economic results of the organization's operations.

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019


2020

2019

Operating Measures

Net income (GAAP)

$
61,000

$
53,238

$
98,798

$
137,692

Merger and rebranding-related costs, net of tax

—

2,819

—

25,973

Net operating earnings (non-GAAP)

$
61,000

$
56,057

$
98,798

$
163,665

Less: Dividends on preferred stock

2,691

—

2,691

—

Net operating earnings available to common shareholders (non-GAAP)

$
58,309

$
56,057

$
96,107

$
163,665

Weighted average common shares outstanding, diluted

78,725,346

81,832,868

78,921,108

80,183,113

Earnings per common share, diluted (GAAP)

$
0.74

$
0.65

$
1.22

$
1.72

Operating earnings per share, diluted (non-GAAP)

$
0.74

$
0.69

$
1.22

$
2.04

Average assets (GAAP)

$
19,785,167

$
17,203,328

$
18,837,580

$
16,639,041

ROA (GAAP)

1.23
%

1.23
%

0.70
%

1.11
%
Operating ROA (non-GAAP)

1.23
%

1.29
%

0.70
%

1.32
%

Average common equity (GAAP)

$
2,648,777

$
2,528,435

$
2,541,856

$
2,429,912

ROE (GAAP)

9.16
%

8.35
%

5.19
%

7.58
%
Operating ROE (non-GAAP)

9.16
%

8.80
%

5.19
%

9.01
%

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~~Table of Contents~~

Three Months Ended

March 31,


2021

2020

Adjusted Operating Earnings & EPS

Net income (GAAP)

$
56,189

$
7,089

Plus: Net loss related to balance sheet repositioning, net of tax

11,609

1,398

Less: Gain on sale of securities, net of tax

62

1,529

Adjusted operating earnings (non-GAAP)

$
67,736

$
6,958

Less: Dividends on preferred stock

2,967

—

Adjusted operating earnings available to common shareholders (non-GAAP)

$
64,769

$
6,958

Weighted average common shares outstanding, diluted

78,884,235

79,317,382

Earnings per common share, diluted (GAAP)

$
0.67

$
0.09

Adjusted operating earnings per common share, diluted (non-GAAP)

$
0.82

$
0.09

Average assets (GAAP)

$
19,686,854

$
17,559,921

ROA (GAAP)

1.16
%

0.16
%
Adjusted operating ROA (non-GAAP)

1.40
%

0.16
%

Average common equity (GAAP)

$
2,719,941

$
2,485,646

ROE (GAAP)

8.38
%

1.15
%
Adjusted operating ROE (non-GAAP)

10.10
%

1.13
%

The adjusted operating efficiency ratio (FTE) excludes the amortization of intangible assets and ~~merger-related costs.~~gains or losses related to balance sheet repositioning (principally composed of gains and losses on debt extinguishment). This measure is similar to the measure utilized by the Company when analyzing corporate performance and is also similar to the measure utilized for incentive compensation. The Company believes this adjusted measure ~~is useful to~~provides investors ~~as it excludes certain costs resulting from acquisition activity allowing for greater comparability~~ with ~~others in the industry and allowing investors to more clearly see~~important information about the combined economic results of the organization’s operations. In prior periods, the Company has not excluded the amortization of intangibles from noninterest expense when calculating the operating efficiency ratio (FTE). The Company has adjusted its presentation for all periods in this release to exclude the amortization of intangibles from noninterest expense.
The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,


2020

2019


2020

2019


2021

2020

Adjusted Operating Noninterest Expense & Efficiency Ratio

Noninterest expense (GAAP)

$
93,222

$
111,687

$
291,681

$
324,022

$
111,937

$
95,645

Less: Merger-related costs

—

2,435

—

26,928

Less: Rebranding-related costs

—

1,133

—

5,553

Less: Amortization of intangible assets

4,053

4,764

12,676

13,919

3,730

4,401

Operating noninterest expense (non-GAAP)

$
89,169

$
103,355

$
279,005

$
277,622

Net interest income (GAAP)

$
137,381

$
136,601

$
409,694

$
402,743

Less: Losses related to balance sheet repositioning

14,695

—

Adjusted operating noninterest expense (non-GAAP)

$
93,512

$
91,244

Noninterest income (GAAP)

$
30,985

$
28,907

Less: Gains (losses) related to balance sheet repositioning

—

(1,769)

Less: Gains on sale of securities

78

1,936

Adjusted operating noninterest income (non-GAAP)

$
30,907

$
28,740

Net interest income (FTE) (non-GAAP)

$
140,282

$
139,405

$
418,156

$
411,211

$
137,951

$
137,766

Noninterest income (GAAP)

$
34,407

$
48,106

$
99,245

$
103,621

Adjusted operating noninterest income (non-GAAP)

30,907

28,740

Total adjusted revenue (FTE)(non-GAAP)

$
168,858

$
166,506

Efficiency ratio (GAAP)

54.27
%

60.47
%

57.31
%

63.99
%

67.48
%

58.35
%
Operating efficiency ratio (FTE) (non-GAAP)

51.04
%

55.12
%

53.92
%

53.92
%
Adjusted operating efficiency ratio (FTE) (non-GAAP)

55.38
%

54.80
%

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Table of Contents

The Company believes that operating ROTCE is a meaningful supplement to GAAP financial measures and useful to investors because it measures the performance of a business consistently across time without regard to whether components of the business were acquired or developed internally.

The following table reconciles non-GAAP financial measures from the most directly comparable GAAP financial measures for each of the periods presented (dollars in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2020			2019			2020			2019			2021			2020
Operating ROTCE
Net operating earnings available to common shareholders (non-GAAP)	$	58,309		$	56,057		$	96,107		$	163,665
Adjusted Operating ROTCE
Adjusted operating earnings available to common shareholders (non-GAAP)													$	64,769		$	6,958
Plus: Amortization of intangibles, tax effected		3,202			3,764			10,014			10,996			2,947			3,477
Net operating earnings available to common shareholders before amortization of intangibles (non-GAAP)	$	61,511		$	59,821		$	106,121		$	174,661
Adjusted operating earnings available to common shareholders before amortization of intangibles (non-GAAP)													$	67,716		$	10,435

Average tangible common equity (non-GAAP)	$	1,483,848		$	1,517,400		$	1,469,918		$	1,442,831		$	1,562,575		$	1,478,803
Operating return on average tangible common equity (non-GAAP)		16.49	%		15.64	%		9.64	%		16.18	%
Adjusted operating ROTCE (non-GAAP)														17.58	%		2.84	%

Pre-tax pre-provision adjusted operating earnings exclude the provision for credit losses, which can fluctuate significantly from period-to-period under the recently adopted CECL methodology, ~~merger and rebranding-related costs unrelated to the Company’s normal operations, and~~ income tax ~~expense.~~expense, gains or losses related to balance sheet repositioning (principally composed of gains and losses on debt extinguishment), and gains or losses on sale of securities. The Company believes this adjusted measure ~~is useful to~~provides investors ~~as it excludes certain costs resulting from acquisition activity as well as the potentially volatile provision measure, allowing for greater comparability~~ with ~~others in the industry and allowing investors to more clearly see~~important information about the combined economic results of the organization’s operations.

