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EX-32.01 - EXHIBIT 32.01 - Union Bankshares Corpexhibit3201_2q18.htm
EX-31.02 - EXHIBIT 31.02 - Union Bankshares Corpexhibit3102_2q18.htm
EX-31.01 - EXHIBIT 31.01 - Union Bankshares Corpexhibit3101_2q18.htm
EX-15.01 - EXHIBIT 15.01 - Union Bankshares Corpexhibit1501_2q18.htm
EX-10.37 - EXHIBIT 10.37 - Union Bankshares Corpexhibit1037_2q18.htm
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA
54-1598552
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 1051 East Cary Street
Suite 1200
Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
 
(804) 633-5031
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
 
Smaller reporting company
¨
 
 
Emerging growth company
¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨ No x

The number of shares of common stock outstanding as of August 1, 2018 was 65,979,188.



UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
 
ITEM
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 






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




PART I – FINANCIAL INFORMATION
 
ITEM 1 – FINANCIAL STATEMENTS
 
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except share data)
 
June 30,
2018
 
December 31,
2017
ASSETS
 

 
 

Cash and cash equivalents:
 

 
 

Cash and due from banks
$
153,078

 
$
117,586

Interest-bearing deposits in other banks
417,423

 
81,291

Federal funds sold
7,552

 
496

Total cash and cash equivalents
578,053

 
199,373

Securities available for sale, at fair value
1,558,048

 
974,222

Securities held to maturity, at carrying value
47,604

 
199,639

Marketable equity securities, at fair value
28,200

 

Restricted stock, at cost
104,837

 
75,283

Net loans held for investment
9,290,259

 
7,141,552

Less allowance for loan losses
41,270

 
38,208

Net loans held for investment
9,248,989

 
7,103,344

Premises and equipment, net
160,508

 
119,604

OREO, net of valuation allowance
7,995

 
6,636

Goodwill
725,195

 
298,528

Amortizable intangibles, net
51,211

 
14,803

Bank owned life insurance
260,124

 
182,854

Other assets
251,878

 
96,235

Assets of discontinued operations
43,464

 
44,658

Total assets
$
13,066,106

 
$
9,315,179

LIABILITIES
 

 
 

Noninterest-bearing demand deposits
$
2,192,927

 
$
1,502,208

Interest-bearing deposits
7,604,345

 
5,489,510

Total deposits
9,797,272

 
6,991,718

Securities sold under agreements to repurchase
50,299

 
49,152

Other short-term borrowings
742,900

 
745,000

Long-term borrowings
507,077

 
425,262

Other liabilities
99,327

 
54,008

Liabilities of discontinued operations
4,361

 
3,710

Total liabilities
11,201,236

 
8,268,850

Commitments and contingencies (Note 7)


 


STOCKHOLDERS' EQUITY
 

 
 

Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 65,939,375 shares and 43,743,318 shares, respectively.
87,129

 
57,744

Additional paid-in capital
1,376,294

 
610,001

Retained earnings
415,492

 
379,468

Accumulated other comprehensive income
(14,045
)
 
(884
)
Total stockholders' equity
1,864,870

 
1,046,329

Total liabilities and stockholders' equity
$
13,066,106

 
$
9,315,179

See accompanying notes to consolidated financial statements.

-2-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share and per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Interest and dividend income:
 
 
 
 
 
 
 
Interest and fees on loans
$
119,540

 
$
72,317

 
$
232,193

 
$
140,200

Interest on deposits in other banks
676

 
115

 
1,323

 
186

Interest and dividends on securities:
 
 
 
 
 
 
 
Taxable
8,012

 
4,982

 
15,084

 
9,905

Nontaxable
4,181

 
3,512

 
8,189

 
7,074

Total interest and dividend income
132,409

 
80,926

 
256,789

 
157,365

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
13,047

 
6,100

 
24,259

 
11,176

Interest on short-term borrowings
5,166

 
1,400

 
9,415

 
2,350

Interest on long-term borrowings
6,028

 
4,722

 
11,475

 
8,768

Total interest expense
24,241

 
12,222

 
45,149

 
22,294

Net interest income
108,168

 
68,704

 
211,640

 
135,071

Provision for credit losses
2,147

 
2,184

 
5,671

 
4,288

Net interest income after provision for credit losses
106,021

 
66,520

 
205,969

 
130,783

Noninterest income:
 
 
 
 
 

 
 

Service charges on deposit accounts
6,189

 
4,613

 
12,083

 
9,129

Other service charges and fees
1,278

 
1,120

 
2,512

 
2,259

Interchange fees, net
4,792

 
3,867

 
9,280

 
7,449

Fiduciary and asset management fees
4,040

 
2,725

 
7,096

 
5,519

Gains (losses) on securities transactions, net
(88
)
 
