Union Bankshares Reports Fourth Quarter and Full Year Results and Declares Quarterly Dividend

RICHMOND, Va., Jan. 23, 2018 (GLOBE NEWSWIRE) -- Union Bankshares Corporation (the “Company” or “Union”) (NASDAQ:UBSH) today reported net income of $15.2 million and earnings per share of $0.35 for its fourth quarter ended December 31, 2017. These results represent a decrease of $5.5 million, or 26.5%, and $0.12 per share, or 25.5%, compared to net income and earnings per share, respectively, from the third quarter of 2017. Net operating earnings(1) were $22.8 million and operating earnings per share(1) were $0.52 for its fourth quarter ended December 31, 2017; these operating results exclude $1.4 million in after-tax merger-related costs and $6.3 million in nonrecurring tax expenses related to the Tax Cuts and Jobs Act (the “Tax Act”). The Company's net operating earnings and operating earnings per share for the fourth quarter of 2017 represent increases of $1.5 million, or 7.0%, and $0.03, or 6.1%, respectively, in each case compared to the third quarter of 2017.

For the year ended December 31, 2017, net income was $72.9 million and earnings per share were $1.67. The Company's net income and earnings per share for the year ended December 31, 2017 represent a decrease of 5.9% and 5.6%, respectively, compared to the net income and earnings per share for the year ended December 31, 2016. Net operating earnings(1) were $83.6 million and operating earnings per share(1) were $1.91 for the year ended December 31, 2017; these operating results exclude $4.4 million in after-tax merger-related costs and $6.3 million in nonrecurring tax expenses related to the Tax Act. The Company's net operating earnings and operating earnings per share for 2017 represent increases of $6.1 million, or 7.9%, and $0.14, or 7.9%, respectively, in each case compared to the year ended December 31, 2016.

These fourth quarter and full year results of the Company do not include the financial results of Xenith Bankshares, Inc. (“Xenith”), which the Company acquired on January 1, 2018, and are prior to the effective date of the merger of Xenith into the Company (“the Merger”).

Union also declared a quarterly dividend of $0.21 per share payable on February 20, 2018 to shareholders of record as of February 6, 2018.

As I look back, 2017 was a year of significant progress and change for Union. We started off 2017 with a well-planned and well-executed CEO transition and added depth and talent to our leadership team as the year progressed. We finished the year with our transformation to Virginia’s regional bank upon the closing of the Xenith acquisition on January 1, 2018,” said John C. Asbury, president and chief executive officer of Union Bankshares Corporation. “The combination of Union and Xenith was perfectly aligned to our previously stated 2017 priorities and gives the Company a growth platform in Virginia, Maryland and North Carolina.

Both Union and Xenith also finished the year with a solid fourth quarter performance headlined by strong loan growth, reinforcing our belief that the merger is off to a great start and will unleash the potential of this uniquely valuable franchise.

In 2018, the Company is focused on six priorities, three of which continue from 2017. Our 2018 priorities are, 1) integrating Xenith into Union, 2) diversifying our loan portfolio and revenue streams, 3) growing core funding, 4) becoming more efficient, 5) creating a more distinct and enduring brand and 6) managing to higher levels of performance. We are intensely focused on accelerating the achievement of these priorities and generating top-tier financial performance for our shareholders.

Select highlights for the fourth quarter of 2017 include:

  • Performance metrics linked quarter
    • Return on Average Assets (“ROA”) was 0.66% compared to 0.91% in the third quarter; operating ROA(1) was 1.00% compared to 0.94% in the third quarter.
    • Return on Average Equity (“ROE”) was 5.75% compared to 7.90% in the third quarter; operating ROE(1) was 8.63% compared to 8.15% in the third quarter.
    • Return on Average Tangible Common Equity (“ROTCE”) was 8.20% compared to 11.34% in the third quarter; operating ROTCE(1) was 12.32% compared to 11.70% in the third quarter.
    • Efficiency ratio (FTE) was 64.2% compared to 62.9% in the third quarter; operating efficiency ratio(1) was 62.1%, which was consistent with the third quarter.
  • Segment results linked quarter
    • Net income for the community bank segment was $15.0 million, or $0.34 per share, compared to $20.3 million, or $0.46 per share, in the third quarter; operating earnings for the community bank segment were $22.5 million, or $0.51 per share, compared to $21.0 million, or $0.48 per share, in the third quarter.
    • Net income for the mortgage segment was $199,000 compared to $347,000 in the third quarter; operating earnings for the mortgage segment were $329,000 compared to $347,000 in the third quarter.
  • Balance sheet linked quarter and prior year
    • Period-end loans held for investment grew $242.8 million, or 14.1% (annualized), from September 30, 2017 and increased $834.4 million, or 13.2%, from December 31, 2016. Average loans held for investment increased $139.8 million, or 8.2% (annualized), from the prior quarter.
    • Period-end deposits increased $109.9 million, or 6.4% (annualized), from September 30, 2017 and grew $612.2 million, or 9.6%, from December 31, 2016. Average deposits increased $158.1 million, or 9.3% (annualized), from the prior quarter.