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~~Table of Contents~~

PPP adjustment impact excludes the SBA guaranteed PPP loans funded during the first ~~nine~~three months of ~~2020.~~2021. The Company believes loans held for investment (net of deferred fees and costs), excluding PPP is useful to investors as it provides more clarity on the Company’s organic growth. The Company also believes that the related non-GAAP financial measures of past due loans still accruing interest as a percentage of total loans held for investment (net of deferred fees and costs), provision for credit losses as a percentage of average loans held for investment, and net charge-offs as a percentage of average loans held for investment (net of deferred fees and costs), in each case excluding impacts from the PPP, are useful to investors as loans originated under the PPP carry an SBA guarantee. The Company believes that the ALLL and the ACL, each as a percentage of loans held for investment (net of deferred fees and costs), and each excluding impacts from the PPP, isare useful to investors because of the size of the Company’s PPP loan originations and the impact of the embedded credit enhancement provided by the SBA guarantee.

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	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2020		2019		2020		2019		2021		2020
Pre-tax pre-provision operating earnings
Pre-tax pre-provision adjusted operating earnings
Net Income (GAAP)	$	61,000	$	53,238	$	98,798	$	137,692	$	56,189	$	7,089
Plus: Provision for credit losses		6,558		9,100		100,954		18,192		(13,624)		60,196
Plus: Income tax expenses		11,008		10,724		17,506		26,330		11,381		985
Plus: Merger and rebranding-related costs		—		3,568		—		32,481
Pre-tax pre-provision operating earnings (non-GAAP)	$	78,566	$	76,630	$	217,258	$	214,695

Plus: Net loss related to balance sheet repositioning										14,695		1,769
Less: Gain on sale of securities										78		1,936
Pre-tax pre-provision adjusted operating earnings (non-GAAP)									$	68,563	$	68,103
Less: Dividends on preferred stock										2,967		—
Pre-tax pre-provision operating earnings available to common shareholders (non-GAAP)									$	65,596	$	68,103
Weighted average common shares outstanding, diluted										78,884,235		79,317,382
Pre-tax pre-provision operating earnings per share available to common shareholders, diluted (non-GAAP)									$	0.87	$	0.86

Three Months Ended

Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

2020

2020

2020

2019

2019

2020

2019
PPP adjustment impact

Loans held for investment (net of deferred fees and costs)(GAAP)

$
14,383,215

$
14,308,646

$
12,768,841

$
12,610,936

$
12,306,997

$
14,383,215

$
12,306,997
Less: PPP adjustments

1,600,577

1,598,718

—

—

—

1,600,577

—
Loans held for investment (net of deferred fees and costs),net adjustments, excluding PPP (non-GAAP)

$
12,782,638

$
12,709,928

$
12,768,841

$
12,610,936

$
12,306,997

$
12,782,638

$
12,306,997

Average loans held for investment (GAAP)

$
14,358,666

$
13,957,711

$
12,593,923

$
12,327,692

$
12,240,254

$
13,639,401

$
11,821,612
Less: Average PPP adjustments

1,638,204

1,273,883

—

—

—

1,457,091

—
Average loans held for investment, net adjustments, excluding PPP (non-GAAP)

$
12,720,462

$
12,683,828

$
12,593,923

$
12,327,692

$
12,240,254

$
12,182,310

$
11,821,612

Three Months Ended

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

PPP adjustment impact

Loans held for investment (net of deferred fees and costs)(GAAP)

$
14,272,280

$
14,021,314

$
14,383,215

$
14,308,646

$
12,768,841

Less: PPP adjustments

1,512,714

1,179,522

1,600,577

1,598,718

—

Loans held for investment (net of deferred fees and costs),net adjustments, excluding PPP (non-GAAP)

$
12,759,566

$
12,841,792

$
12,782,638

$
12,709,928

$
12,768,841

Average loans held for investment (GAAP)

$
14,064,123

$
14,188,661

$
14,358,666

$
13,957,711

$
12,593,923

Less: Average PPP adjustments

1,309,326

1,445,602

1,638,204

1,273,883

—

Average loans held for investment, net adjustments, excluding PPP (non-GAAP)

$
12,754,797

$
12,743,059

$
12,720,462

$
12,683,828

$
12,593,923

Asset Quality

Provision for loan losses

$
(16,457)

$
(11,813)

$
5,557

$
32,200

$
56,256

Net charge-offs

$
1,172

$
1,769

$
1,412

$
3,266

$
4,991

Allowance for loan and lease losses

$
142,911

$
160,540

$
174,122

$
169,977

$
141,043

Allowance for credit losses

$
155,744

$
170,540

$
186,122

$
180,977

$
150,043

Total NPAs

$
44,210

$
45,221

$
43,182

$
44,021

$
48,466

Past due loans still accruing interest

$
9,776

$
13,634

$
15,661

$
19,255

$
12,876

ALLL/total outstanding loans

1.00
%

1.14
%

1.21
%

1.19
%

1.10
%
ALLL/total adjusted loans

1.12
%

1.25
%

1.36
%

1.34
%

1.10
%
ACL/total outstanding loans


1.09
%

1.22
%

1.29
%

1.26
%

1.18
%
ACL/total adjusted loans

1.22
%

1.33
%

1.46
%

1.42
%

1.18
%
NPAs/total outstanding loans

0.31
%

0.32
%

0.30
%

0.31
%

0.38
%
NPAs/total adjusted loans

0.35
%

0.35
%

0.34
%

0.35
%

0.38
%
Past due loans still accruing interest/total outstanding loans

0.25
%

0.36
%

0.35
%

0.28
%

0.59
%
Past due loans still accruing interest/total adjusted loans

0.28
%

0.39
%

0.40
%

0.32
%

0.59
%
Net charge-offs/total average loans

0.03
%

0.05
%

0.04
%

0.09
%

0.16
%
Net charge-offs/total adjusted average loans

0.04
%

0.06
%

0.04
%

0.10
%

0.16
%
Provision for loan losses/total average loans

(0.47)
%

(0.33)
%

0.15
%

0.93
%

1.80
%
Provision for loan losses/total adjusted average loans

(0.52)
%

(0.37)
%

0.17
%

1.02
%

1.80
%

~~-94-~~-78-

Table of Contents

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-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 and futures curves. 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 model, under all scenarios, does not drop the index below zero.

~~-95-~~-79-

Table of Contents

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, 2020~~March 31, 2021 and ~~2019 (dollars in thousands):~~2020:

Change In Net Interest Income

September 30,

March 31,

2020

2019

2021

2020

Change in Yield Curve:

+300 basis points

11.39

61,649

13.16

73,140

14.71

11.05

+200 basis points

8.26

44,678

8.71

48,405

9.80

7.85

+100 basis points

4.37

23,637

4.48

24,893

4.76

4.19

Most likely rate scenario

—

-100 basis points

(0.97)

(5,244)

(5.39)

(29,980)

(3.92)

(2.54)

-200 basis points

(1.19)

(6,454)

(8.71)

(48,423)

(5.02)

(2.68)

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.

