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Union Bankshares Reports Third Quarter Results

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.


Contact: Robert M. Gorman - (804) 523-7828 Executive Vice President / Chief Financial Officer

Source:Union Bankshares Corporation