(1) For a reconciliation of the non-GAAP operating measures that exclude merger-related costs and nonrecurring tax expenses unrelated to the Company’s normal operations, see Alternative Performance Measures (non-GAAP) section of the Key Financial Results. Such costs were only incurred during 2017; thus each of these operating measures is equivalent to the corresponding GAAP financial measure for the three months and year ended December 31, 2016.


NET INTEREST INCOME

For the fourth quarter of 2017, net interest income was $73.4 million, an increase of $2.2 million from the third quarter of 2017. Tax-equivalent net interest income was $76.2 million in the fourth quarter of 2017, an increase of $2.3 million from the third quarter of 2017. The increases in both net interest income and tax-equivalent net interest income were primarily driven by earning asset growth during the fourth quarter of 2017 as well as higher earning asset yields. The fourth quarter net interest margin increased 5 basis points to 3.51% from 3.46% in the previous quarter, while the tax-equivalent net interest margin also increased 5 basis points to 3.64% from 3.59% during the same periods. The increase in the tax-equivalent net interest margin was principally due to the 7 basis point increase in the tax-equivalent yield on earning assets, partially offset by the 2 basis point increase in tax-equivalent cost of funds.

The Company’s tax-equivalent net interest margin includes the impact of acquisition accounting fair value adjustments. During the fourth quarter of 2017, net accretion related to acquisition accounting increased $425,000, or 24.9%, from the prior quarter to $2.1 million for the quarter ended December 31, 2017. The third and fourth quarters of 2017 as well as the remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

Loan Accretion Borrowings Accretion
(Amortization)
Total
For the quarter ended September 30, 2017 $1,662 $47
$ 1,709
For the quarter ended December 31, 20172,107 27 2,134
For the years ending (estimated) (1):
20184,544 (143) 4,401
20193,371 (286) 3,085
20202,825 (301) 2,524
20212,259 (316) 1,943
20221,815 (332) 1,483
Thereafter6,493 (4,974) 1,519

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


ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the fourth quarter of 2017, the Company experienced declines in nonperforming asset balances from the prior quarter, primarily related to sales and valuation adjustments of other real estate owned (“OREO”). Past due loan levels at December 31, 2017 improved compared to the past due loans levels at September 30, 2017 and December 31, 2016. The loan loss provision and the allowance for loan losses (“ALL”) increased from the prior quarter due to loan growth in the fourth quarter of 2017.

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired (“PCI”) loans totaling $39.0 million (net of fair value mark of $8.9 million).

Nonperforming Assets (“NPAs”)
At December 31, 2017, NPAs totaled $28.4 million, a decline of $507,000, or 1.8%, from September 30, 2017 and an increase of $8.3 million, or 41.5%, from December 31, 2016. In addition, NPAs as a percentage of total outstanding loans declined 2 basis points from 0.42% at September 30, 2017 and increased 8 basis points from 0.32% at December 31, 2016 to 0.40% at December 31, 2017. As the Company's NPAs have been at historic lows over the last several quarters, certain changes from quarter to quarter might stand out in comparison to one another but have an insignificant impact on the Company's overall asset quality position. The following table shows a summary of asset quality balances at the quarter ended (dollars in thousands):

December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
Nonaccrual loans $21,743 $20,122 $24,574 $22,338 $9,973
Foreclosed properties5,253 6,449 6,828 6,951 7,430
Former bank premises1,383 2,315 2,654 2,654 2,654
Total nonperforming assets$28,379 $28,886 $34,056 $31,943 $20,057

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

December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
Beginning Balance$20,122 $24,574 $22,338 $9,973 $12,677
Net customer payments(768) (4,642) (1,498) (1,068) (1,451)
Additions4,335 4,114 5,979 13,557 1,094
Charge-offs(1,305) (3,376) (2,004) (97) (1,216)
Loans returning to accruing status (448) (134) (27) (1,039)
Transfers to OREO(193) (548) (107) (92)
Ending Balance$21,743 $20,122 $24,574 $22,338 $9,973

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

December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
Beginning Balance$8,764 $9,482 $9,605 $10,084 $10,581
Additions of foreclosed property 325 621 132 859
Valuation adjustments(1,046) (588) (19) (238) (138)
Proceeds from sales(1,419) (648) (272) (277) (1,282)
Gains (losses) from sales12 (103) 36 36 64
Ending Balance$6,636 $8,764 $9,482 $9,605 $10,084

Past Due Loans
Past due loans still accruing interest totaled $27.8 million, or 0.39% of total loans, at December 31, 2017 compared to $34.3 million, or 0.50% of total loans, at September 30, 2017 and $27.9 million, or 0.44% of total loans, at December 31, 2016. Of the total past due loans still accruing interest, $3.5 million, or 0.05% of total loans, were loans past due 90 days or more at December 31, 2017, compared to $4.5 million, or 0.07% of total loans, at September 30, 2017 and $3.0 million, or 0.05% of total loans, at December 31, 2016.