From a net interest income perspective, the Company was ~~less~~more asset sensitive as of ~~September 30, 2020,~~March 31, 2021, compared to its position as of ~~September 30, 2019.~~March 31, 2020. This shift is in part due to the changing market characteristics of certain loan and deposit products and in part due to various other balance sheet strategies. 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.

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, 2020~~March 31, 2021 and ~~2019 (dollars in thousands):~~2020:

Change In Economic Value of Equity

September 30,

March 31,

2020

2019

2021

2020

Change in Yield Curve:

+300 basis points

(1.30)

(38,815)

(4.13)

(132,210)

5.79

(2.88)

+200 basis points

0.49

14,551

(2.44)

(78,042)

4.58

(0.86)

+100 basis points

1.39

41,643

(0.97)

(31,031)

2.86

0.75

Most likely rate scenario

—

-100 basis points

(5.24)

(156,742)

(3.43)

(109,752)

(5.62)

(7.76)

-200 basis points

(1.96)

(58,650)

(9.63)

(307,914)

(7.29)

(8.42)

As of ~~September 30, 2020,~~March 31, 2021, the Company’s economic value of equity is ~~less~~generally more asset sensitive in a rising interest rate environment compared to ~~September 30, 2019~~March 31, 2020 primarily due to the composition of the Consolidated Balance Sheets and due in part to the market characteristics of certain loans and deposits.

~~-96-~~-80-

Table of Contents

ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September 30, 2020.~~March 31, 2021. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act, means controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the Company 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 to ensure that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2020,~~March 31, 2021, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
In designing and evaluating the Company’s 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.
Changes in Internal Control Over Financial Reporting
Management has taken measures to maintain the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~September 30,~~March 31, ~~2020.~~2021. There have been no changes that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

~~-97-~~-81-

Table of Contents

PART II - OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.
ITEM 1A – RISK FACTORS
During the quarter ended ~~September 30, 2020,~~March 31, 2021, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in the Company’s ~~2019~~2020 Annual ~~Report and Part II, Item 1A. “Risk Factors” in the Company’s second quarter Form 10-Q filed on August 4, 2020.~~Report.
An investment in the Company’s securities involves risks. In addition to the other information set forth in this Quarterly Report, including the information addressed under “Forward-Looking Statements,” investors in the Company’s securities should carefully consider the factors discussed below, as well as the factors discussed in the Company’s ~~2019~~2020 Annual ~~Report and second quarter Form 10-Q filed on August 4, 2020.~~Report. These factors could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position and could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Sales of Unregistered Securities – None
(b) Use of Proceeds – Not Applicable.
(c) Issuer Purchases of Securities
Stock Repurchase Program; Other

On July 8, 2019, the Company’s Board of Directors authorized a share repurchase program to purchase up to $150 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. The repurchase program was authorized through June 30, 2021, but, on March 20, 2020, the Company announced the suspension of the program.

On May 4, 2021, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $125 million worth of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. This new share repurchase program expires on June 30, 2022 and replaces the prior repurchase program that was due to expire on June 30, 2021.

The following information describes the Company’s common stock repurchases for the three months ended ~~September 30, 2020:~~March 31, 2021:

Period

Total number of shares purchased⁽¹⁾

Average price paid per share ($)

Total number of shares purchased as part of publicly announced plans or programs⁽²⁾

Approximate dollar value of shares that may yet be purchased under the plans or programs ($)
July 1 - July 31, 2020

294

22.02

-

19,951,000
August 1 - August 31, 2020

450

25.04

-

19,951,000
September 1 - September 30, 2020

281

22.03

-

19,951,000
Total

1,025

23.35

-

Period

Total number of shares purchased⁽¹⁾

Average price paid per share ($)

Total number of shares purchased as part of publicly announced plans or programs

Approximate dollar value of shares that may yet be purchased under the plans or programs ($)
January 1 - January 31, 2021

18,466

35.25

-

19,951,000
February 1 - February 28, 2021

38,905

36.29

-

19,951,000
March 1 - March 31, 2021

2,103

40.08

-

19,951,000
Total

59,474

36.10

-

(1) For the three months ended ~~September 30, 2020, 1,025~~March 31, 2021, 59,474 shares were withheld upon vesting of restricted shares granted to employees of the Company in order to satisfy tax withholding obligations.
~~(2)~~ On March 20, 2020, the Company announced the suspension of its share repurchase program, which had approximately $20 million of shares authorized to be purchased under the program remaining when it was suspended.

~~-98-~~-82-

Table of Contents

ITEM 6 – EXHIBITS
The following exhibits are filed as part of this Quarterly Report and this list includes the Exhibit Index:

Exhibit No.

Description

2.1

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).

2.2

Agreement and Plan of Reorganization, dated as of October 4, 2018, as amended on December 7, 2018, by and between Union Bankshares Corporation and Access National Corporation (incorporated by reference to Annex A to Form S-4/A Registration Statement filed on December 10, 2018; SEC file no. 333-228455).

3.1

Amended and Restated Articles of Incorporation of Atlantic Union Bankshares Corporation, effective May 7, 2020 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on May 7, 2020).

3.1.1

Articles of Amendment designating the 6.875% Perpetual Non-Cumulative Preferred Stock, Series A, effective June 9, 2020 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 9, 2020).

3.2

Amended and Restated Bylaws of Atlantic Union Bankshares Corporation, effective as of December 5, 2019 (incorporated by reference to Exhibit 3.3 to Annual Report on Form 10-K filed on February 25, 2020).

10.11

Schedule of Atlantic Union Bankshares Corporation Non-Employee Directors' Annual Compensation (incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K filed on February 26, 2021).

10.12

Management Incentive Plan (incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K filed on February 26, 2021).

10.22

Form of Performance Share Unit Agreement under Atlantic Union Bankshares Corporation Stock and Incentive Plan (for awards on or after February 12, 2021) (incorporated by reference to Exhibit 10.22 to Annual Report on Form 10-K filed on February 26, 2021).

10.23

Atlantic Union Bankshares Corporation Stock and Incentive Plan, as amended and restated May 4, 2021 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 6, 2021)

15.1

Letter regarding unaudited interim financial information.

31.1

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

31.2

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

32.1

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

101.0

Interactive data files formatted in Inline eXtensible Business Reporting Language for the quarter ended ~~September 30, 2020~~March 31, 2021 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 Consolidated Financial Statements (unaudited).

104.0

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2020,~~March 31, 2021, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).

~~-99-~~-83-

Table of Contents

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.

