Union Bankshares Reports Third Quarter Results

| Source: Union Bankshares Corporation Union Bankshares Corporation

RICHMOND, Va., Oct. 20, 2016 (GLOBE NEWSWIRE) -- Union Bankshares Corporation (the “Company” or “Union”) (NASDAQ:UBSH) today reported net income of $20.4 million and earnings per share of $0.47 for its third quarter ended September 30, 2016.  The quarterly results represent an increase of $1.1 million, or 5.5%, in net income and an increase of $0.03, or 6.8%, in earnings per share from the second quarter.  For the nine months ended September 30, 2016, net income was $56.7 million and earnings per share was $1.29, an increase of 15.1% and 18.3%, respectively, compared to the results for the nine months ended September 30, 2015.

“Union’s third quarter financial results continued to demonstrate the steady progress we are making toward our strategic growth and profitability objectives with another quarter of double digit loan and deposit growth and net income of $20.4 million,” said G. William Beale, chief executive officer of Union Bankshares Corporation.  “We also continued to make headway towards delivering the top-tier financial performance our shareholders expect as the return on average assets improved to 1.0% and return on tangible common equity increased to 12.0%.

“As John Asbury and I begin the CEO transition plan we recently announced, I want to thank all of you for your interest and investment in Union over the years.  While I’m proud of what the company has accomplished and the significant value the Company has created for our shareholders over the past 25 years, I believe that Union’s best days lie ahead and that John is the right person to lead the company into the future.”

Select highlights for the third quarter include:

  • Net income for the community bank segment was $19.6 million, or $0.45 per share, for the third quarter, compared to $18.9 million, or $0.43 per share, for the second quarter.  Net income for the community bank segment for the nine months ended September 30, 2016 was $55.3 million, or $1.26 per share.
  • The mortgage segment reported net income of $785,000, or $0.02 per share, for the third quarter, compared to net income of $539,000, or $0.01 per share, in the second quarter.  Net income for the mortgage segment for the nine months ended September 30, 2016 was $1.4 million, or $0.03 per share.
  • Return on Average Assets (“ROA”) was 1.00% for the quarter ended September 30, 2016 compared to ROA of 0.98% for the prior quarter and 0.96% for the third quarter of 2015.  Return on Average Tangible Common Equity (“ROTCE”) was 12.00% for the quarter ended September 30, 2016 compared to ROTCE of 11.60% for the prior quarter and 10.70% for the third quarter of 2015. 
  • As previously announced, the Company closed five in-store branches in the Richmond market on September 30, 2016 as part of its continuing efforts to become more efficient.  The Company incurred approximately $400,000 in related branch closure costs.
  • Loans held for investment grew $207.8 million, or 14.0% (annualized), from June 30, 2016 and increased $605.3 million, or 10.9%, from September 30, 2015.  Average loans increased $170.7 million, or 11.6% (annualized), from the prior quarter and increased $508.6 million, or 9.2%, from the same quarter in the prior year.
  • Period-end deposits increased $162.7 million, or 10.7% (annualized), from June 30, 2016 and grew $439.7 million, or 7.6%, from September 30, 2015.  Average deposits increased $179.4 million, or 11.9% (annualized), from the prior quarter and increased $390.8 million, or 6.7%, from the prior year.

NET INTEREST INCOME

Tax-equivalent net interest income was $69.5 million, an increase of $1.2 million from the second quarter, primarily driven by higher earning asset balances.  The third quarter tax-equivalent net interest margin decreased 8 basis points to 3.76% from 3.84% in the previous quarter.  Core tax-equivalent net interest margin (which excludes the 9 and 8 basis point impact of acquisition accounting accretion in the current and prior quarter, respectively) declined by 9 basis points to 3.67% from 3.76% in the previous quarter.  The decrease in the core tax-equivalent net interest margin was principally due to the 7 basis point decline in interest-earning asset yields and the 2 basis point increase in cost of funds.  The decline in interest-earnings asset yields was primarily driven by lower loan yields on new and renewed loans (4 basis points) and lower levels of loans fees recorded in the current quarter (3 basis points).

The Company’s tax-equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  During the third quarter, net accretion related to acquisition accounting increased $117,000, or 8.3%, from the prior quarter to $1.5 million for the quarter ended September 30, 2016.  The second and third quarters of 2016 and remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

  Loan Accretion Borrowings
Accretion
(Amortization)		 Total
For the quarter ended June 30, 2016 $1,259 $143  $1,402 
For the quarter ended September 30, 2016 1,338  181  1,519 
For the remaining three months of 2016 1,040  71  1,111 
For the years ending:      
2017 4,089  170  4,259 
2018 3,692  (143) 3,549 
2019 3,029  (286) 2,743 
2020 2,622  (301) 2,321 
2021 2,232  (316) 1,916 
Thereafter 8,691  (5,306) 3,385 
          

ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the third quarter, the Company experienced declines in nonperforming asset balances as well as in net charge-off levels from the prior quarter.  Nonperforming assets, past due loans, and net charge-offs were also down from the prior year.   The loan loss provision and the allowance for loan loss increased from the prior quarter due to loan growth in the current quarter.

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired loans (“PCI”) totaling $62.3 million (net of fair value mark of $15.6 million).