117

 
125

 
598

Bank owned life insurance income
1,728

 
1,335

 
3,395

 
3,460

Loan-related interest rate swap fees
898

 
1,031

 
1,617

 
2,211

Gain on Shore Premier sale
20,899

 

 
20,899

 

Other operating income
861

 
454

 
3,858

 
1,450

Total noninterest income
40,597

 
15,262

 
60,865

 
32,075

Noninterest expenses:
 
 
 
 
 

 
 

Salaries and benefits
40,777

 
28,930

 
81,518

 
59,553

Occupancy expenses
6,159

 
4,453

 
12,226

 
9,106

Furniture and equipment expenses
3,103

 
2,598

 
6,041

 
5,064

Printing, postage, and supplies
1,282

 
1,393

 
2,342

 
2,525

Communications expense
1,009

 
870

 
2,104

 
1,771

Technology and data processing
4,322

 
3,842

 
8,881

 
7,646

Professional services
2,671

 
2,054

 
5,225

 
3,664

Marketing and advertising expense
3,288

 
2,270

 
4,725

 
4,002

FDIC assessment premiums and other insurance
1,882

 
947

 
4,067

 
1,652

Other taxes
2,895

 
2,022

 
5,782

 
4,043

Loan-related expenses
1,843

 
1,128

 
3,158

 
2,292

OREO and credit-related expenses
1,122

 
342

 
2,654

 
884

Amortization of intangible assets
3,215

 
1,544

 
6,396

 
3,180

Training and other personnel costs
1,125

 
1,018

 
2,132

 
1,967

Merger-related costs
8,273

 
2,744

 
35,985

 
2,744

Other expenses
2,174

 
1,420

 
3,649

 
2,575

Total noninterest expenses
85,140

 
57,575

 
186,885

 
112,668

Income from continuing operations before income taxes
61,478

 
24,207

 
79,949

 
50,190

Income tax expense
11,678

 
6,725

 
13,575

 
13,507

Income from continuing operations
49,800

 
17,482

 
66,374

 
36,683


-3-


 
Three Months Ended
 
Six Months Ended
 
June 30,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Discontinued operations:
 
 
 
 
 
 
 
Income (loss) from operations of discontinued mortgage segment
(3,085
)
 
745

 
(3,008
)
 
651

Income tax expense (benefit)
(612
)
 
271

 
(600
)
 
254

Income (loss) on discontinued operations
(2,473
)
 
474

 
(2,408
)
 
397

Net income
$
47,327

 
$
17,956

 
$
63,966

 
$
37,080

Basic earnings per common share
$
0.72

 
$
0.41

 
$
0.97

 
$
0.85

Diluted earnings per common share
$
0.72

 
$
0.41

 
$
0.97

 
$
0.85

Dividends declared per common share
$
0.21

 
$
0.20

 
$
0.42

 
$
0.40

Basic weighted average number of common shares outstanding
65,919,055

 
43,693,427

 
65,737,849

 
43,674,070

Diluted weighted average number of common shares outstanding
65,965,577

 
43,783,952

 
65,801,926

 
43,755,045


See accompanying notes to consolidated financial statements.











-4-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income
$
47,327

 
$
17,956

 
$
63,966

 
$
37,080

Other comprehensive income (loss):
 

 
 

 
 

 
 

Cash flow hedges:
 
 
 
 
 
 
 
Change in fair value of cash flow hedges
675

 
(775
)
 
2,639

 
(807
)
Reclassification adjustment for losses included in net income (net of tax, $78 and $171 for the three months and $144 and $269 for the six months ended June 30, 2018 and 2017, respectively) (1)
294

 
318

 
543

 
499

AFS securities:
 

 
 
 
 

 
 
Unrealized holding gains (losses) arising during period (net of tax, $687 and $2,707 for the three months and $4,193 and $4,665 for the six months ended June 30, 2018 and 2017, respectively)
(2,586
)
 
5,027

 
(15,777
)
 
8,664

Reclassification adjustment for losses (gains) included in net income (net of tax, $18 and $41 for the three months and $27 and $209 for the six months ended June 30, 2018 and 2017, respectively) (2)
69

 
(76
)
 
(99
)
 
(389
)
HTM securities:
 

 
 
 
 

 
 
Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $26 and $86 for the three months and $106 and $185 for the six months ended June 30, 2018 and 2017, respectively) (3)
(99
)
 
(160
)
 
(398
)
 
(344
)
Bank owned life insurance:
 
 
 
 
 
 
 
  Reclassification adjustment for losses included in net income (4)
19

 
85

 
38

 
194

Other comprehensive income (loss)
(1,628
)
 
4,419

 
(13,054
)
 
7,817

Comprehensive income
$
45,699

 
$
22,375

 
$
50,912

 
$
44,897


(1) The gross amounts reclassified into earnings 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 (losses) on securities transactions, net" 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.