Atlantic Union Bankshares Corporation

(Registrant)

Date: ~~November 3, 2020~~May 6, 2021
By:
/s/ John C. Asbury

John C. Asbury,

President and Chief Executive Officer

(principal executive officer)

Date: ~~November 3, 2020~~May 6, 2021
By:
/s/ Robert M. Gorman

Robert M. Gorman,

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

~~-100-~~-84-


		December 31,		January 1,		January 1,
		2019		2020		2020
		As Previously Reported (Incurred Loss)		Impact of CECL Adoption		As Reported Under CECL
Assets:
Loans
Commercial	$	30,941	$	6,184	$	37,125
Consumer		11,353		41,300		52,653
Allowance for loan and lease losses		42,294		47,484		89,778
Liabilities:
Allowance for credit losses on unfunded credit exposure		900		4,160		5,060
Total Allowance for credit losses	$	43,194	$	51,644	$	94,838


	Amortized		Gross Unrealized				Estimated		Amortized		Gross Unrealized				Estimated
December 31, 2019	Cost		Gains		(Losses)		Fair Value
									Cost		Gains		(Losses)		Fair Value
December 31, 2020
U.S. government and agency securities	$	21,149	$	209	$	(38)	$	21,320	$	13,009	$	437	$	(52)	$	13,394
Obligations of states and political subdivisions		421,344		25,776		(29)		447,091		786,466		50,878		(18)		837,326
Corporate and other bonds ⁽¹⁾		134,342		1,991		(374)		135,959		148,747		2,430		(99)		151,078
Commercial mortgage-backed securities
Agency		405,731		8,786		(619)		413,898		321,015		16,277		(2)		337,290
Non-agency		11,173		—		(24)		11,149		51,244		167		(17)		51,394
Total commercial mortgage-backed securities		416,904		8,786		(643)		425,047		372,259		16,444		(19)		388,684
Residential mortgage-backed securities
Agency		852,300		16,680		(816)		868,164		1,012,237		31,816		(1,946)		1,042,107
Non-agency		44,309		476		—		44,785		104,904		1,507		(206)		106,205
Total residential mortgage-backed securities		896,609		17,156		(816)		912,949		1,117,141		33,323		(2,152)		1,148,312
Other securities		3,079		0		0		3,079		1,625		0		0		1,625
Total AFS securities	$	1,893,427	$	53,918	$	(1,900)	$	1,945,445	$	2,439,247	$	103,512	$	(2,340)	$	2,540,419


	Less than 12 months				More than 12 months				Total				Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses		Value		Losses
September 30, 2020
March 31, 2021
U.S. government and agency securities	$	0	$	0	$	5,956	$	(50)	$	5,956		(50)	$	0	$	0	$	4,899	$	(47)	$	4,899	$	(47)
Obligations of states and political subdivisions		175,282		(2,113)		0		0		175,282	$	(2,113)		271,172		(4,956)		0		0		271,172		(4,956)
Corporate and other bonds⁽¹⁾		38,137		(477)		20,283		(260)		58,420		(737)		42,612		(237)		4,785		(6)		47,397		(243)
Commercial mortgage-backed securities
Agency		33,827		(115)		446		(1)		34,273		(116)		65,708		(1,614)		359		(1)		66,067		(1,615)
Non-agency		0		0		0		0		0		0		26,736		(110)		0		0		26,736		(110)
Total commercial mortgage-backed securities		33,827		(115)		446		(1)		34,273		(116)		92,444		(1,724)		359		(1)		92,803		(1,725)
Residential mortgage-backed securities
Agency		198,687		(1,407)		1,121		(3)		199,808		(1,410)		558,523		(13,650)		1,175		(18)		559,698		(13,668)
Non-agency		57,044		(743)		0		0		57,044		(743)		36,031		(491)		10,070		(21)		46,101		(512)
Total residential mortgage-backed securities		255,731		(2,150)		1,121		(3)		256,852		(2,153)		594,554		(14,141)		11,245		(39)		605,799		(14,180)
Total AFS securities	$	502,977	$	(4,855)	$	27,806	$	(314)	$	530,783	$	(5,169)	$	1,000,782	$	(21,058)	$	21,288	$	(93)	$	1,022,070	$	(21,151)

December 31, 2019
December 31, 2020
U.S. government and agency securities	$	7,638	$	(38)	$	0	$	0	$	7,638	$	(38)	$	0	$	0	$	5,456	$	(52)	$	5,456	$	(52)
Obligations of states and political subdivisions		4,526		(29)		0		0		4,526		(29)		5,091		(18)		0		0		5,091		(18)
Corporate and other bonds⁽¹⁾		17,323		(83)		19,901		(291)		37,224		(374)		17,946		(52)		10,698		(47)		28,644		(99)
Commercial mortgage-backed securities
Agency		43,552		(530)		14,966		(89)		58,518		(619)		5,893		(2)		376		0		6,269		(2)
Non-agency		11,162		(24)		0		0		11,162		(24)		17,654		(17)		0		0		17,654		(17)
Total commercial mortgage-backed securities		54,714		(554)		14,966		(89)		69,680		(643)		23,547		(19)		376		0		23,923		(19)
Residential mortgage-backed securities
Agency		114,147		(500)		40,168		(316)		154,315		(816)		219,388		(1,944)		1,055		(2)		220,443		(1,946)
Non-agency		0		0		0		0		0		0		36,942		(206)		0		0		36,942		(206)
Total residential mortgage-backed securities		114,147		(500)		40,168		(316)		154,315		(816)		256,330		(2,150)		1,055		(2)		257,385		(2,152)
Total AFS securities	$	198,348	$	(1,204)	$	75,035	$	(696)	$	273,383	$	(1,900)	$	302,914	$	(2,239)	$	17,585	$	(101)	$	320,499	$	(2,340)


	Carrying		Gross Unrealized				Estimated		Carrying		Gross Unrealized				Estimated
	Value		Gains		(Losses)		Fair Value		Value		Gains		(Losses)		Fair Value
September 30, 2020
December 31, 2020
U.S. government and agency securities	$	2,767	$	0	$	(14)	$	2,753	$	2,751	$	0	$	(18)	$	2,733
Obligations of states and political subdivisions		538,352		67,561		0		605,913		536,767		74,978		0		611,745
Commercial mortgage-backed securities
Agency		5,542		5		(40)		5,507		5,333		4		(50)		5,287
Non-agency		0		0		0		0		0		0		0		0
Total commercial mortgage-backed securities		5,542		5		(40)		5,507		5,333		4		(50)		5,287
Total held-to-maturity securities	$	546,661	$	67,566	$	(54)	$	614,173	$	544,851	$	74,982	$	(68)	$	619,765


	Three Months Ended September 30, 2020								U.S. Government and Agency		Obligations of states and political		Mortgage-backed		Total HTM
	U.S. Government and Agency		Obligations of states and political		Mortgage-backed		Total HTM		securities		subdivisions		securities		securities
	securities		subdivisions		securities		securities
March 31, 2021
Credit Rating:
AAA/AA/A	$	0	$	533,742	$	0	$	533,742	$	0	$	531,203	$	0	$	531,203
Not Rated - Agency⁽¹⁾		2,767		0		5,542		8,309		2,676		0		5,265		7,941
Not Rated - Non-Agency		0		4,610		0		4,610		0		4,431		0		4,431
Total	$	2,767	$	538,352	$	5,542	$	546,661	$	2,676	$	535,634	$	5,265	$	543,575
December 31, 2020
Credit Rating:
AAA/AA/A									$	0	$	532,157	$	0	$	532,157
Not Rated - Agency⁽¹⁾										2,751		0		5,333		8,084
Not Rated - Non-Agency										0		4,610		0		4,610
Total									$	2,751	$	536,767	$	5,333	$	544,851