Net Charge-offs
For the fourth quarter of 2017, net charge-offs were $2.7 million, or 0.15% of total average loans on an annualized basis, compared to $4.1 million, or 0.24%, for the prior quarter and $824,000, or 0.05%, for the same quarter last year. Of the net charge-offs in the fourth quarter of 2017, the majority were previously considered impaired. For the year ended December 31, 2017, net charge-offs were $10.1 million, or 0.15% of total average loans, compared to $5.5 million, or 0.09%, for the year ended December 31, 2016.

Provision for Loan Losses
The provision for loan losses for the fourth quarter of 2017 was $3.7 million, an increase of $661,000 compared to the previous quarter and an increase of $2.2 million compared to the same quarter in 2016. The increase in provision for loan losses was primarily driven by higher loan balances in the fourth quarter of 2017.

Allowance for Loan Losses
The ALL increased $1.0 million from September 30, 2017 to $38.2 million at December 31, 2017 primarily due to loan growth during the quarter. The ALL as a percentage of the total loan portfolio was 0.54% at December 31, 2017, 0.54% at September 30, 2017, and 0.59% at December 31, 2016.

The ratio of the ALL to nonaccrual loans was 175.7% at December 31, 2017, compared to 184.7% at September 30, 2017 and 372.9% at December 31, 2016. 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 decreased $293,000, or 1.7%, to $17.2 million for the quarter ended December 31, 2017 from $17.5 million in the prior quarter, primarily driven by lower mortgage banking income of $187,000, lower insurance-related income of $127,000, and reduced levels of gains on sales of securities of $166,000, partially offset by increases in customer-related fee income of $214,000.

Mortgage banking income decreased $187,000, or 8.1%, to $2.1 million in the fourth quarter of 2017 compared to $2.3 million in the third quarter of 2017, related to declines in mortgage loan originations and higher unrealized losses on mortgage banking derivatives in the fourth quarter of 2017 compared to the third quarter. Mortgage loan originations declined by $5.4 million, or 4.3%, in the fourth quarter to $121.9 million from $127.3 million in the third quarter of 2017. The majority of the decrease was related to purchase-money mortgage loans, which declined by $11.9 million from the prior quarter. Of the mortgage loan originations in the fourth quarter of 2017, 34.4% were refinances compared with 28.0% in the prior quarter.


NONINTEREST EXPENSE

Noninterest expense increased $2.4 million, or 4.3%, to $59.9 million for the quarter ended December 31, 2017 from $57.5 million in the prior quarter. Excluding merger-related costs of $1.9 million and $732,000 in the fourth and third quarters of 2017, respectively, operating noninterest expense increased $1.3 million when compared to the third quarter of 2017. Incentive compensation and profit sharing expenses increased by $420,000 for the fourth quarter of 2017 compared to the prior quarter. OREO and credit-related expenses increased $602,000 primarily due to higher valuation adjustments of $458,000 as well as higher foreclosed property legal costs. During the fourth quarter of 2017, the Company entered into a contract to sell a long-held property that includes developed residential lots, a golf course, and undeveloped land and as a result recorded a valuation adjustment of $980,000. In addition, professional fees increased $205,000 related to higher consulting and legal fees, while technology costs increased $194,000 due to higher data processing fees.


INCOME TAXES

On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act permanently reduced the corporate tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, companies are required to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the fourth quarter of 2017. The Company continues to evaluate the impact on its 2017 tax expense of the revaluation required by the lower corporate tax rate implemented by the Tax Act, which management has estimated to fall between $5.0 million and $8.0 million. During the fourth quarter of 2017, the Company recorded $6.3 million in additional tax expense based on the Company's preliminary analysis of the impact of the Tax Act. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. The actual results may differ from the current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company has preliminarily made. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment.

During the fourth quarter of 2017, the Company recorded other net tax adjustments of $2.5 million as a reduction to tax expense, primarily related to state net operating losses for which it had previously reserved in prior years. In assessing the ability to realize deferred tax assets, management considered the scheduled reversal of temporary differences, projected future taxable income, and tax planning strategies. Based on its latest analysis, at December 31, 2017, management concluded that it is more likely than not that the Company would be able to fully realize its deferred tax asset related to net operating losses generated at the state level.

The effective tax rate for the three months ended December 31, 2017 was 44.3% compared to 26.7% for the three months ended September 30, 2017. The increase in the effective tax rate was related to the impact of the Tax Act, tax-exempt interest income being a smaller percentage of pre-tax income in the fourth quarter of 2017 compared to the prior quarter, the impact of additional nondeductible merger-related costs recognized in the fourth quarter of 2017.


BALANCE SHEET

At December 31, 2017, total assets were $9.3 billion, an increase of $285.7 million from September 30, 2017 and an increase of $888.4 million from December 31, 2016. The increase in assets was mostly related to loan growth.