-5-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(Dollars in thousands, except share and per share amounts)
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2016
$
57,506

 
$
605,397

 
$
341,938

 
$
(3,809
)
 
$
1,001,032

Net income - 2017
 

 
 

 
37,080

 
 

 
37,080

Other comprehensive income (net of taxes of $4,540)
 

 
 

 
 

 
7,817

 
7,817

Dividends on common stock ($0.40 per share)
 

 
 

 
(17,466
)
 
 

 
(17,466
)
Issuance of common stock under Equity Compensation Plans (31,818 shares)
43

 
529

 
 

 
 

 
572

Issuance of common stock for services rendered (11,320 shares)
15

 
383

 
 

 
 

 
398

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (59,426 shares)
79

 
(1,145
)
 
 

 
 

 
(1,066
)
Stock-based compensation expense
 

 
2,502

 
 

 
 

 
2,502

Balance - June 30, 2017
$
57,643

 
$
607,666

 
$
361,552

 
$
4,008

 
$
1,030,869

 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2017
$
57,744

 
$
610,001

 
$
379,468

 
$
(884
)
 
$
1,046,329

Net income - 2018
 

 
 

 
63,966

 
 

 
63,966

Other comprehensive income (net of taxes of $4,182)
 

 
 

 
 

 
(13,054
)
 
(13,054
)
Issuance of common stock in regard to acquisition (21,922,077 shares)(1)
29,156

 
765,653

 
 
 
 
 
794,809

Dividends on common stock ($0.42 per share)
 

 
 

 
(27,649
)
 
 

 
(27,649
)
Issuance of common stock under Equity Compensation Plans (85,553 shares)
114

 
1,252

 
 

 
 

 
1,366

Issuance of common stock for services rendered (10,173 shares)
14

 
382

 
 

 
 

 
396

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (76,226 shares)
101

 
(2,499
)
 
 

 
 

 
(2,398
)
Cancellation of warrants
 
 
(1,530
)
 
 
 
 
 
(1,530
)
Impact of adoption of new guidance
 
 
 
 
(293
)
 
(107
)
 
(400
)
Stock-based compensation expense
 

 
3,035

 
 

 
 

 
3,035

Balance - June 30, 2018
$
87,129

 
$
1,376,294

 
$
415,492

 
$
(14,045
)
 
$
1,864,870

(1) Includes conversion of Xenith warrants to Union warrants.
See accompanying notes to consolidated financial statements.

-6-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(Dollars in thousands)
 
2018
 
2017
Operating activities (1):
 

 
 

Net income
$
63,966

 
$
37,080

Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
 

 
 

Depreciation of premises and equipment
6,985

 
5,431

Writedown of OREO
1,142

 
257

Amortization, net
5,749

 
6,977

Amortization (accretion) related to acquisition, net
(5,273
)
 
70

Provision for credit losses
5,407

 
4,295

Gains on securities transactions, net
(125
)
 
(598
)
BOLI income
(3,395
)
 
(3,460
)
Decrease (increase) in loans held for sale, net
472

 
(4,648
)
Gains on sales of OREO, net
(38
)
 
(72
)
Losses (gains) on sales of premises, net
(47
)
 
27

Gain on sale of Shore Premier loans
(20,899
)
 

Goodwill impairment losses
864

 

Stock-based compensation expenses
3,035

 
2,502

Issuance of common stock for services
396

 
398

Net decrease (increase) in other assets
(21,878
)
 
3,991

Net increase in other liabilities
17,532

 
(4,392
)
Net cash and cash equivalents provided by (used in) operating activities
53,893

 
47,858

Investing activities:
 

 
 

Purchases of AFS securities and restricted stock
(502,675
)
 
(124,411
)
Purchases of HTM securities
(40,145
)
 
(7,836
)
Proceeds from sales of AFS securities and restricted stock
309,516

 
52,626

Proceeds from maturities, calls and paydowns of AFS securities
70,653

 
59,342

Proceeds from maturities, calls and paydowns of HTM securities

 
909

Proceeds from sale of loans held for investment
581,324

 

Net increase in loans held for investment
(272,919
)
 
(464,667
)
Net increase in premises and equipment
(2,653
)
 
(5,273
)
Proceeds from sales of OREO
2,728

 
381

Cash paid in acquisition
(10,928
)
 

Cash acquired in acquisitions
174,227

 

Net cash and cash equivalents provided by (used in) investing activities
309,128

 
(488,929
)
Financing activities:
 

 
 

Net increase in noninterest-bearing deposits
179,348

 
107,945

Net increase in interest-bearing deposits
78,040

 
277,000

Net increase (decrease) in short-term borrowings
(235,953
)
 