Nonperforming Assets (“NPAs”)
At September 30, 2016, NPAs totaled $23.3 million, a decrease of $11.8 million, or 33.7%, from September 30, 2015 and a decline of $984,000, or 4.1%, from June 30, 2016.  In addition, NPAs as a percentage of total outstanding loans declined 25 basis points from 0.63% a year earlier and decreased 3 basis points from 0.41% last quarter to 0.38% in the current quarter.  The following table shows a summary of asset quality balances at the quarter ended (dollars in thousands):

  September 30, June 30, March 31, December 31, September 30,
  2016 2016 2016 2015 2015
Nonaccrual loans, excluding PCI loans $12,677  $10,861  $13,092  $11,936  $12,966 
Foreclosed properties 7,927  10,076  10,941  11,994  18,789 
Former bank premises 2,654  3,305  3,305  3,305  3,305 
Total nonperforming assets $23,258  $24,242  $27,338  $27,235  $35,060 
                     

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

  September 30, June 30, March 31, December 31, September 30,
  2016 2016 2016 2015 2015
Beginning Balance $10,861  $13,092  $11,936  $12,966  $9,521 
Net customer payments (1,645) (2,859) (1,204) (1,493) (1,104)
Additions 4,359  2,568  5,150  2,344  5,213 
Charge-offs (660) (1,096) (1,446) (1,245) (541)
Loans returning to accruing status (23) (396) (932) (402) (123)
Transfers to OREO (215) (448) (412) (234) — 
Ending Balance $12,677  $10,861  $13,092  $11,936  $12,966 
                     

The following table shows the activity in other real estate owned ("OREO") for the quarter ended (dollars in thousands):

  September 30, June 30, March 31, December 31, September 30,
  2016 2016 2016 2015 2015
Beginning Balance $13,381  $14,246  $15,299  $22,094  $22,222 
Additions of foreclosed property 246  501  456  234  1,082 
Additions of former bank premises —  —  —  1,822  — 
Capitalized improvements —  —  —  —  9 
Valuation adjustments (479) (274) (126) (4,229) (473)
Proceeds from sales (2,844) (1,086) (1,390) (4,961) (767)
Gains (losses) from sales 277  (6) 7  339  21 
Ending Balance $10,581  $13,381  $14,246  $15,299  $22,094 
                     

During the third quarter, the majority of sales of OREO were related to land and residential real estate.

Past Due Loans
Past due loans still accruing interest totaled $26.9 million, or 0.44% of total loans, at September 30, 2016 compared to $27.5 million, or 0.50%, a year ago and $25.3 million, or 0.43%, at June 30, 2016.  At September 30, 2016, loans past due 90 days or more and accruing interest totaled $3.5 million, or 0.06% of total loans, compared to $5.2 million, or 0.09%, a year ago and $3.5 million, or 0.06%, at June 30, 2016.

Net Charge-offs
For the third quarter, net charge-offs were $929,000, or 0.06% on an annualized basis, compared to $1.0 million, or 0.07%, for the same quarter last year and $1.6 million, or 0.11%, for the prior quarter.  For the nine months ended September 30, 2016, net charge-offs were $4.7 million, or 0.11% on an annualized basis, compared to $6.4 million, or 0.15%, for the same period last year.

Provision
The provision for loan losses for the current quarter was $2.4 million, an increase of $435,000 compared to the same quarter a year ago and a slight increase of $97,000 compared to the previous quarter.  The increase in provision for loan losses in the current quarter compared to the prior periods was primarily driven by higher loan balances.  Additionally, a $75,000 provision was recognized during the current quarter for unfunded loan commitments, resulting in a total of $2.5 million in provision for credit losses for the quarter.

Allowance for Loan Losses
The allowance for loan losses (“ALL”) increased $1.5 million from June 30, 2016 to $36.5 million at September 30, 2016 primarily due to loan growth during the quarter.  The allowance for loan losses as a percentage of the total loan portfolio was 0.59% at September 30, 2016, 0.59% at June 30, 2016, and 0.60% at September 30, 2015.  The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 0.90% at September 30, 2016, a decrease from 0.92% from the prior quarter and a decrease from 1.01% from the quarter ended September 30, 2015.  In acquisition accounting, there is no carryover of previously established allowance for loan losses, as acquired loans are recorded at fair value.

The nonaccrual loan coverage ratio was 288.3% at September 30, 2016, compared to 322.9% at June 30, 2016 and 256.6% at September 30, 2015.  The current level of the allowance for loan losses reflects specific reserves related to nonperforming loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers important in assessing the adequacy of the allowance for loan losses.

NONINTEREST INCOME

Noninterest income increased $957,000, or 5.3%, to $19.0 million for the quarter ended September 30, 2016 from $18.0 million in the prior quarter, primarily driven by higher fiduciary and asset management fees of $511,000, or 21.9%, due to the Old Dominion Capital Management acquisition, higher mortgage banking income of $235,000, and higher customer-related fee income of $190,000.  Increases in customer-related fee income were primarily driven by higher overdraft and letter of credit fees.

Mortgage banking income increased $235,000, or 7.9%, to $3.2 million in the third quarter compared to $3.0 million in the second quarter, related to increased mortgage loan originations.  Mortgage loan originations increased by $16.6 million, or 11.8%, in the current quarter to $156.7 million from $140.1 million in the second quarter.  Of the mortgage loan originations in the current quarter, 33.8% were refinances, which was consistent with 33.6% in the prior quarter.