At December 31, 2017, loans held for investment (net of deferred fees and costs) were $7.1 billion, an increase of $242.8 million, or 14.1% (annualized), from September 30, 2017, while average loans increased $139.8 million, or 8.2% (annualized), from the prior quarter. Loans held for investment increased $834.4 million, or 13.2%, from December 31, 2016, while year-to-date average loans increased $745.0 million, or 12.5%, from the prior year.

At December 31, 2017, total deposits were $7.0 billion, an increase of $109.9 million, or 6.4% (annualized), from September 30, 2017, while average deposits increased $158.1 million, or 9.3% (annualized), from the prior quarter. Total deposits grew $612.2 million, or 9.6%, from December 31, 2016, while year-to-date average deposits increased $590.7 million, or 9.7%, from the prior year.

At December 31, 2017, September 30, 2017, and December 31, 2016, respectively, the Company had a common equity Tier 1 capital ratio of 9.04%, 9.40%, and 9.72%; a Tier 1 capital ratio of 10.14%, 10.56%, and 10.97%; a total capital ratio of 12.43%, 12.94%, and 13.56%; and a leverage ratio of 9.42%, 9.52%, and 9.87%.

The Company’s common equity to total assets ratios at December 31, 2017, September 30, 2017, and December 31, 2016 were 11.23%, 11.53%, and 11.88%, respectively, while its tangible common equity to tangible assets ratio was 8.14%, 8.34%, and 8.41%, respectively.

During the fourth quarter of 2017, the Company declared and paid cash dividends of $0.21 per common share, an increase of $0.01, or 5.0%, compared to both the prior quarter of 2017 and the fourth quarter of 2016.


XENITH INFORMATION

Xenith’s fourth quarter net loss was $55.8 million, compared to net income of $7.2 million in the third quarter of 2017. Excluding after-tax merger-related costs of $5.5 million and nonrecurring tax expenses related to the preliminary estimated impact of the Tax Act of $57.2 million, Xenith's net operating earnings(2) were $6.9 million for the fourth quarter of 2017, a decrease of $1.2 million compared to $8.1 million, which excludes the $896,000 in after-tax merger-related costs, in the third quarter of 2017. The decline in the net operating earnings, excluding these nonrecurring items, from the prior quarter was primarily driven by higher provision for credit losses and lower gains on sales of securities in the fourth quarter of 2017 compared to the third quarter of 2017. The Company continues to evaluate the impact on its 2017 tax expense of the revaluation required by the lower corporate tax rate implemented by the Tax Act, which management has estimated to fall between $55.0 million and $60.0 million. For more information on the Tax Act and the related accounting considerations, please refer to the "Income Taxes" section above.

Xenith reported a net loss of $36.7 million in 2017, compared to net income of $57.0 million in 2016. Excluding after-tax merger-related costs of $8.3 million and nonrecurring tax expenses related to the Tax Act of $57.2 million, Xenith’s 2017 operating earnings(2) were $28.7 million. Excluding after-tax merger-related costs of $12.0 million and a tax benefit of $60.0 million, Xenith's 2016 operating earnings were $9.1 million. The increase in operating earnings, excluding these nonrecurring items, of $19.7 million was driven by the full year impact of the merger between Xenith and Hampton Roads Bankshares, Inc., which was effective July 29, 2016, higher average balances of earnings assets in 2017, and lower provision for credit losses in 2017 compared to 2016.

At December 31, 2017, Xenith's loans held for investment were $2.5 billion, an increase of $82.4 million, or 13.5% (annualized), from September 30, 2017, while average loans increased $40.2 million, or 6.6% (annualized), from the prior quarter. Loans held for investment increased $42.5 million, or 1.7%, from December 31, 2016.

At December 31, 2017, total deposits were $2.5 billion, a decline of $59.8 million, or 9.1% (annualized), from September 30, 2017, while average deposits declined $15.0 million, or 2.3% (annualized), from the prior quarter. Total deposits declined $26.4 million, or 1.0%, from December 31, 2016.

(2) For a reconciliation of the non-GAAP operating measures that exclude merger-related costs and nonrecurring and unusual tax expenses unrelated to the Company’s normal operations, see Alternative Performance Measures (non-GAAP) section of the Key Financial Results.


ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ: UBSH) is the holding company for Union Bank & Trust, which has 150 banking offices, 39 of which are operated as Xenith Bank, a division of Union Bank & Trust of Richmond, Virginia, and approximately 220 ATMs located throughout Virginia and in portions of Maryland and North Carolina. Union Bank & Trust also operates Shore Premier Finance, a specialty marine lender. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products, 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 Tuesday, January 23rd, 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; international callers wishing to participate may do so by dialing (973) 453-3058. The conference ID number is 4764909.