59,762

Cash paid for contingent consideration
(565
)
 
(3,003
)
Proceeds from issuance of long-term debt
25,000

 
20,000

Cash dividends paid - common stock
(27,649
)
 
(17,466
)
Cancellation of warrants
(1,530
)
 

Issuance of common stock
1,366

 
572

Vesting of restricted stock, net of shares held for taxes
(2,398
)
 
(1,066
)
Net cash and cash equivalents provided by (used in) financing activities
15,659

 
443,744

Increase (decrease) in cash and cash equivalents
378,680

 
2,673

Cash and cash equivalents at beginning of the period
199,373

 
179,237

Cash and cash equivalents at end of the period
$
578,053

 
$
181,910


-7-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(Dollars in thousands)
 
2018
 
2017
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash payments for:
 
 
 
Interest
$
44,137

 
$
22,424

Income taxes
6,250

 
16,400

 
 
 
 
Supplemental schedule of noncash investing and financing activities
 
 
 
Transfers from loans (OREO) to OREO (loans)
(59
)
 
(36
)
Stock received as consideration for sale of loans held for investment
28,913

 

Securities transferred from HTM to AFS
187,425

 

Issuance of common stock in exchange for net assets in acquisition
794,809

 

 
 
 
 
Transactions related to acquisitions
 
 
 
Assets acquired
3,251,191

 

Liabilities assumed (2)
2,872,984

 

(1) Discontinued operations have an immaterial impact to the Consolidated Statement of Cash Flows. The change in loans held for sale and goodwill impairment losses included in the Operating Activities section above are fully attributable to discontinued operations.
(2) 2018 includes contingent consideration related to DHFB acquisition.

See accompanying notes to consolidated financial statements.

-8-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

1. ACCOUNTING POLICIES

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

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.
 
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2017 Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Business Combinations and Divestitures
On January 1, 2018, the Company completed the acquisition of Xenith, a bank holding company based in Richmond, Virginia.

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

These transactions were 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. The resulting goodwill from both of these transactions is not deductible for tax purposes.

Refer to Note 2 “Acquisitions" for further discussion on the Company's business combinations during the period.
On May 23, 2018, the Bank announced that it had entered into a definitive agreement with a third party mortgage company to team together to offer residential mortgages. As a result of this arrangement, the Bank began winding down the operations of UMG, the Company's reportable mortgage segment. Refer to Note 13 "Segment Reporting & Discontinued Operations" for further discussion on this agreement.
On June 29, 2018, the Bank entered into an agreement to sell substantially all of the assets and certain specific liabilities of its Shore Premier Finance division, consisting primarily of marine loans totaling approximately $383.9 million, for a purchase price consisting of approximately $375.0 million in cash and 1,250,000 shares of the purchasing company's common stock. The purchasing company has agreed for a limited time to pay additional cash consideration to the Company to the extent any sales of its common stock by the Company, following satisfaction of any required holding periods or other requirements under the Securities Act of 1933, are at prices lower than the agreed upon value at the time of entry into the agreement. At June 30, 2018, the fair value of the purchasing company's stock was $28.2 million, which was included as "Marketable Equity Securities" in the Company's Consolidated Balance Sheet. The purchase of the loans was completed on June 29, 2018 and became effective at the end of the day on June 30, 2018. The sale generated an after-tax gain of approximately $16.5 million, net of transaction and other related costs.

On June 29, 2018, the Bank sold approximately $206.3 million in consumer home improvement loans that had been originated through a third-party lending program. These loans were sold at par.

Affordable Housing Entities
The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three and six months ended June 30, 2018, the Company recognized amortization of $236,000 and $471,000, respectively, and tax credits of $281,000 and $564,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. For the three and six months ended June 30, 2017, the Company recognized amortization of $190,000 and $414,000, respectively, and tax credits

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of $174,000 and $484,000, respectively. The carrying value of the Company’s investments in these qualified affordable housing projects was $11.3 million and $11.0 million as of June 30, 2018 and December 31, 2017, respectively. At June 30, 2018 and December 31, 2017, the Company's recorded liability totaled $5.8 million and $7.3 million, respectively, for the related unfunded commitments, which are expected to be paid during the second half of 2018 or 2019.
 
Adoption of New Accounting Standards
On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606” and all subsequent amendments to the ASU (“Topic 606”). This ASU revised guidance for the recognition, measurement, and disclosure of revenue from contracts with customers. The guidance, as amended, is applicable to all entities and replaces a significant portion of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Most revenue associated with financial instruments, including interest income, loan origination fees, and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives, and sales of financial instruments are similarly excluded from the scope. The Company adopted this ASU using the modified retrospective approach, which requires a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance. The adoption of ASU No. 2016-09 did not have a material impact on the Company’s consolidated financial results but did result in expanded disclosures related to noninterest income and enhanced qualitative disclosures on the revenues within the scope of the new guidance. Refer to Note 11 “Revenue" for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606.
On January 1, 2018, the Company adopted ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to, among other things: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The adoption of ASU No. 2016-01 did not have a material impact on the Company’s consolidated financial statements and resulted in enhancements to the financial instrument disclosures.