NONINTEREST EXPENSE

Noninterest expense increased $1.7 million, or 3.0%, to $56.9 million for the quarter ended September 30, 2016 from $55.3 million in the prior quarter.  Salaries and benefits expenses increased $2.0 million primarily due to increases in incentive compensation and profit sharing expenses tied to the Company's financial performance as well as costs incurred related to the CEO succession plan announced during the quarter.  Other increases in noninterest expense included branch closure costs of approximately $400,000 related to the five branches closed on September 30, 2016, higher loan volume driven expenses of $302,000, and higher transaction driven data processing fees of $309,000. These increases were partially offset by declines in professional fees of $653,000 due to lower project-related consulting expenses and lower OREO and credit-related costs of $391,000 primarily due to gains on sales of OREO property compared to losses in the prior quarter and lower real estate tax expenses on foreclosed properties.

In addition, the Company realized franchise tax credits related to the Company's investment in a historic rehabilitation project that was recently completed which reduced expenses by approximately $900,000 during the quarter.  The Company also earned federal historic tax credits of approximately $780,000 associated with this investment which reduced its effective tax rate to 23.3% during the quarter.

BALANCE SHEET

At September 30, 2016, total assets were $8.3 billion, an increase of $157.7 million from June 30, 2016 and an increase of $663.9 million from September 30, 2015.  The increase in assets was mostly related to loan growth.

At September 30, 2016, loans held for investment were $6.1 billion, an increase of $207.8 million, or 14.0% (annualized), from June 30, 2016, while average loans increased $170.7 million, or 11.6% (annualized), from the prior quarter.  Loans held for investment increased $605.3 million, or 10.9%, from September 30, 2015, while quarterly average loans increased $508.6 million, or 9.2%, from the prior year.

At September 30, 2016, total deposits were $6.3 billion, an increase of $162.7 million, or 10.7% (annualized), from June 30, 2016, while average deposits increased $179.4 million, or 11.9% (annualized), from the prior quarter. Total deposits grew $439.7 million, or 7.6%, from September 30, 2015, while average deposits increased $390.8 million, or 6.7%, from the prior year.

At September 30, 2016, June 30, 2016, and September 30, 2015, respectively, the Company had a common equity Tier 1 capital ratio of 9.78%, 9.94%, and 10.75%; a Tier 1 capital ratio of 11.07%, 11.27%, and 12.16%; a total capital ratio of 11.60%, 11.79%, and 12.69%; and a leverage ratio of 9.89%, 10.01%, and 10.80%.

The Company’s common equity to asset ratios at September 30, 2016, June 30, 2016, and September 30, 2015 were 12.12%, 12.21%, and 13.10%, respectively, while its tangible common equity to tangible assets ratio was 8.57%, 8.59%, and 9.29%, respectively.  The decrease in capital ratios from prior periods is primarily due to share repurchases and asset growth.

During the third quarter, the Company declared and paid cash dividends of $0.19 per common share, consistent with the dividend paid in the prior quarter and an increase of $0.02, or 11.8%, compared to the same quarter in the prior year.

On February 25, 2016, the Company’s Board of Directors authorized a share repurchase program to purchase up to $25.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions.  The Company repurchased approximately 100,000 shares during the quarter ended September 30, 2016 and had approximately $13.0 million available for repurchase under the current program.

ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ:UBSH) is the holding company for Union Bank & Trust, which has 115 banking offices and approximately 190 ATMs located throughout Virginia. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products, Old Dominion Capital Management, Inc., which provides investment advisory services, and Union Insurance Group, LLC, which offers various lines of insurance products.

Additional information on the Company is available at http://investors.bankatunion.com.

Union Bankshares Corporation will hold a conference call on Thursday, October 20th, at 9:00 a.m. Eastern Time during which management will review earnings and performance trends.  Callers wishing to participate may call toll-free by dialing (877) 668-4908.  The conference ID number is 94252786.

NON-GAAP MEASURES

In reporting the results of the quarter ended September 30, 2016, the Company has provided supplemental performance measures on a tangible basis.  Tangible common equity is used in the calculation of certain capital and per share ratios. The Company believes tangible common equity and the 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.

These measures are a supplement to GAAP used to prepare the Company’s financial statements and should not be viewed as a substitute for GAAP measures.  In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact.  Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events.  Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance, or achievements expressed or implied by such forward-looking statements.  Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic and bank industry conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, stock and bond markets, accounting standards or interpretations of existing standards, mergers and acquisitions, technology, information security, and consumer spending and saving habits.  More information is available on the Company’s website, http://investors.bankatunion.com. The information on the Company’s website is not a part of this press release. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
KEY FINANCIAL RESULTS
(Dollars in thousands, except share data)
(FTE - "Fully Taxable Equivalent")
  Three Months Ended Nine Months Ended
  9/30/16 6/30/16 9/30/15 9/30/16 9/30/15
Results of Operations          
Interest and dividend income $74,433  $72,781  $70,000  $217,964  $207,454 
Interest expense 7,405  7,005  6,556  21,429  18,225 
Net interest income 67,028  65,776  63,444  196,535  189,229 
Provision for credit losses 2,472  2,300  2,062  7,376  7,561 
Net interest income after provision for credit losses 64,556  63,476  61,382  189,159  181,668 
Noninterest income 18,950  17,993  16,725  52,857  47,990 
Noninterest expenses 56,913  55,251  53,325  166,436  162,405 
Income before income taxes 26,593  26,218  24,782  75,580  67,253 
Income tax expense 6,192  6,881  6,566  18,881  17,989 
Net income $20,401  $19,337  $18,216  $56,699  $49,264 
           