NON-GAAP MEASURES

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

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

  • the possibility that any of the anticipated benefits of the Merger with Xenith will not be realized or will not be realized within the expected time period, the businesses of the Company and Xenith may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, the expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame, revenues following the Merger may be lower than expected, or customer and employee relationships and business operations may be disrupted by the Merger,
  • changes in interest rates,
  • general economic and financial market conditions,
  • the Company’s ability to manage its growth or implement its growth strategy,
  • the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets,
  • levels of unemployment in the Bank’s lending area,
  • real estate values in the Bank’s lending area,
  • an insufficient allowance for loan losses,
  • the quality or composition of the loan or investment portfolios,
  • concentrations of loans secured by real estate, particularly commercial real estate,
  • the effectiveness of the Company’s credit processes and management of the Company’s credit risk,
  • demand for loan products and financial services in the Company’s market area,
  • the Company’s ability to compete in the market for financial services,
  • technological risks and developments, and cyber attacks or events,
  • performance by the Company’s counterparties or vendors,
  • deposit flows,
  • the availability of financing and the terms thereof,
  • the level of prepayments on loans and mortgage-backed securities,
  • legislative or regulatory changes and requirements,
  • the impact of the Tax Act, including, but not limited to, the effect of the lower corporate tax rate, including on the valuation of the Company's tax assets and liabilities,
  • any future refinements to the Company's preliminary analysis of the impact of the Tax Act on the Company,
  • changes in the effect of the Tax Act due to issuance of interpretive regulatory guidance or enactment of corrective or supplement legislation,
  • monetary and fiscal policies of the U.S. government including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System, and
  • accounting principles and guidelines.

More information on risk factors that could affect the Company’s forward-looking statements is available on the Company’s website, http://investors.bankatunion.com or the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, and other reports filed with the Securities and Exchange Commission. The information on the Company’s website is not a part of this press release. All risk factors and uncertainties described in those documents should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
KEY FINANCIAL RESULTS
(Dollars in thousands, except share data)
(FTE - "Fully Taxable Equivalent")
Three Months Ended Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Results of Operations(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Interest and dividend income$87,482 $84,850 $76,957 $330,194 $294,920
Interest expense14,090 13,652 8,342 50,037 29,770
Net interest income73,392 71,198 68,615 280,157 265,150
Provision for credit losses3,411 3,050 1,723 10,756 9,100
Net interest income after provision for credit losses69,981 68,148 66,892 269,401 256,050
Noninterest income17,243 17,536 18,050 71,674 70,907
Noninterest expenses59,944 57,496 56,267 234,765 222,703
Income before income taxes27,280 28,188 28,675 106,310 104,254
Income tax expense12,095 7,530 7,899 33,387 26,778
Net income$15,185 $20,658 $20,776 $72,923 $77,476
Interest earned on earning assets (FTE) (1)$90,263 $87,498 $79,833 $340,810 $305,164
Net interest income (FTE) (1)76,173 73,846 71,491 290,774 275,394
Net income - community bank segment$14,986 $20,311 $20,394 $71,822 $75,716
Net income - mortgage segment199 347 382 1,101 1,760
Key Ratios
Earnings per common share, diluted$0.35 $0.47 $0.48 $1.67 $1.77
Return on average assets (ROA)0.66% 0.91% 0.99% 0.83% 0.96%
Return on average equity (ROE)5.75% 7.90% 8.22% 7.07% 7.79%
Return on average tangible common equity (ROTCE) (2)8.20% 11.34% 12.05% 10.20% 11.45%
Efficiency ratio66.14% 64.80% 64.92% 66.73% 66.27%
Efficiency ratio (FTE) (1)64.17% 62.92% 62.84% 64.77% 64.31%
Net interest margin3.51% 3.46% 3.63% 3.49% 3.66%
Net interest margin (FTE) (1)3.64% 3.59% 3.78% 3.63% 3.80%
Yields on earning assets (FTE) (1)4.32% 4.25% 4.23% 4.25% 4.21%
Cost of interest-bearing liabilities (FTE) (1)0.87% 0.85% 0.57% 0.80% 0.53%
Cost of funds (FTE) (1)0.68% 0.66% 0.45% 0.62% 0.41%
Operating Measures (3)
Net operating earnings$22,821 $21,319 $20,776 $83,578 $77,476
Operating earnings per share, diluted$0.52 $0.49 $0.48 $1.91 $1.77
Operating ROA1.00% 0.94% 0.99% 0.95% 0.96%
Operating ROE8.63% 8.15% 8.22% 8.11% 7.79%
Operating ROTCE12.32% 11.70% 12.05% 11.69% 11.45%
Operating efficiency ratio (FTE)62.12% 62.12% 62.84% 63.28% 64.31%
Community bank segment net operating earnings$22,492 $20,972 $20,394 $82,347 $75,716
Community bank segment operating earnings per share, diluted$0.51 $0.48 $0.47 $1.88 $1.73
Mortgage segment net operating earnings$329 $347 $382 $1,231 $1,760
Per Share Data
Earnings per common share, basic$0.35 $0.47 $0.48 $1.67 $1.77
Earnings per common share, diluted0.35 0.47 0.48 1.67 1.77
Cash dividends paid per common share0.21 0.20 0.20 0.81 0.77
Market value per share36.17 35.30 35.74 36.17 35.74
Book value per common share24.10 24.00 23.15 24.10 23.15
Tangible book value per common share (2)16.88 16.76 15.78 16.88 15.78
Price to earnings ratio, diluted26.05 18.93 18.72 21.66 20.19
Price to book value per common share ratio1.50 1.47 1.54 1.50 1.54
Price to tangible book value per common share ratio (2)2.14 2.11 2.26 2.14 2.26
Weighted average common shares outstanding, basic43,740,001 43,706,635 43,577,634 43,698,897 43,784,193
Weighted average common shares outstanding, diluted43,816,018 43,792,058 43,659,416 43,779,744 43,890,271
Common shares outstanding at end of period43,743,318 43,729,229 43,609,317 43,743,318 43,609,317