On May 1, 2018, the Company early adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU simplifies the application of the hedge accounting guidance and improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The targeted improvements in ASU No. 2017-12 allowed the Company a one-time transfer of certain debt securities from HTM to AFS. The Company adopted this ASU using the modified retrospective approach. As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. The Company transferred HTM securities with a carrying amount of $187.4 million, which resulted in a $400,000 increase to AOCI. Refer to Note 3 "Securities" and Note 9 "Accumulated Other Comprehensive Income (Loss)" for further discussion regarding the adoption.

On May 1, 2018, the Company early adopted ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows for a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act and requires certain disclosures about the stranded tax effects. The Company reclassified approximately $107,000 from AOCI to retained earnings during the second quarter 2018. Refer to Note 9 "Accumulated Other Comprehensive Income (Loss)" for further discussion regarding the adoption.

The net impact to retained earnings of the adoption of ASU No. 2017-12 and ASU No. 2018-02 was $293,000.

Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets, but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, and lease executory costs for all entities. For lessors, this ASU modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is implementing new lease systems in conjunction with the adoption. Management is progressing with implementation, and while the Company continues to evaluate this standard and

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the effect of related disclosures, the primary effect of adoption will be to require recording right-of-use assets and corresponding lease obligations for current operating leases. Other implementation matters to be addressed include, but are not limited to, the determination of effects on the financial and capital ratios and the quantification of the impacts that this accounting guidance will have on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The CECL model will replace the Company's current accounting for PCI and impaired loans. The guidance also amends the AFS debt securities OTTI model. The amendment is effective for fiscal years beginning after December 15, 2019. The Company has established a cross-functional governance structure for the implementation of CECL. The Company is continuing to evaluate the impact ASU No. 2016-13 will have on its consolidated financial statements. This standard contains significant differences from existing U.S GAAP, and the implementation of this standard may result in increases to our reserves for credit losses of financial instruments; however, the quantitative impact cannot be reasonably estimated since this standard relies on economic conditions and trends that will impact the Company's portfolio at the time of adoption.

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2. ACQUISITIONS

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

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 350, Intangibles-Goodwill and Other. Measurement period adjustments that were made in the second quarter of 2018 include immaterial changes to the fair value of loans, buildings, OREO, deferred tax assets, and leases. The Company will continue to keep the measurement period open for certain accounts, including loans, real estate, and deferred tax assets, where its review procedures of any updated information related to the transaction are ongoing. If considered necessary, additional adjustments to the fair value measurement of these accounts will be made until all information is finalized, the Company's review procedures are complete, and the measurement period is closed. The following table provides a preliminary assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):
Purchase Price:
 
 
Fair value of shares of Union common stock issued & warrants converted
 
$
794,809

Cash paid for Xenith options
 
6,170

Total purchase price
 
$
800,979

 
 
 
Fair value of assets acquired:
 
 
Cash and cash equivalents
$
174,218

 
AFS securities
295,782

 
Restricted stock, at cost
27,569

 
Net loans
2,456,857

 
Premises and equipment
44,912

 
OREO
5,250

 
Core deposit intangibles
38,470

 
Other assets
202,910

 
Total assets
$
3,245,968

 
 
 
 
Fair value of liabilities assumed:
 
 
Deposits
$
2,549,683

 
Other short-term borrowings
235,000

 
Borrowings
55,542

 
Other liabilities
28,912

 
Total liabilities
$
2,869,137

 
 
 
 
Net assets acquired
 
$
376,831

Preliminary goodwill
 
$
424,148


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

-12-


flows that existed as of the acquisition date, management will adjust fair values in accordance with accounting for business combinations.

The acquired loans were divided into loans with evidence of credit quality deterioration which are accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, (acquired impaired) and loans that do not meet these criteria, which are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, (acquired performing). The fair values of the acquired performing loans were $2.4 billion and the fair values of the acquired impaired loans were $78.9 million. The gross contractually required principal and interest payments receivable for acquired performing loans was $2.7 billion. The best estimate of contractual cash flows not expected to be collected related to the acquired performing loans is $20.6 million.