Interest earned on earning assets (FTE) $76,860  $75,232  $72,287  $225,331  $214,195 
Net interest income (FTE) 69,455  68,227  65,731  203,902  195,970 
Core deposit intangible amortization 1,683  1,745  2,074  5,308  6,435 
           
Net income - community bank segment $19,616  $18,798  $18,157  $55,321  $49,377 
Net income (loss) - mortgage segment 785  539  59  1,378  (113)
           
Key Ratios          
Earnings per common share, diluted $0.47  $0.44  $0.40  $1.29  $1.09 
Return on average assets (ROA) 1.00% 0.98% 0.96% 0.95% 0.88%
Return on average equity (ROE) 8.14% 7.88% 7.26% 7.64% 6.65%
Return on average tangible common equity (ROTCE) 12.00% 11.60% 10.70% 11.25% 9.86%
Efficiency ratio (FTE) 64.38% 64.08% 64.67% 64.82% 66.57%
Efficiency ratio - community bank segment (FTE) 64.35% 63.77% 63.65% 64.45% 65.37%
Efficiency ratio - mortgage bank segment (FTE) 68.81% 75.31% 94.77% 77.73% 100.82%
Net interest margin (FTE) 3.76% 3.84% 3.86% 3.80% 3.93%
Yields on earning assets (FTE) 4.16% 4.23% 4.25% 4.20% 4.29%
Cost of interest-bearing liabilities (FTE) 0.52% 0.51% 0.50% 0.52% 0.47%
Cost of funds (FTE) 0.40% 0.39% 0.39% 0.40% 0.36%
Net interest margin, core (FTE) (1) 3.67% 3.76% 3.77% 3.73% 3.82%
Yields on earning assets (FTE), core (1) 4.09% 4.16% 4.17% 4.14% 4.23%
Cost of interest-bearing liabilities (FTE), core (1) 0.53% 0.52% 0.52% 0.53% 0.53%
Cost of funds (FTE), core (1) 0.42% 0.40% 0.40% 0.41% 0.41%
           
Per Share Data          
Earnings per common share, basic $0.47  $0.44  $0.40  $1.29  $1.09 
Earnings per common share, diluted 0.47  0.44  0.40  1.29  1.09 
Cash dividends paid per common share 0.19  0.19  0.17  0.57  0.49 
Market value per share 26.77  24.71  24.00  26.77  24.00 
Book value per common share 23.18  22.87  22.24  23.18  22.24 
Tangible book value per common share 15.75  15.44  15.11  15.75  15.11 
Price to earnings ratio, diluted 14.32  13.96  15.12  15.54  16.47 
Price to book value per common share ratio 1.15  1.08  1.08  1.15  1.08 
Price to tangible common share ratio 1.70  1.60  1.59  1.70  1.59 
Weighted average common shares outstanding, basic 43,565,937  43,746,583  45,087,409  43,853,548  45,107,290 
Weighted average common shares outstanding, diluted 43,754,915  43,824,183  45,171,610  43,967,725  45,189,578 
Common shares outstanding at end of period 43,556,486  43,619,867  44,990,569  43,556,486  44,990,569 
                


      
  Three Months Ended  Nine Months Ended
  9/30/16
  6/30/16
  9/30/15  9/30/16  9/30/15 
Capital Ratios                    
Common equity Tier 1 capital ratio (2) 9.78%  9.94%  10.75%  9.78%  10.75% 
Tier 1 capital ratio (2) 11.07%  11.27%  12.16%  11.07%  12.16% 
Total capital ratio (2) 11.60%  11.79%  12.69%  11.60%  12.69% 
Leverage ratio (Tier 1 capital to average assets) (2) 9.89%  10.01%  10.80%  9.89%  10.80% 
Common equity to total assets 12.12%  12.21%  13.10%  12.12%  13.10% 
Tangible common equity to tangible assets 8.57%  8.59%  9.29%  8.57%  9.29% 
           
Financial Condition          
Assets $8,258,230   $8,100,561   $7,594,313   $8,258,230   $7,594,313  
Loans held for investment 6,148,918   5,941,098   5,543,621   6,148,918   5,543,621  
Earning Assets 7,466,956   7,282,137   6,827,669   7,466,956   6,827,669  
Goodwill 298,191   297,659   293,522   298,191   293,522  
Amortizable intangibles, net 22,343   23,449   25,320   22,343   25,320  
Deposits 6,258,506   6,095,826   5,818,853   6,258,506   5,818,853  
Stockholders' equity 1,000,964   989,201   995,012   1,000,964   995,012  
Tangible common equity (3) 680,430   668,093   676,170   680,430   676,170  
           
Loans held for investment, net of deferred fees and costs          
Construction and land development $776,430   $765,997   $694,645   $776,430   $694,645  
Commercial real estate - owner occupied 857,142   831,880   863,578   857,142   863,578  
Commercial real estate - non-owner occupied 1,454,828   1,370,745   1,223,607   1,454,828   1,223,607  
Multifamily real estate 339,313   337,723   329,959   339,313   329,959  
Commercial & Industrial 509,857   469,054   409,657   509,857   409,657  
Residential 1-4 Family 999,361   992,457   987,788   999,361   987,788  
Auto 255,188   244,575   225,994   255,188   225,994  
HELOC 524,097   519,196   514,362   524,097   514,362  
Consumer and all other 432,702   409,471   294,031   432,702   294,031  
Total loans held for investment $6,148,918   $5,941,098   $5,543,621   $6,148,918   $5,543,621  
           