As of & For Three Months Ended As of & For Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Capital Ratios(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Common equity Tier 1 capital ratio (4)9.04% 9.40% 9.72% 9.04% 9.72%
Tier 1 capital ratio (4)10.14% 10.56% 10.97% 10.14% 10.97%
Total capital ratio (4)12.43% 12.94% 13.56% 12.43% 13.56%
Leverage ratio (Tier 1 capital to average assets) (4) 9.42% 9.52% 9.87% 9.42% 9.87%
Common equity to total assets11.23% 11.53% 11.88% 11.23% 11.88%
Tangible common equity to tangible assets (2)8.14% 8.34% 8.41% 8.14% 8.41%
Financial Condition
Assets$9,315,179 $9,029,436 $8,426,793 $9,315,179 $8,426,793
Loans held for investment7,141,552 6,898,729 6,307,060 7,141,552 6,307,060
Earning Assets8,513,145 8,232,413 7,611,098 8,513,145 7,611,098
Goodwill298,528 298,191 298,191 298,528 298,191
Amortizable intangibles, net14,803 16,017 20,602 14,803 20,602
Deposits6,991,718 6,881,826 6,379,489 6,991,718 6,379,489
Stockholders' equity1,046,329 1,041,371 1,001,032 1,046,329 1,001,032
Tangible common equity (2)732,998 727,163 682,239 732,998 682,239
Loans held for investment, net of deferred fees and costs
Construction and land development$948,791 $841,738 $751,131 $948,791 $751,131
Commercial real estate - owner occupied943,933 903,523 857,805 943,933 857,805
Commercial real estate - non-owner occupied1,713,659 1,748,039 1,564,295 1,713,659 1,564,295
Multifamily real estate357,079 368,686 334,276 357,079 334,276
Commercial & Industrial612,023 554,522 551,526 612,023 551,526
Residential 1-4 Family1,098,085 1,083,112 1,029,547 1,098,085 1,029,547
Auto282,474 276,572 262,071 282,474 262,071
HELOC537,521 535,446 526,884 537,521 526,884
Consumer and all other647,987 587,091 429,525 647,987 429,525
Total loans held for investment$7,141,552 $6,898,729 $6,307,060 $7,141,552 $6,307,060
Deposits
NOW accounts$1,929,416 $1,851,327 $1,765,956 $1,929,416 $1,765,956
Money market accounts1,685,174 1,621,443 1,435,591 1,685,174 1,435,591
Savings accounts546,274 553,082 591,742 546,274 591,742
Time deposits of $100,000 and over624,112 621,070 530,275 624,112 530,275
Other time deposits704,534 699,755 662,300 704,534 662,300
Total interest-bearing deposits$5,489,510 $5,346,677 $4,985,864 $5,489,510 $4,985,864
Demand deposits1,502,208 1,535,149 1,393,625 1,502,208 1,393,625
Total deposits$6,991,718 $6,881,826 $6,379,489 $6,991,718 $6,379,489
Averages
Assets$9,085,211 $8,973,964 $8,312,750 $8,820,142 $8,046,305
Loans held for investment6,962,299 6,822,498 6,214,084 6,701,101 5,956,125
Loans held for sale31,448 38,569 43,594 31,458 36,126
Securities1,238,663 1,243,904 1,202,125 1,230,105 1,202,692
Earning assets8,293,366 8,167,919 7,514,979 8,016,311 7,249,090
Deposits6,955,949 6,797,840 6,310,025 6,701,475 6,110,788
Certificates of deposit1,335,357 1,289,794 1,192,253 1,271,649 1,177,732
Interest-bearing deposits5,435,705 5,302,226 4,885,428 5,234,102 4,722,572
Borrowings1,022,307 1,080,226 927,218 1,028,434 877,602
Interest-bearing liabilities6,458,012 6,382,452 5,812,646 6,262,536 5,600,174
Stockholders' equity1,048,632 1,037,792 1,005,769 1,030,847 994,785
Tangible common equity (2)734,847 722,920 686,143 715,125 676,654