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):
Contractually required principal and interest payments
$
113,891

Nonaccretable difference
(19,800
)
Cash flows expected to be collected
94,091

Accretable difference
(15,206
)
Fair value of loans acquired with a deterioration of credit quality
$
78,885


The following table presents certain pro forma information as if Xenith had been acquired on January 1, 2017. These results combine the historical results of Xenith in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2017. In particular, no adjustments have been made to eliminate the amount of Xenith’s provision for credit losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, 2017. Pro forma adjustments below include the net impact of accretion for 2017 and the elimination of merger-related costs for 2018. The Company expects to achieve further operating cost savings and other business synergies, including branch closures, as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):
 
Pro forma for the three months ended
 
Pro forma for the six months ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
Total revenues (1)
$
148,765

 
$
117,141

 
$
272,505

 
$
232,425

Net income
$
53,864

 
$
28,253

 
$
92,739

 
$
54,678

Earnings per share
$
0.82

 
$
0.43

 
$
1.41

 
$
0.83

(1) Includes net interest income and noninterest income.

Merger-related costs associated with the acquisition of Xenith were $8.3 million and $2.7 million for the three months ended June 30, 2018 and 2017, respectively, and $36.0 million and $2.7 million for the six months ended June 30, 2018 and 2017, respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred.

DHFB Acquisition
On April 1, 2018, the Bank completed its acquisition of DHFB, a Roanoke, Virginia-based investment advisory firm with approximately $600.0 million in assets under management and advisement at the time of the acquisition. The acquisition date fair value of consideration transferred totaled $7.4 million, which consisted of $4.8 million in cash and the remainder being contingent on achieving certain performance metrics. The contingent consideration is carried at fair value and is reported as a component of "Other Liabilities" in the Company's Consolidated Balance Sheet. The fair value of this liability will be assessed at each reporting period.

In connection with this transaction, the Company recorded $3.4 million in goodwill and $4.3 million of amortizable assets, which primarily relate to the value of customer relationships. The Company is amortizing these intangible assets over the period of expected benefit, which ranges from 5 to 15 years using various methods. The transaction was accounted for using

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the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. The fair values are subject to refinement for up to one year after the closing date of the acquisition. The Company did not incur any material expenses related to the acquisition of DHFB.

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3. SECURITIES 

Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of AFS securities as of June 30, 2018 and December 31, 2017 are summarized as follows (dollars in thousands):
 
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
(Losses)
 
Fair Value
June 30, 2018
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
525,328

 
$
5,635

 
$
(2,379
)
 
$
528,584

Corporate and other bonds (1)
148,933

 
681

 
(1,166
)
 
148,448

Mortgage-backed securities
885,734

 
1,212

 
(17,512
)
 
869,434

Other securities
11,740

 

 
(158
)
 
11,582

Total AFS securities
$
1,571,735

 
$
7,528

 
$
(21,215
)
 
$
1,558,048

 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
295,546

 
$
6,842

 
$
(564
)
 
$
301,824

Corporate and other bonds
113,625

 
1,131

 
(876
)
 
113,880

Mortgage-backed securities
552,431

 
2,596

 
(6,169
)
 
548,858

Other securities
9,737

 

 
(77
)
 
9,660

Total AFS securities
$
971,339

 
$
10,569

 
$
(7,686
)
 
$
974,222

(1) Other bonds includes asset-backed securities.

The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s AFS securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of June 30, 2018 and December 31, 2017. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
June 30, 2018
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
150,377

 
$
(2,128
)
 
$
6,444

 
$
(251
)
 
$
156,821

 
$
(2,379
)
Mortgage-backed securities
598,640

 
(12,356
)
 
141,647

 
(5,156
)
 
740,287

 
(17,512
)
Corporate bonds and other securities
47,827

 
(397
)
 
34,722

 
(927
)
 
82,549

 
(1,324
)
Total AFS securities
$
796,844

 
$
(14,881
)
 
$
182,813

 
$
(6,334
)
 
$
979,657

 
$
(21,215
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
25,790

 
$
(132
)
 
$
16,934

 
$
(432
)
 
$
42,724

 
$
(564
)
Mortgage-backed securities
298,439

 
(3,267
)
 
136,298

 
(2,902
)
 
434,737

 
(6,169
)
Corporate bonds and other securities
10,976

 
(99
)
 
44,408

 
(854
)
 
55,384

 
(953
)
Total AFS securities
$
335,205

 
$
(3,498
)
 
$
197,640

 
$
(4,188
)
 
$
532,845

 
$
(7,686
)
 
As of June 30, 2018, there were $182.8 million, or 75 issues, of individual AFS securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $6.3 million. As of December 31, 2017, there were $197.6 million, or 71 issues, of individual securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $4.2 million. The Company has determined that these securities are temporarily impaired at June 30, 2018 and December 31, 2017 for the reasons set out below:
 

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Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
 
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
Corporate and other bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
The following table presents the amortized cost and estimated fair value of AFS securities as of June 30, 2018 and December 31, 2017, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
June 30, 2018
 
December 31, 2017
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
35,062

 
$
35,155

 
$
25,179

 
$
25,326

Due after one year through five years
212,313

 
208,987

 
145,276

 
145,980

Due after five years through ten years
268,175

 
268,547

 
223,210

 
226,251

Due after ten years
1,056,185

 
1,045,359

 
577,674

 
576,665

Total AFS securities
$
1,571,735

 
$
1,558,048

 
$
971,339

 
$
974,222

 

For information regarding the estimated fair value of AFS securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of June 30, 2018 and December 31, 2017, see Note 7 “Commitments and Contingencies.”