Deposits          
NOW accounts $1,635,446   $1,563,297   $1,382,891   $1,635,446   $1,382,891  
Money market accounts 1,398,177   1,366,451   1,318,229   1,398,177   1,318,229  
Savings accounts 596,702   598,622   569,667   596,702   569,667  
Time deposits of $100,000 and over 528,227   521,138   527,642   528,227   527,642  
Other time deposits 657,686   653,584   682,379   657,686   682,379  
Total interest-bearing deposits $4,816,238   $4,703,092   $4,480,808   $4,816,238   $4,480,808  
Demand deposits 1,442,268   1,392,734   1,338,045   1,442,268   1,338,045  
Total deposits $6,258,506   $6,095,826   $5,818,853   $6,258,506   $5,818,853  
           
Averages          
Assets $8,153,951   $7,949,576   $7,521,841   $7,956,841   $7,448,573  
Loans held for investment 6,033,723   5,863,007   5,525,119   5,869,511   5,445,243  
Loans held for sale 42,755   30,698   44,904   33,619   42,250  
Securities 1,218,552   1,202,772   1,138,462   1,202,882   1,141,793  
Earning assets 7,354,684   7,153,627   6,751,654   7,159,813   6,668,812  
Deposits 6,204,958   6,025,545   5,814,146   6,043,892   5,721,980  
Certificates of deposit 1,181,936   1,164,561   1,227,835   1,172,856   1,243,546  
Interest-bearing deposits 4,796,505   4,642,899   4,501,411   4,667,891   4,450,043  
Borrowings 884,597   881,027   661,517   860,941   681,295  
Interest-bearing liabilities 5,681,102   5,523,926   5,162,928   5,528,833   5,131,338  
Stockholders' equity 996,668   987,147   995,463   991,097   989,749  
Tangible common equity (3) 676,308   670,503   675,618   673,468   667,792  
                     


           
  Three Months Ended Nine Months Ended
  9/30/16
 6/30/16 9/30/15
 9/30/16 9/30/15
                     
Asset Quality                    
Allowance for Loan Losses (ALL)                    
Beginning balance $35,074  $34,399  $32,344  $34,047  $32,384 
Add: Recoveries 534  660  1,299  2,022  2,994 
Less: Charge-offs 1,463  2,285  2,336  6,728  9,370 
Add: Provision for loan losses 2,397  2,300  1,962  7,201  7,261 
Ending balance $36,542  $35,074  $33,269  $36,542  $33,269 
           
ALL / total outstanding loans 0.59% 0.59% 0.60% 0.59% 0.60%
ALL / total outstanding loans, adjusted for acquisition accounting (4) 0.90% 0.92% 1.01% 0.90% 1.01%
Net charge-offs / total average loans 0.06% 0.11% 0.07% 0.11% 0.15%
Provision / total average loans 0.16% 0.16% 0.14% 0.16% 0.18%
           
Total PCI Loans $62,346  $67,170  $78,606  $62,346  $78,606 
           
Nonperforming Assets          
Construction and land development $2,301  $1,604  $3,142  $2,301  $3,142 
Commercial real estate - owner occupied 1,609  1,661  3,988  1,609  3,988 
Commercial real estate - non-owner occupied —  —  200  —  200 
Commercial & Industrial 1,344  263  403  1,344  403 
Residential 1-4 Family 5,279  5,448  3,960  5,279  3,960 
Auto 231  140  89  231  89 
HELOC 1,464  1,495  937  1,464  937 
Consumer and all other 449  250  247  449  247 
Nonaccrual loans $12,677  $10,861  $12,966  $12,677  $12,966 
Other real estate owned 10,581  13,381  22,094  10,581  22,094 
Total nonperforming assets (NPAs) $23,258  $24,242  $35,060  $23,258  $35,060 
Construction and land development $610  $116  $209  $610  $209 
Commercial real estate - owner occupied 304  439  680  304  680 
Commercial real estate - non-owner occupied —  723  1,165  —  1,165 
Multifamily real estate —  —  656  —  656 
Commercial & Industrial 77  117  470  77  470 
Residential 1-4 Family 2,005  1,302  1,447  2,005  1,447 
Auto 28  144  119  28  119 
HELOC 407  642  282  407  282 
Consumer and all other 98  50  136  98  136 
Loans ≥ 90 days and still accruing $3,529  $3,533  $5,164  $3,529  $5,164 
Total NPAs and loans ≥ 90 days $26,787  $27,775  $40,224  $26,787  $40,224 
NPAs / total outstanding loans 0.38% 0.41% 0.63% 0.38% 0.63%
NPAs / total assets 0.28% 0.30% 0.46% 0.28% 0.46%
ALL / nonperforming loans 288.25% 322.94% 256.59% 288.25% 256.59%
ALL / nonperforming assets 157.12% 144.68% 94.89% 157.12% 94.89%
           
Troubled Debt Restructurings          
Performing $11,824  $11,885  $9,468  $11,824  $9,468 
Nonperforming 1,452  1,658  2,087  1,452  2,087 
Total troubled debt restructurings $13,276  $13,543  $11,555  $13,276  $11,555 
                     


    
 Three Months Ended
 Nine Months Ended
 9/30/16 6/30/16 9/30/15
 9/30/16
 9/30/15
Past Due Detail                   
Construction and land development$309  $402  $799  $309  $799 
Commercial real estate - owner occupied1,411  912  1,148  1,411  1,148 
Commercial real estate - non-owner occupied324  267  752  324  752 
Commercial & Industrial567  2,464  687  567  687 
Residential 1-4 Family4,985  5,476  4,342  4,985  4,342 
Auto1,846  1,282  1,386  1,846  1,386 
HELOC2,600  1,347  3,240  2,600  3,240 
Consumer and all other1,713  1,364  752  1,713  752 
Loans 30-59 days past due$13,755  $13,514  $13,106  $13,755  $13,106 
          