As of & For Three Months Ended As of & For Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Asset Quality(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Allowance for Loan Losses (ALL)
Beginning balance$37,162 $38,214 $36,542 $37,192 $34,047
Add: Recoveries696 887 1,003 3,255 3,025
Less: Charge-offs3,361 4,989 1,827 13,310 8,555
Add: Provision for loan losses3,711 3,050 1,474 11,071 8,675
Ending balance$38,208 $37,162 $37,192 $38,208 $37,192
ALL / total outstanding loans0.54% 0.54% 0.59% 0.54% 0.59%
Net charge-offs / total average loans0.15% 0.24% 0.05% 0.15% 0.09%
Provision / total average loans0.21% 0.18% 0.09% 0.17% 0.15%
Total PCI Loans$39,021 $51,041 $59,292 $39,021 $59,292
Remaining fair value mark on purchased performing loans13,726 14,602 16,939 13,726 16,939
Nonperforming Assets
Construction and land development$5,610 $5,671 $2,037 $5,610 $2,037
Commercial real estate - owner occupied2,708 2,205 794 2,708 794
Commercial real estate - non-owner occupied2,992 2,701 2,992
Commercial & Industrial316 1,252 124 316 124
Residential 1-4 Family7,354 6,163 5,279 7,354 5,279
Auto413 174 169 413 169
HELOC2,075 1,791 1,279 2,075 1,279
Consumer and all other275 165 291 275 291
Nonaccrual loans$21,743 $20,122 $9,973 $21,743 $9,973
Other real estate owned6,636 8,764 10,084 6,636 10,084
Total nonperforming assets (NPAs)$28,379 $28,886 $20,057 $28,379 $20,057
Construction and land development$1,340 $54 $76 $1,340 $76
Commercial real estate - owner occupied 679 35 35
Commercial real estate - non-owner occupied194 298 194
Commercial & Industrial214 101 9 214 9
Residential 1-4 Family1,125 2,360 2,048 1,125 2,048
Auto40 143 111 40 111
HELOC217 709 635 217 635
Consumer and all other402 188 91 402 91
Loans ≥ 90 days and still accruing$3,532 $4,532 $3,005 $3,532 $3,005
Total NPAs and loans ≥ 90 days$31,911 $33,418 $23,062 $31,911 $23,062
NPAs / total outstanding loans0.40% 0.42% 0.32% 0.40% 0.32%
NPAs / total assets0.30% 0.32% 0.24% 0.30% 0.24%
ALL / nonaccrual loans175.73% 184.68% 372.93% 175.73% 372.93%
ALL / nonperforming assets134.63% 128.65% 185.43% 134.63% 185.43%
Past Due Detail
Construction and land development$1,248 $7,221 $1,162 $1,248 $1,162
Commercial real estate - owner occupied444 1,707 1,842 444 1,842
Commercial real estate - non-owner occupied187 909 2,369 187 2,369
Multifamily real estate 147 147
Commercial & Industrial1,147 1,558 759 1,147 759
Residential 1-4 Family5,520 5,633 7,038 5,520 7,038
Auto3,541 2,415 2,570 3,541 2,570
HELOC2,382 1,400 1,836 2,382 1,836
Consumer and all other2,404 3,469 2,522 2,404 2,522
Loans 30-59 days past due$16,873 $24,312 $20,245 $16,873 $20,245


As of & For Three Months Ended As of & For Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Past Due Detail cont'd(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Construction and land development $898 $100 $232 $898 $232
Commercial real estate - owner occupied 81 689 109 81 109
Commercial real estate - non-owner occupied 84 571 84
Commercial & Industrial109 255 858 109 858
Residential 1-4 Family3,241 1,439 534 3,241 534
Auto185 293 317 185 317
HELOC717 628 1,140 717 1,140
Consumer and all other2,052 1,445 1,431 2,052 1,431
Loans 60-89 days past due$7,367 $5,420 $4,621 $7,367 $4,621
Troubled Debt Restructurings
Performing$14,553 $16,519 $13,967 $14,553 $13,967
Nonperforming2,849 2,725 1,435 2,849 1,435
Total troubled debt restructurings$17,402 $19,244 $15,402 $17,402 $15,402
Alternative Performance Measures (non-GAAP)
Net interest income (FTE)
Net interest income (GAAP)$73,392 $71,198 $68,615 $280,157 $265,150
FTE adjustment2,781 2,648 2,876 10,617 10,244
Net interest income (FTE) (non-GAAP) (1)$76,173 $73,846 $71,491 $290,774 $275,394
Average earning assets8,293,366 8,167,919 7,514,979 8,016,311 7,249,090
Net interest margin3.51% 3.46% 3.63% 3.49% 3.66%
Net interest margin (FTE) (1)3.64% 3.59% 3.78% 3.63% 3.80%
Tangible Assets
Ending assets (GAAP)$9,315,179 $9,029,436 $8,426,793 $9,315,179 $8,426,793
Less: Ending goodwill298,528 298,191 298,191 298,528 298,191
Less: Ending amortizable intangibles14,803 16,017 20,602 14,803 20,602
Ending tangible assets (non-GAAP)$9,001,848 $8,715,228 $8,108,000 $9,001,848 $8,108,000
Tangible Common Equity (2)
Ending equity (GAAP)$1,046,329 $1,041,371 $1,001,032 $1,046,329 $1,001,032
Less: Ending goodwill298,528 298,191 298,191 298,528 298,191
Less: Ending amortizable intangibles14,803 16,017 20,602 14,803 20,602
Ending tangible common equity (non-GAAP)$732,998 $727,163 $682,239 $732,998 $682,239
Average equity (GAAP)$1,048,632 $1,037,792 $1,005,769 $1,030,847 $994,785
Less: Average goodwill298,385 298,191 298,191 298,240 296,087
Less: Average amortizable intangibles15,400 16,681 21,435 17,482 22,044
Average tangible common equity (non-GAAP)$734,847 $722,920 $686,143 $715,125 $676,654
Operating Measures (3)
Net income (GAAP)$15,185 $20,658 $20,776 $72,923 $77,476
Plus: Merger-related costs, net of tax1,386 661 4,405
Plus: Nonrecurring tax expenses6,250 6,250
Net operating earnings (non-GAAP)$22,821 $21,319 $20,776 $83,578 $77,476
Noninterest expense (GAAP)$59,944 $57,496 $56,267 $234,765 $222,703
Less: Merger-related costs1,917 732 5,393
Operating noninterest expense (non-GAAP)$58,027 $56,764 $56,267 $229,372 $222,703
Net interest income (FTE) (non-GAAP) (1)$76,173 $73,846 $71,491 $290,774 $275,394
Noninterest income (GAAP)17,243 17,536 18,050 71,674 70,907
Efficiency ratio66.14% 64.80% 64.92% 66.73% 66.27%
Efficiency ratio (FTE) (1)64.17% 62.92% 62.84% 64.77% 64.31%
Operating efficiency ratio (FTE)62.12% 62.12% 62.84% 63.28% 64.31%