							Greater than
			30-59 Days		60-89 Days		90 Days and
	Current		Past Due		Past Due		still Accruing		Nonaccrual		Total Loans
Construction and Land Development	$	1,200,729	$	2,625	$	223	$	93	$	3,520	$	1,207,190
Commercial Real Estate - Owner Occupied		2,090,106		4,924		1,310		1,726		9,267		2,107,333
Commercial Real Estate - Non-Owner Occupied		3,493,107		1,291		1,371		168		1,992		3,497,929
Multifamily Real Estate		731,190		—		—		359		33		731,582
Commercial & Industrial		3,528,283		4,322		1,448		604		1,592		3,536,249
Residential 1-4 Family - Commercial		683,730		1,236		937		5,298		5,743		696,944
Residential 1-4 Family - Consumer		806,055		2,998		3,976		4,495		12,620		830,144
Residential 1-4 Family - Revolving		608,570		2,669		1,141		2,276		3,664		618,320
Auto		384,619		1,513		453		315		517		387,417
Consumer		273,829		1,020		772		327		75		276,023
Other Commercial		493,044		613		427		—		—		494,084
Total loans held for investment	$	14,293,262	$	23,211	$	12,058	$	15,661	$	39,023	$	14,383,215


	Nonaccrual
	January 1, 2020		September 30, 2020		Nonaccrual With No ALLL		90 Days and still Accruing
Construction and Land Development	$	4,060	$	3,520	$	1,985	$	93
Commercial Real Estate - Owner Occupied		13,889		9,267		1,994		1,726
Commercial Real Estate - Non-Owner Occupied		1,368		1,992		0		168
Multifamily Real Estate		0		33		0		359
Commercial & Industrial		3,037		1,592		0		604
Residential 1-4 Family - Commercial		6,492		5,743		1,738		5,298
Residential 1-4 Family - Consumer		13,117		12,620		1,069		4,495
Residential 1-4 Family - Revolving		2,490		3,664		60		2,276
Auto		565		517		0		315
Consumer		88		75		0		327
Other Commercial		98		—		0		0
Total loans held for investment	$	45,204	$	39,023	$	6,846	$	15,661


	September 30, 2020
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	219	$	0
Commercial Real Estate - Owner Occupied	6		2,140		101
Commercial Real Estate - Non-Owner Occupied	1		1,089		0
Commercial & Industrial	5		1,117		0
Residential 1-4 Family - Commercial	3		247		0
Residential 1-4 Family - Consumer	80		9,165		0
Residential 1-4 Family - Revolving	2		55		0
Consumer	5		31		0
Other Commercial	1		452		0
Total performing	107	$	14,515	$	101
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	293	$	0
Commercial Real Estate - Non-Owner Occupied	1		137		0
Commercial & Industrial	3		261		0
Residential 1-4 Family - Commercial	4		1,313		0
Residential 1-4 Family - Consumer	23		4,937		0
Residential 1-4 Family - Revolving	3		104		0
Total nonperforming	36	$	7,045	$	0
Total performing and nonperforming	143	$	21,560	$	101


	All Restructurings
	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020			Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
		Recorded			Recorded			Recorded			Recorded
	No. of	Investment at		No. of	Investment at		No. of	Investment at		No. of	Investment at
	Loans	Period End		Loans	Period End		Loans	Period End		Loans	Period End
Modified to interest only, at a market rate
Commercial Real Estate - Owner Occupied	0	$	0	1	$	272
Residential 1-4 Family - Commercial	1		652	1		652
Total interest only at market rate of interest	1	$	652	2	$	924	0	$	0	0	$	0

Term modification, at a market rate
Commercial & Industrial	0	$	0	3	$	127	0	$	0	1	$	517
Residential 1-4 Family - Commercial	1		299	1		299
Residential 1-4 Family - Consumer	0		0	4		324	2		105	0		0
Consumer	0		0	1		10
Total loan term extended at a market rate	1	$	299	9	$	760	2	$	105	1	$	517

Term modification, below market rate
Construction and Land Development	0	$	0	1	$	34	0	$	0	1	$	35
Commercial & Industrial	1		143	2		358
Residential 1-4 Family - Commercial	1		290	1		290
Residential 1-4 Family - Consumer	4		423	17		2,387	9		472	10		1,763
Residential 1-4 Family - Revolving	0		0	1		52
Consumer							1		16	0		0
Total loan term extended at a below market rate	6	$	856	22	$	3,121	10	$	488	11	$	1,798

Interest rate modification, below market rate
Residential 1-4 Family - Commercial							1	$	45	0	$	0
Total interest only at below market rate of interest	0	$	0	0	$	0	1	$	45	0	$	0

Total	8	$	1,807	33	$	4,805	13	$	638	12	$	2,315


	Three Months Ended March 31, 2020
	Commercial		Consumer		Total
Balance at beginning of period	$	30,941	$	11,353	$	42,294
Impact of ASC 326 adoption on non-PCD loans		4,432		40,666		45,098
Impact of ASC 326 adoption on PCD loans		1,752		634		2,386
Impact of adopting ASC 326		6,184		41,300		47,484
Loans charged-off		(2,968)		(4,183)		(7,151)
Recoveries credited to allowance		1,154		1,006		2,160
Provision charged to operations		42,532		13,724		56,256
Balance at end of period	$	77,843	$	63,200	$	141,043


		September 30, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019			2018		2017		2016		Prior		Revolving Loans		Total
Construction and Land Development
Pass	$	236,949	$	346,840		$	304,768	$	41,015	$	42,268	$	63,632	$	29,674	$	1,065,146
Watch & Special Mention		2,268		67,572			40,714		347		5,863		16,549		1,645		134,958
Substandard		0		0			368		710		2,040		3,968		0		7,086
Total Construction and Land Development	$	239,217	$	414,412		$	345,850	$	42,072	$	50,171	$	84,149	$	31,319	$	1,207,190

Commercial Real Estate - Owner Occupied
Pass	$	226,090	$	369,661		$	304,296	$	243,299	$	143,786	$	616,113	$	23,577	$	1,926,822
Watch & Special Mention		2,002		17,684			23,479		17,770		31,406		64,728		2,599		159,668
Substandard		0		118			1,099		1,113		1,039		17,175		299		20,843
Total Commercial Real Estate - Owner Occupied	$	228,092	$	387,463		$	328,874	$	262,182	$	176,231	$	698,016	$	26,475	$	2,107,333