Construction and land development$697  $1,177  $105  $697  $105 
Commercial real estate - owner occupied365  —  165  365  165 
Commercial real estate - non-owner occupied—  —  588  —  588 
Multifamily real estate—  —  272  —  272 
Commercial & Industrial51  62  791  51  791 
Residential 1-4 Family6,345  5,033  5,341  6,345  5,341 
Auto239  377  285  239  285 
HELOC899  1,228  1,204  899  1,204 
Consumer and all other1,037  412  519  1,037  519 
Loans 60-89 days past due$9,633  $8,289  $9,270  $9,633  $9,270 
          
Alternative Performance Measures (non-GAAP)         
Tangible Common Equity (3)         
Ending equity$1,000,964  $989,201  $995,012  $1,000,964  $995,012 
Less: Ending goodwill298,191  297,659  293,522  298,191  293,522 
Less: Ending core deposit intangibles18,001  19,685  25,320  18,001  25,320 
Less: Ending other amortizable intangibles4,342  3,764  —  4,342  — 
Ending tangible common equity (non-GAAP)$680,430  $668,093  $676,170  $680,430  $676,170 
          
Average equity$996,668  $987,147  $995,463  $991,097  $989,749 
Less: Average goodwill297,707  294,886  293,522  295,380  293,522 
Less: Average core deposit intangibles18,820  20,517  26,323  20,550  28,435 
Less: Average other amortizable intangibles3,833  1,241  —  1,699  — 
Average tangible common equity (non-GAAP)$676,308  $670,503  $675,618  $673,468  $667,792 
          
ALL to loans, adjusted for acquisition accounting (non-GAAP)(4)        
Allowance for loan losses$36,542  $35,074  $33,269  $36,542  $33,269 
Remaining fair value mark on purchased performing loans18,154  19,092  21,884  18,154  21,884 
Adjusted allowance for loan losses$54,696  $54,166  $55,153  $54,696  $55,153 
          
Loans, net of deferred fees$6,148,918  $5,941,098  $5,543,621  $6,148,918  $5,543,621 
Remaining fair value mark on purchased performing loans18,154  19,092  21,884  18,154  21,884 
Less: Purchased credit impaired loans, net of fair value mark 62,346  67,170  78,606  62,346  78,606 
Adjusted loans, net of deferred fees$6,104,726  $5,893,020  $5,486,899  $6,104,726  $5,486,899 
          
ALL / gross loans, adjusted for acquisition accounting0.90% 0.92% 1.01% 0.90% 1.01%
               


     
  Three Months Ended
 Nine Months Ended
  9/30/16
 6/30/16
9/30/15
 9/30/16
 9/30/15
Mortgage Origination Volume                    
Refinance Volume $52,883  $47,033  $47,788  $137,221  $156,722 
Construction Volume 20,760  21,751  21,994  57,405  62,491 
Purchase Volume 83,014  71,297  78,286  200,323  207,870 
Total Mortgage loan originations $156,657  $140,081  $148,068  $394,949  $427,083 
% of originations that are refinances 33.8% 33.6% 32.3% 34.7% 36.7%
           
Other Data          
End of period full-time employees 1,391  1,423  1,418  1,391  1,418 
Number of full-service branches 115  120  124  115  124 
Number of full automatic transaction machines (ATMs) 193  200  202  193  202 
                

(1)  The core metrics, FTE, exclude the impact of acquisition accounting accretion and amortization adjustments in net interest income.

(2) All ratios at September 30, 2016 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

(3) Tangible common equity is used in the calculation of certain capital and per share ratios.  The Company believes tangible common equity and the 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.