Held to Maturity
During the second quarter of 2018, the Company adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 825): Targeted Improvements to Accounting for Hedging Activities.” As part of this adoption, the Company made a one-time election to transfer eligible HTM securities to the AFS category in order to optimize the investment portfolio management for capital and risk management considerations. These securities had a carrying value of $187.4 million on the date of the transfer.

The Company reports HTM securities on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from 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.
 

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The carrying value, gross unrealized gains and losses, and estimated fair values of HTM securities as of June 30, 2018 and December 31, 2017 are summarized as follows (dollars in thousands):
 
 
Carrying
 
Gross Unrealized
 
Estimated
 
Value (1)
 
Gains
 
(Losses)
 
Fair Value
June 30, 2018
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
47,604

 
$
70

 
$
(25
)
 
$
47,649

 
 
 
 
 
 
 
 
December 31, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
199,639

 
$
4,014

 
$
(170
)
 
$
203,483

 
(1) The carrying value includes $105,000 as of June 30, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from AFS securities, net of any accretion.
 
The following table shows the gross unrealized losses and fair value (dollars in thousands) of the Company’s HTM securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of June 30, 2018 and December 31, 2017. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
June 30, 2018
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
13,481

 
$
(25
)
 
$

 
$

 
$
13,481

 
$
(25
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
18,896

 
$
(139
)
 
$
1,084

 
$
(31
)
 
$
19,980

 
$
(170
)
 
As of June 30, 2018, there were no issues of individual HTM securities that had been in a continuous loss position for more than 12 months. As of December 31, 2017, there was $1.1 million, or two issues, of individual HTM securities that had been in a continuous loss position for more than 12 months and had an aggregate unrealized loss of $31,000. These securities were municipal bonds with minimal credit exposure. For this reason, the Company has determined that these securities in a loss position were temporarily impaired as of December 31, 2017. Because the Company does not intend to sell these investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of HTM securities as of June 30, 2018 and December 31, 2017, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
June 30, 2018
 
December 31, 2017
 
Carrying
Value (1)
 
Estimated
Fair Value
 
Carrying
Value
(1)
 
Estimated
Fair Value
Due in one year or less
$

 
$

 
$
3,221

 
$
3,230

Due after one year through five years
3,943

 
3,938

 
44,289

 
44,601

Due after five years through ten years
3,519

 
3,520

 
79,114

 
80,532

Due after ten years
40,142

 
40,191

 
73,015

 
75,120

Total HTM securities
$
47,604

 
$
47,649

 
$
199,639

 
$
203,483

 
(1) The carrying value includes $105,000 as of June 30, 2018 and $3.6 million as of December 31, 2017 of net unrealized gains present at the time of transfer from AFS securities, net of any accretion.
 

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For information regarding the estimated fair value of HTM securities which were pledged to secure public deposits as permitted or required by law as of June 30, 2018 and December 31, 2017, see Note 7 “Commitments and Contingencies.”
 
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At June 30, 2018 and December 31, 2017, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of the Bank's outstanding capital at both June 30, 2018 and December 31, 2017. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $52.4 million and $27.6 million for June 30, 2018 and December 31, 2017 and FHLB stock in the amount of $52.4 million and $47.7 million as of June 30, 2018 and December 31, 2017, respectively.
 
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three and six months ended June 30, 2018, and in accordance with accounting guidance, no OTTI was recognized.

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 six months ended June 30, 2018 and 2017 (dollars in thousands).
 