Commercial Real Estate - Non-Owner Occupied
Pass	$	275,008	$	439,081		$	401,551	$	442,151	$	356,256	$	862,293	$	24,467	$	2,800,807
Watch & Special Mention		27,599		104,352			97,973		71,618		107,934		259,591		18,318		687,385
Substandard		0		0			6,464		0		25		3,248		0		9,737
Total Commercial Real Estate - Non-Owner Occupied	$	302,607	$	543,433		$	505,988	$	513,769	$	464,215	$	1,125,132	$	42,785	$	3,497,929

Commercial & Industrial
Pass	$	1,979,209	$	401,385		$	221,417	$	79,734	$	76,145	$	149,692	$	524,960	$	3,432,542
Watch & Special Mention		5,081		29,405			16,889		4,163		5,170		6,443		28,156		95,307
Substandard		37		928			396		129		623		2,710		3,577		8,400
Total Commercial & Industrial	$	1,984,327	$	431,718		$	238,702	$	84,026	$	81,938	$	158,845	$	556,693	$	3,536,249
					��
Multifamily Real Estate
Pass	$	131,434	$	80,234		$	69,881	$	120,758	$	70,127	$	239,525	$	2,499	$	714,458
Watch & Special Mention		2,283		1,018			4,894		2,490		621		5,427		0		16,733
Substandard		0		0			0		0		0		391		0		391
Total Multifamily Real Estate	$	133,717	$	81,252		$	74,775	$	123,248	$	70,748	$	245,343	$	2,499	$	731,582

Residential 1-4 Family - Commercial
Pass	$	78,631	$	100,919		$	76,284	$	87,277	$	76,710	$	226,118	$	1,251	$	647,190
Watch & Special Mention		592		4,625			8,739		4,420		4,186		15,798		0		38,360
Substandard		652		810			272		2,060		993		6,119		488		11,394
Total Residential 1-4 Family - Commercial	$	79,875	$	106,354		$	85,295	$	93,757	$	81,889	$	248,035	$	1,739	$	696,944

Other Commercial
Pass	$	221,801	$	115,346		$	9,972	$	39,542	$	16,602	$	47,858	$	31,730	$	482,851
Watch & Special Mention		22		0			621		1,312		927		8,351		0		11,233
Total Other Commercial	$	221,823	$	115,346		$	10,593	$	40,854	$	17,529	$	56,209	$	31,730	$	494,084

Total Commercial
Pass	$	3,149,122	$	1,853,466		$	1,388,169	$	1,053,776	$	781,894	$	2,205,231	$	638,158	$	11,069,816
Watch & Special Mention⁽¹⁾		39,847		224,656			193,309		102,120		156,107		376,887		50,718		1,143,644
Substandard		689		1,856			8,599		4,012		4,720		33,611		4,364		57,851
Total Commercial	$	3,189,658	$	2,079,978		$	1,590,077	$	1,159,908	$	942,721	$	2,615,729	$	693,240	$	12,271,311


	30-89 Days		Greater than
	Past Due		90 Days		Current		Total
Construction and Land Development	$	136	$	343	$	10,465	$	10,944
Commercial Real Estate - Owner Occupied		480		6,884		20,074		27,438
Commercial Real Estate - Non-Owner Occupied		848		987		12,730		14,565
Multifamily Real Estate		0		0		94		94
Commercial & Industrial		—		989		590		1,579
Residential 1-4 Family - Commercial		543		1,995		9,667		12,205
Residential 1-4 Family - Consumer		927		1,781		12,005		14,713
Residential 1-4 Family - Revolving		287		205		3,635		4,127
Auto		—		—		4		4
Consumer		—		9		659		668
Other Commercial		0		0		344		344
Total	$	3,221	$	13,193	$	70,267	$	86,681


	December 31, 2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
Loans without a specific allowance
Construction and Land Development	$	5,877	$	7,174	$	—
Commercial Real Estate - Owner Occupied		8,801		9,296		—
Commercial Real Estate - Non-Owner Occupied		3,510		4,059		—
Commercial & Industrial		3,668		3,933		—
Residential 1-4 Family - Commercial		4,047		4,310		—
Residential 1-4 Family - Consumer		8,420		9,018		—
Residential 1-4 Family - Revolving		862		865		—
Total impaired loans without a specific allowance	$	35,185	$	38,655	$	—
Loans with a specific allowance
Construction and Land Development	$	984	$	1,032	$	49
Commercial Real Estate - Owner Occupied		2,820		3,093		146
Commercial Real Estate - Non-Owner Occupied		335		383		2
Commercial & Industrial		2,568		2,590		619
Residential 1-4 Family - Commercial		1,726		1,819		162
Residential 1-4 Family - Consumer		12,026		12,670		1,242
Residential 1-4 Family - Revolving		2,186		2,369		510
Auto		563		879		221
Consumer		168		336		46
Other Commercial		562		567		30
Total impaired loans with a specific allowance	$	23,938	$	25,738	$	3,027
Total impaired loans	$	59,123	$	64,393	$	3,027


	December 31, 2019
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	1,114	$	0
Commercial Real Estate - Owner Occupied	6		2,228		26
Commercial Real Estate - Non-Owner Occupied	1		1,089		0
Commercial & Industrial	4		1,020		0
Residential 1-4 Family - Commercial	5		290		0
Residential 1-4 Family - Consumer	69		9,396		0
Residential 1-4 Family - Revolving	2		56		0
Consumer	4		29		0
Other Commercial	1		464		0
Total performing	96	$	15,686	$	26
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	176	$	0
Commercial & Industrial	1		55		0
Residential 1-4 Family - Consumer	19		3,522		0
Residential 1-4 Family - Revolving	2		57		0
Total nonperforming	24	$	3,810	$	0
Total performing and nonperforming	120	$	19,496	$	26


	All Restructurings
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—	—	$	—

Term modification, at a market rate
Commercial & Industrial	1	$	376	1	$	376
Residential 1-4 Family - Commercial	—		—	1		73
Residential 1-4 Family - Consumer	1		461	4		761
Consumer	2		18	3		26
Total loan term extended at a market rate	4	$	855	9	$	1,236

Term modification, below market rate
Construction and Land Development	2	$	164	2	$	164
Residential 1-4 Family - Consumer	5		883	17		2,211
Consumer	—		—	1		5
Total loan term extended at a below market rate	7	$	1,047	20	$	2,380

Total	11	$	1,902	29	$	3,616


	Nine Months Ended September 30, 2019
	Allowance for loan losses
	Balance,		Recoveries		Loans		Provision		Balance,
	beginning of		credited to		charged		charged to		end of
	the year		allowance		off		operations		period
Construction and Land Development	$	6,803	$	269	$	(4,028)	$	2,863	$	5,907
Commercial Real Estate - Owner Occupied		4,023		118		(483)		361		4,019
Commercial Real Estate - Non-Owner Occupied		8,865		95		(270)		996		9,686
Multifamily Real Estate		649		85		0		46		780
Commercial & Industrial		7,636		936		(2,162)		2,739		9,149
Residential 1-4 Family - Commercial		1,692		244		(397)		50		1,589
Residential 1-4 Family - Consumer		1,492		256		(108)		158		1,798
Residential 1-4 Family - Revolving		1,297		589		(570)		(179)		1,137
Auto		1,443		452		(957)		614		1,552
Consumer and all other⁽¹⁾		7,145		1,896		(12,215)		11,377		8,203
Total	$	41,045	$	4,940	$	(21,190)	$	19,025	$	43,820