(4) The allowance for loan losses ratio, adjusted for acquisition accounting (non-GAAP), includes an adjustment for the fair value mark on purchased performing loans. The purchased performing loans are reported net of the related fair value mark in loans, net of deferred fees, on the Company’s Consolidated Balance Sheet; therefore, the fair value mark is added back to the balance to represent the total loan portfolio. The adjusted allowance for loan losses, including the fair value mark, represents the total reserve on the Company’s loan portfolio. The PCI loans, net of the respective fair value mark, are removed from the loans, net of deferred fees, as these PCI loans are not covered by the allowance established by the Company unless changes in expected cash flows indicate that one of the PCI loan pools are impaired, at which time an allowance for PCI loans will be established. GAAP requires the acquired allowance for loan losses not be carried over in an acquisition or merger. The Company believes the presentation of the allowance for loan losses ratio, adjusted for acquisition accounting, is useful to investors because the acquired loans were purchased at a market discount with no allowance for loan losses carried over to the Company, and the fair value mark on the purchased performing loans represents the allowance associated with those purchased loans. The Company believes that this measure is a better reflection of the reserves on the Company’s loan portfolio.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)      
 September 30,
  December 31, September 30,
 2016  2015 2015
ASSETS                  
Cash and cash equivalents:                  
Cash and due from banks$103,979   $111,323  $102,955 
Interest-bearing deposits in other banks51,303   29,670  76,002 
Federal funds sold893   1,667  237 
Total cash and cash equivalents156,175   142,660  179,194 
Securities available for sale, at fair value954,984   903,292  888,692 
Securities held to maturity, at carrying value200,839   205,374  199,363 
Restricted stock, at cost63,204   51,828  52,721 
Loans held for sale46,814   36,030  65,713 
Loans held for investment, net of deferred fees and costs6,148,918   5,671,462  5,543,621 
Less allowance for loan losses36,542   34,047  33,269 
Net loans held for investment6,112,376   5,637,415  5,510,352 
Premises and equipment, net123,416   126,028  129,191 
Other real estate owned, net of valuation allowance10,581   15,299  22,094 
Goodwill298,191   293,522  293,522 
Core deposit intangibles, net18,001   23,310  25,320 
Other amortizable intangibles, net4,342   —  — 
Bank owned life insurance177,847   173,687  142,433 
Other assets91,460   84,846  85,718 
Total assets$8,258,230   $7,693,291  $7,594,313 
LIABILITIES      
Noninterest-bearing demand deposits$1,442,268   $1,372,937  $1,338,045 
Interest-bearing deposits4,816,238   4,590,999  4,480,808 
Total deposits6,258,506   5,963,936  5,818,853 
Securities sold under agreements to repurchase64,225   84,977  99,417 
Other short-term borrowings601,500   304,000  332,000 
Long-term borrowings259,902   291,198  290,732 
Other liabilities73,133   53,813  58,299 
Total liabilities7,257,266   6,697,924  6,599,301 
Commitments and contingencies      
STOCKHOLDERS' EQUITY      
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,556,486 shares, 44,785,674 shares, and 44,990,569 shares, respectively.57,444   59,159  59,514 
Additional paid-in capital603,785   631,822  638,511 
Retained earnings329,876   298,134  288,841 
Accumulated other comprehensive income9,859   6,252  8,146 
Total stockholders' equity1,000,964   995,367  995,012 
Total liabilities and stockholders' equity$8,258,230   $7,693,291  $7,594,313 
             


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)         
 Three Months Ended Nine Months Ended
 September 30, June 30,
 September 30, September 30, September 30,
 2016 2016
 2015
 2016
 2015
Interest and dividend income:                   
Interest and fees on loans$66,190  $64,747  $62,651  $193,884  $185,707 
Interest on deposits in other banks65  65  23  178  64 
Interest and dividends on securities:         
Taxable4,732  4,510  3,954  13,558  11,621 
Nontaxable3,446  3,459  3,372  10,344  10,062 
Total interest and dividend income74,433  72,781  70,000  217,964  207,454 
Interest expense:         
Interest on deposits4,552  4,197  4,204  12,945  11,204 
Interest on federal funds purchased2  2  1  5  6 
Interest on short-term borrowings763  708  223  2,093  728 
Interest on long-term borrowings2,088  2,098  2,128  6,386  6,287 
Total interest expense7,405  7,005  6,556  21,429  18,225 
Net interest income67,028  65,776  63,444  196,535  189,229 
Provision for credit losses2,472  2,300  2,062  7,376  7,561 
Net interest income after provision for credit losses 64,556  63,476  61,382  189,159  181,668 
Noninterest income:         
Service charges on deposit accounts4,965  4,754  4,965  14,454  13,800 
Other service charges and fees4,397  4,418  3,983  12,971  11,618 
Fiduciary and asset management fees2,844  2,333  2,304  7,315  6,835 
Mortgage banking income, net3,207  2,972  2,630  8,324  7,582 
Gains on securities transactions, net—  3  75  145  672 
Other-than-temporary impairment losses—  —  (300) —  (300)
Bank owned life insurance income1,389  1,361  1,161  4,122  3,431 
Other operating income2,148  2,152  1,907  5,526  4,352 
Total noninterest income18,950  17,993  16,725  52,857  47,990 
Noninterest expenses:         
Salaries and benefits30,493  28,519  25,853  87,061  78,905 
Occupancy expenses4,841  4,809  4,915  14,627  15,220 
Furniture and equipment expenses2,635  2,595  3,015  7,867  8,818 
Printing, postage, and supplies1,147  1,280  1,191  3,566  3,970 
Communications expense948  927  1,159  2,964  3,481 
Technology and data processing3,917  3,608  3,549  11,340  10,020 
Professional services1,895  2,548  1,991  6,432  5,008 
Marketing and advertising expense1,975  1,924  1,781  5,838  5,841 
FDIC assessment premiums and other insurance1,262  1,379  1,351  4,003  4,030 
Other taxes639  1,607  1,569  3,864  4,674 
Loan-related expenses1,531  1,229  1,341  3,638  3,173 
OREO and credit-related expenses503  894  1,263  1,965  4,415 
Amortization of intangible assets1,843  1,745  2,074  5,468  6,435 
Training and other personnel costs863  905  1,198  2,512  2,831 
Other expenses2,421  1,282  1,075  5,291  5,584 
Total noninterest expenses56,913  55,251  53,325  166,436  162,405 
Income before income taxes26,593  26,218  24,782  75,580  67,253 
Income tax expense6,192  6,881  6,566  18,881  17,989 
Net income$20,401  $19,337  $18,216  $56,699  $49,264 
Basic earnings per common share$0.47  $0.44  $0.40  $1.29  $1.09 
Diluted earnings per common share$0.47  $0.44  $0.40  $1.29  $1.09 
                    