 
Three Months Ended
June 30, 2018
 
Six Months Ended June 30, 2018
Realized gains (losses):
 

 
 

Gross realized gains
$
2,095

 
$
2,793

Gross realized losses
(2,183
)
 
(2,668
)
Net realized gains
$
(88
)
 
$
125

 
 
 
 
Proceeds from sales of securities
$
193,666

 
$
309,516


 
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
Realized gains (losses):
 

 
 

Gross realized gains
$
180

 
$
661

Gross realized losses
(63
)
 
(63
)
Net realized gains
$
117

 
$
598

 
 
 
 
Proceeds from sales of securities
$
31,320

 
$
52,626




-18-


4. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at June 30, 2018 and December 31, 2017 (dollars in thousands):
 
June 30, 2018
 
December 31, 2017
Construction and Land Development
$
1,250,448

 
$
948,791

Commercial Real Estate - Owner Occupied
1,293,791

 
943,933

Commercial Real Estate - Non-Owner Occupied
2,318,589

 
1,713,659

Multifamily Real Estate
541,730

 
357,079

Commercial & Industrial
1,093,771

 
612,023

Residential 1-4 Family - Commercial
723,945

 
612,395

Residential 1-4 Family - Mortgage
607,155

 
485,690

Auto
296,706

 
282,474

HELOC
626,916

 
537,521

Consumer
298,021

 
408,667

Other Commercial
239,187

 
239,320

Total loans held for investment, net (1)
$
9,290,259

 
$
7,141,552

 
(1) Loans, as presented, are net of deferred fees and costs totaling $2.6 million and $1.3 million as of June 30, 2018 and December 31, 2017, respectively.
 
The following table shows the aging of the Company’s loan portfolio, by segment, at June 30, 2018 (dollars in thousands):
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater than 90
Days and still
Accruing
 
PCI
 
Nonaccrual
 
Current
 
Total Loans
Construction and Land Development
$
648

 
$
292

 
$
144

 
$
5,183

 
$
6,485

 
$
1,237,696

 
$
1,250,448

Commercial Real Estate - Owner Occupied
3,775

 
1,819

 
2,512

 
26,720

 
2,845

 
1,256,120

 
1,293,791

Commercial Real Estate - Non-Owner Occupied
44

 

 

 
24,680

 
3,068

 
2,290,797

 
2,318,589

Multifamily Real Estate
86

 

 

 
84

 

 
541,560

 
541,730

Commercial & Industrial
1,921

 
1,567

 
100

 
1,851

 
1,387

 
1,086,945

 
1,093,771

Residential 1-4 Family - Commercial
2,216

 
754

 
132

 
17,227

 
1,998

 
701,618

 
723,945

Residential 1-4 Family - Mortgage
4,926

 
2,988

 
2,669

 
18,002

 
7,552

 
571,018

 
607,155

Auto
2,187

 
419

 
121

 
11

 
463

 
293,505

 
296,706

HELOC
2,505

 
1,622

 
570

 
6,890

 
1,669

 
613,660

 
626,916

Consumer and all
other(1)
2,722

 
761

 
673

 
876

 
195

 
531,981

 
537,208

Total loans held for investment
$
21,030

 
$
10,222

 
$
6,921

 
$
101,524

 
$
25,662

 
$
9,124,900

 
$
9,290,259

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

-19-


The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2017 (dollars in thousands):
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater than 90
Days and still
Accruing
 
PCI
 
Nonaccrual
 
Current
 
Total Loans
Construction and Land Development
$
1,248

 
$
898

 
$
1,340

 
$
2,838

 
$
5,610

 
$
936,857

 
$
948,791

Commercial Real Estate - Owner Occupied
444

 
81

 

 
14,790

 
2,708

 
925,910

 
943,933

Commercial Real Estate - Non-Owner Occupied
187

 
84

 
194

 
6,610

 
2,992

 
1,703,592

 
1,713,659

Multifamily Real Estate

 

 

 
80

 

 
356,999

 
357,079

Commercial & Industrial
1,147

 
109

 
214

 
408

 
316

 
609,829

 
612,023

Residential 1-4 Family - Commercial
1,682

 
700

 
579

 
9,414

 
1,085

 
598,935

 
612,395

Residential 1-4 Family - Mortgage
3,838

 
2,541

 
546

 
3,733

 
6,269

 
468,763

 
485,690

Auto
3,541

 
185

 
40

 

 
413

 
278,295

 
282,474

HELOC
2,382

 
717

 
217

 
950

 
2,075

 
531,180

 
537,521

Consumer and all other(1)
2,404

 
2,052

 
402

 
198

 
275

 
642,656

 
647,987

Total loans held for investment
$
16,873

 
$
7,367

 
$
3,532

 
$
39,021

 
$
21,743

 
$
7,053,016

 
$
7,141,552

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

The following table shows the PCI loan portfolios, by segment and their delinquency status, at June 30, 2018 (dollars in thousands):
 
30-89 Days Past
Due
 
Greater than 90
Days
 
Current
 
Total
Construction and Land Development
$
269

 
$
1,054

 
$
3,860

 
$
5,183

Commercial Real Estate - Owner Occupied
171

 
4,026

 
22,523

 
26,720

Commercial Real Estate - Non-Owner Occupied
37

 
2,256

 
22,387

 
24,680

Multifamily Real Estate

 

 
84

 
84

Commercial & Industrial

 
536

 
1,315