	December 31, 2019
	Loans individually				Loans collectively				Loans acquired with
	evaluated for				evaluated for				deteriorated credit
	impairment				impairment				quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	6,861	$	49	$	1,233,119	$	5,709	$	10,944	$	0	$	1,250,924	$	5,758
Commercial Real Estate - Owner Occupied		11,621		146		2,002,184		3,773		27,438		0		2,041,243		3,919
Commercial Real Estate - Non-Owner Occupied		3,845		2		3,267,688		9,541		14,565		0		3,286,098		9,543
Multifamily Real Estate		0		0		633,649		632		94		0		633,743		632
Commercial & Industrial		6,236		619		2,106,218		7,768		1,579		217		2,114,033		8,604
Residential 1-4 Family - Commercial		5,773		162		706,359		1,203		12,205		0		724,337		1,365
Residential 1-4 Family - Consumer		20,446		1,242		855,344		771		14,713		0		890,503		2,013
Residential 1-4 Family - Revolving		3,048		510		652,329		813		4,127		0		659,504		1,323
Auto		563		221		349,852		1,232		4		0		350,419		1,453
Consumer and all other⁽¹⁾		730		76		658,390		7,608		1,012		0		660,132		7,684
Total loans held for investment, net	$	59,123	$	3,027	$	12,465,132	$	39,050	$	86,681	$	217	$	12,610,936	$	42,294


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,197,066	$	37,182	$	5,732	$	0	$	1,239,980
Commercial Real Estate - Owner Occupied		1,916,492		87,004		10,309		0		2,013,805
Commercial Real Estate - Non-Owner Occupied		3,205,463		62,368		3,608		94		3,271,533
Multifamily Real Estate		613,844		19,396		409		0		633,649
Commercial & Industrial		2,043,903		60,495		8,048		8		2,112,454
Residential 1-4 Family - Commercial		680,894		24,864		6,374		0		712,132
Residential 1-4 Family - Consumer		841,408		13,592		20,534		256		875,790
Residential 1-4 Family - Revolving		641,069		6,373		7,935		0		655,377
Auto		345,960		2,630		1,825		0		350,415
Consumer		371,315		550		320		0		372,185
Other Commercial		284,914		1,863		158		0		286,935
Total	$	12,142,328	$	316,317	$	65,252	$	358	$	12,524,255


	For the Nine Months Ended September 30,
	2019
Balance at beginning of period	$	31,201
Additions		2,432
Accretion		(9,830)
Reclass of nonaccretable difference due to improvement in expected cash flows		1,372
Measurement period adjustment		2,629
Other, net ⁽¹⁾		5,083
Balance at end of period	$	32,887


For the remaining three months of 2020	$	3,883
2021		13,874
For the remaining nine months of 2021			$	10,159
2022		11,490		11,490
2023		9,687		9,688
2024		7,819		7,818
2025				6,221
Thereafter		14,315		8,095
Total estimated amortization expense	$	61,068	$	53,471


	March 31, 2021		December 31, 2020
Sales-type and direct financing leases:
Lease receivables, net of unearned	$	150.0	$	141.2
Unguaranteed residual values, net of unearned		5.3		4.8
Total net investment in sales-type and direct financing leases	$	155.3	$	146.0


	Nine months ended September 30,				Three months ended March 31,
	2020		2019		2021		2020
Cash paid for amounts included in measurement of lease liabilities:
Operating Cash Flows from Finance Leases	$	41	$	-	$	30	$	0
Operating Cash Flows from Operating Leases		10,398		10,327		3,015		3,517
Financing Cash Flows from Finance Leases						283		0
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		7,566		5,979		1,820		1,216
Finance leases		10,549		-


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
		2020		2019		2020		2019		2021		2020
Net Operating Lease Cost	$	2,536	$	2,928	$	8,383	$	8,940	$	2,541	$	2,918
Finance Lease Cost:
Amortization of right-of-use assets		230		-		306		-		230		0
Interest on lease liabilities		31		-		41		-		30		0
Total Lease Cost	$	2,797	$	2,928	$	8,730	$	8,940	$	2,801	$	2,918


	September 30, 2020						March 31, 2021
	Lessor		Lessee				Lessor		Lessee
		Sales-type and Direct Financing	Operating		Finance			Sales-type and Direct Financing	Operating		Finance
For the remaining three months of 2020	$	7,416	$	3,193	$	0
2021		28,883		12,500		1,261
For the remaining nine months of 2021							$	24,693	$	8,966	$	948
2022		29,799		11,289		1,292		34,150		11,322		1,292
2023		28,136		10,324		1,325		32,487		10,172		1,325
2024		26,185		9,007		1,358		30,537		9,178		1,358
2025		17,780		6,712		1,392		22,110		6,864		1,392
2026								6,630		4,318		1,427
Thereafter		13,594		17,701		4,515		11,757		13,369		3,088
Total undiscounted cash flows		151,793		70,726		11,143		162,364		64,189		10,830
Less: Adjustments ⁽¹⁾		9,645		5,969		553		12,377		6,105		491
Total ⁽²⁾	$	142,148	$	64,757	$	10,590	$	149,987	$	58,084	$	10,339