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Dollars in thousands)       
 Community Bank Mortgage Eliminations Consolidated
Three Months Ended September 30, 2016               
Net interest income$66,605  $423  $—  $67,028 
Provision for credit losses2,455  17  —  2,472 
Net interest income after provision for credit losses64,150  406  —  64,556 
Noninterest income15,589  3,501  (140) 18,950 
Noninterest expenses54,353  2,700  (140) 56,913 
Income before income taxes25,386  1,207  —  26,593 
Income tax expense5,770  422  —  6,192 
Net income$19,616  $785  $—  $20,401 
Total assets$8,251,351  $90,692  $(83,813) $8,258,230 
        
Three Months Ended June 30, 2016       
Net interest income$65,478  $298  $—  $65,776 
Provision for credit losses2,260  40  —  2,300 
Net interest income after provision for credit losses63,218  258  —  63,476 
Noninterest income14,940  3,207  (154) 17,993 
Noninterest expenses52,766  2,639  (154) 55,251 
Income before income taxes25,392  826  —  26,218 
Income tax expense6,594  287  —  6,881 
Net income$18,798  $539  $—  $19,337 
Total assets$8,094,176  $75,802  $(69,417) $8,100,561 
        
Three Months Ended September 30, 2015       
Net interest income$63,075  $369  $—  $63,444 
Provision for credit losses2,000  62  —  2,062 
Net interest income after provision for credit losses61,075  307  —  61,382 
Noninterest income14,287  2,608  (170) 16,725 
Noninterest expenses50,674  2,821  (170) 53,325 
Income before income taxes24,688  94  —  24,782 
Income tax expense6,531  35  —  6,566 
Net income$18,157  $59  $—  $18,216 
Total assets$7,588,606  $62,127  $(56,420) $7,594,313 
        
Nine Months Ended September 30, 2016       
Net interest income$195,508  $1,027  $—  $196,535 
Provision for credit losses7,215  161  —  7,376 
Net interest income after provision for credit losses188,293  866  —  189,159 
Noninterest income44,137  9,185  (465) 52,857 
Noninterest expenses158,964  7,937  (465) 166,436 
Income before income taxes73,466  2,114  —  75,580 
Income tax expense18,145  736  —  18,881 
Net income$55,321  $1,378  $—  $56,699 
Total assets$8,251,351  $90,692  $(83,813) $8,258,230 
        
Nine Months Ended September 30, 2015       
Net interest income$188,240  $989  $—  $189,229 
Provision for credit losses7,450  111  —  7,561 
Net interest income after provision for credit losses 180,790  878  —  181,668 
Noninterest income40,658  7,844  (512) 47,990 
Noninterest expenses154,011  8,906  (512) 162,405 
Income (loss) before income taxes67,437  (184) —  67,253 
Income tax expense (benefit)18,060  (71) —  17,989 
Net income (loss)$49,377  $(113) $—  $49,264 
Total assets$7,588,606  $62,127  $(56,420) $7,594,313 
                



AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)
            
 For the Quarter Ended
 September 30, 2016
 June 30, 2016
 Average
Balance		 Interest
Income /
Expense		 Yield /
Rate
(1)		 Average
Balance		 Interest
Income /
Expense		 Yield /
Rate
(1)
Assets:           
Securities:           
Taxable$768,608  $4,732  2.45% $755,655  $4,510  2.40%
Tax-exempt449,944  5,302  4.69% 447,117  5,321  4.79%
Total securities1,218,552  10,034  3.28% 1,202,772  9,831  3.29%
Loans, net (2) (3)6,033,723  66,397  4.38% 5,863,007  65,115  4.47%
Other earning assets102,409  429  1.67% 87,848  286  1.31%
Total earning assets7,354,684  $76,860  4.16% 7,153,627  $75,232  4.23%
Allowance for loan losses(35,995)     (35,282)    
Total non-earning assets835,262      831,231     
Total assets$8,153,951      $7,949,576     
            
Liabilities and Stockholders' Equity:           
Interest-bearing deposits:           
Transaction and money market accounts$3,016,337  $1,682  0.22% $2,882,468  $1,448  0.20%
Regular savings598,232  207  0.14% 595,870  224  0.15%
Time deposits1,181,936  2,663  0.90% 1,164,561  2,525  0.87%
Total interest-bearing deposits4,796,505  4,552  0.38% 4,642,899  4,197  0.36%
Other borrowings (4)884,597  2,853  1.28% 881,027  2,808  1.28%
Total interest-bearing liabilities5,681,102  $7,405  0.52% 5,523,926  $7,005  0.51%
            
Noninterest-bearing liabilities:           
Demand deposits1,408,453      1,382,646     
Other liabilities67,728      55,857     
Total liabilities7,157,283      6,962,429     
Stockholders' equity996,668      987,147     
Total liabilities and stockholders' equity$8,153,951      $7,949,576     
            
Net interest income  $69,455      $68,227   
            
Interest rate spread (5)    3.64%     3.72%
Cost of funds    0.40%     0.39%
Net interest margin (6)    3.76%     3.84%
            
(1) Rates and yields are annualized and calculated from actual, not rounded, amounts in thousands, which appear above.
(2) Nonaccrual loans are included in average loans outstanding.
(3) Interest income on loans includes $1.3 million for both the three months ended September 30, 2016 and June 30, 2016 in accretion of the fair market value adjustments related to acquisitions.
(4) Interest expense on borrowings includes $181,000 and $143,000 for the three months ended September 30, 2016 and June 30, 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.
(5) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.
(6) Core net interest margin excludes purchase accounting adjustments and was 3.67% and 3.76% for the three months ended September 30, 2016 and June 30, 2016, respectively.

 


            











    

        

        
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