			Spread to									Spread to
	Principal		3-Month LIBOR		Rate ⁽¹⁾		Maturity	Investment ⁽²⁾		Principal		3-Month LIBOR		Rate ⁽¹⁾		Maturity	Investment ⁽²⁾
Trust Preferred Capital Securities
Trust Preferred Capital Note - Statutory Trust I	$	22,500	2.75	%	2.98	%	6/17/2034	$	696	$	22,500	2.75	%	2.94	%	6/17/2034	$	696
Trust Preferred Capital Note - Statutory Trust II		36,000	1.40	%	1.63	%	6/15/2036		1,114		36,000	1.40	%	1.59	%	6/15/2036		1,114
VFG Limited Liability Trust I Indenture		20,000	2.73	%	2.96	%	3/18/2034		619		20,000	2.73	%	2.92	%	3/18/2034		619
FNB Statutory Trust II Indenture		12,000	3.10	%	3.33	%	6/26/2033		372		12,000	3.10	%	3.29	%	6/26/2033		372
Gateway Capital Statutory Trust I		8,000	3.10	%	3.33	%	9/17/2033		248		8,000	3.10	%	3.29	%	9/17/2033		248
Gateway Capital Statutory Trust II		7,000	2.65	%	2.88	%	6/17/2034		217		7,000	2.65	%	2.84	%	6/17/2034		217
Gateway Capital Statutory Trust III		15,000	1.50	%	1.73	%	5/30/2036		464		15,000	1.50	%	1.69	%	5/30/2036		464
Gateway Capital Statutory Trust IV		25,000	1.55	%	1.78	%	7/30/2037		774		25,000	1.55	%	1.74	%	7/30/2037		774
MFC Capital Trust II		5,000	2.85	%	3.08	%	1/23/2034		155		5,000	2.85	%	3.04	%	1/23/2034		155
Total Trust Preferred Capital Securities	$	150,500						$	4,659	$	150,500						$	4,659
FHLB Advances⁽³⁾
Convertible Flipper	$	50,000	-	%	0.85	%	8/17/2029
Convertible Flipper		150,000	(0.75)	%	-	%	5/22/2029
Convertible Flipper		50,000	(0.75)	%	-	%	5/30/2029
Convertible Flipper		100,000	(0.75)	%	-	%	6/21/2029
Fixed Rate Convertible		200,000	-	%	1.78	%	10/26/2028
Fixed Rate Credit		10,000	-	%	1.54	%	10/2/2020
Total FHLB Advances	$	560,000
Subordinated Debt⁽⁴⁾⁽⁵⁾
2025 Subordinated Debt	$	8,500	-	%	6.75	%	6/30/2025
2026 Subordinated Debt⁽⁶⁾		150,000	-	%	5.00	%	12/15/2026
Subordinated Debt⁽³⁾⁽⁴⁾
2026 Subordinated Debt⁽⁵⁾											150,000	-	%	5.00	%	12/15/2026
Total Subordinated Debt	$	158,500								$	150,000
PPPLF Advances⁽⁷⁾
PPPLF Advance 4/8/2022	$	55,422	-	%	0.35	%	4/8/2022
PPPLF Advance 4/11/2022		134,523	-	%	0.35	%	4/11/2022
Total PPPLF Advances	$	189,945
Fair Value Premium (Discount)⁽⁸⁾		(15,568)
Fair Value Premium (Discount)⁽⁶⁾											(15,081)
Investment in Trust Preferred Capital Securities		4,659									4,659
Total Long-term Borrowings	$	1,048,036								$	290,078


	Trust												Trust
	Preferred								Fair Value		Total		Preferred				Fair Value		Total
	Capital		Subordinated		PPPLF		FHLB		Premium		Long-term		Capital		Subordinated		Premium		Long-term
	Notes		Debt		Advances		Advances		(Discount) ⁽¹⁾		Borrowings		Notes		Debt		(Discount) ⁽¹⁾		Borrowings
For the remaining three months of 2020	$	0	$	0	$	—	$	10,000	$	(238)	$	9,762
2021		0		0		—		0		(1,008)		(1,008)
For the remaining nine months of 2021													$	0	$	0	$	(760)	$	(760)
2022		0		0		189,945		0		(1,030)		188,915		0		0		(1,030)		(1,030)
2023		0		0		—		0		(1,053)		(1,053)		0		0		(1,053)		(1,053)
2024		0		0		—		0		(1,078)		(1,078)		0		0		(1,078)		(1,078)
2025														0		0		(1,102)		(1,102)
Thereafter		155,159		158,500		—		550,000		(11,161)		852,498		155,159		150,000		(10,058)		295,101
Total long-term borrowings	$	155,159	$	158,500	$	189,945	$	560,000	$	(15,568)	$	1,048,036	$	155,159	$	150,000	$	(15,081)	$	290,078


	Pledged Assets as of September 30, 2020										Pledged Assets as of March 31, 2021
			AFS		HTM								AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total		Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	0	$	476,167	$	432,791	$	0	$	908,958	$	0	$	495,680	$	426,897	$	0	$	922,577
Repurchase agreements		0		111,781		0		0		111,781		0		107,620		0		0		107,620
FHLB advances		0		54,195		0		4,354,063		4,408,258		0		50,382		0		4,339,460		4,389,842
Derivatives		276,786		939		0		0		277,725		153,849		690		0		0		154,539
Fed Funds		0		0		0		316,561		316,561		0		0		0		367,342		367,342
PPP Loans		0		0		0		189,945		189,945
Other purposes		0		124,517		8,862		0		133,379		0		96,728		979		0		97,707
Total pledged assets	$	276,786	$	767,599	$	441,653	$	4,860,569	$	6,346,607	$	153,849	$	751,100	$	427,876	$	4,706,802	$	6,039,627

(1) Balance represents market value.
(2) Balance represents book value.


	Pledged Assets as of December 31, 2019										Pledged Assets as of December 31, 2020
			AFS		HTM								AFS		HTM
	Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total		Cash		Securities ⁽¹⁾		Securities ⁽¹⁾		Loans ⁽²⁾		Total
Public deposits	$	0	$	467,266	$	292,096	$	0	$	759,362	$	0	$	469,864	$	436,449	$	0	$	906,313
Repurchase agreements		0		79,299		7,602		0		86,901		0		116,876		0		0		116,876
FHLB advances		0		63,812		0		3,846,934		3,910,746		0		52,323		0		4,374,383		4,426,706
Derivatives		116,839		1,260		0		0		118,099		251,047		785		0		0		251,832
Fed Funds		0		0		0		292,738		292,738		0		0		0		340,847		340,847
Other purposes		0		122,358		10,654		0		133,012		0		123,388		8,634		0		132,022
Total pledged assets	$	116,839	$	733,995	$	310,352	$	4,139,672	$	5,300,858	$	251,047	$	763,236	$	445,083	$	4,715,230	$	6,174,596

(1) Balance represents book value.
(2) Balance represents market value.
⁽¹⁾ Balance represents market value.
⁽²⁾ Balance represents book value.


			Unrealized Gains
			(Losses)
	Unrealized		for AFS				Unrealized
	Gains (Losses)		Securities		Change in Fair		Gains
	on AFS		Transferred to		Value of Cash		(Losses) on
	Securities		HTM		Flow Hedge		BOLI		Total
Balance - June 30, 2020	$	63,886	$	65	$	0	$	(2,647)	$	61,304
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		1,250		0		0		0		1,250
Amounts reclassified from AOCI into earnings		(14)		(5)		0		127		108
Net current period other comprehensive income (loss)		1,236		(5)		0		127		1,358
Balance - September 30, 2020	$	65,122	$	60	$	0	$	(2,520)	$	62,662


			Unrealized Gain
			(Losses)
	Unrealized		for AFS				Unrealized
	Gains (Losses)		Securities		Change in Fair		Gains
	on AFS		Transferred to		Value of Cash		(Losses)
	Securities		HTM		Flow Hedge		on BOLI		Total
Balance - December 31, 2019	$	37,877	$	75	$	(782)	$	(1,595)	$	35,575
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		14,687		0		(699)		(1,289)		12,699
Amounts reclassified from AOCI into earnings		(1,529)		(5)		1,481		108		55
Net current period other comprehensive income (loss)		13,158		(5)		782		(1,181)		12,754
Balance - March 31, 2020	$	51,035	$	70	$	0	$	(2,776)	$	48,329