As of & For Three Months Ended As of & For Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Alternative Performance Measures (non-GAAP) cont'd(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Operating Measures cont'd (3)
Community bank segment net income (GAAP)$ 14,986 $ 20,311 $ 20,394 $ 71,822 $75,716
Plus: Merger-related costs, net of tax1,386 661 4,405
Plus: Nonrecurring tax expenses6,120 6,120
Community bank segment net operating earnings (non-GAAP)$22,492 $20,972 $20,394 $82,347 $75,716
Community bank segment earnings per share, diluted (GAAP)$0.34 $0.46 $0.47 $1.64 $1.73
Community bank segment operating earnings per share, diluted (non-GAAP)0.51 0.48 0.47 1.88 1.73
Mortgage segment net income (GAAP)$199 $347 $382 $1,101 $1,760
Plus: Nonrecurring tax expenses130 130
Mortgage segment net operating earnings (non-GAAP)$329 $347 $382 $1,231 $1,760
Mortgage Origination Volume
Refinance Volume$41,889 $35,678 $71,454 $143,857 $208,674
Construction Volume20,186 19,966 10,621 82,731 68,026
Purchase Volume59,840 71,694 63,249 259,461 263,571
Total Mortgage loan originations$121,915 $127,338 $145,324 $486,049 $540,271
% of originations that are refinances34.4% 28.0% 49.2% 29.6% 38.6%
Other Data
End of period full-time employees1,419 1,427 1,416 1,419 1,416
Number of full-service branches111 111 114 111 114
Number of full automatic transaction machines ("ATMs")176 173 185 176 185

(1) Net interest income (FTE), which is used in computing net interest margin (FTE) and efficiency ratio (FTE), provides valuable additional insight into the net interest margin and the efficiency ratio by adjusting for differences in tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.

(2) Tangible common equity is used in the calculation of certain profitability, 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.

(3) Operating measures exclude merger-related costs and nonrecurring tax expenses unrelated to the Company’s normal operations. Such costs were only incurred during 2017; thus each of these operating measures is equivalent to the corresponding GAAP financial measure for the three months and year ended December 31, 2016. The Company believes these measures are useful to investors as they exclude certain costs resulting from acquisition activity and allow investors to more clearly see the combined economic results of the organization's operations.

(4) All ratios at December 31, 2017 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, December 31,
2017 2016
ASSETS(unaudited) (audited)
Cash and cash equivalents:
Cash and due from banks$117,586 $120,758
Interest-bearing deposits in other banks81,291 58,030
Federal funds sold496 449
Total cash and cash equivalents199,373 179,237
Securities available for sale, at fair value974,222 946,764
Securities held to maturity, at carrying value199,639 201,526
Restricted stock, at cost75,283 60,782
Loans held for sale, at fair value40,662 36,487
Loans held for investment, net of deferred fees and costs7,141,552 6,307,060
Less allowance for loan losses38,208 37,192
Net loans held for investment7,103,344 6,269,868
Premises and equipment, net119,981 122,027
Other real estate owned, net of valuation allowance6,636 10,084
Goodwill298,528 298,191
Amortizable intangibles, net14,803 20,602
Bank owned life insurance182,854 179,318
Other assets99,854 101,907
Total assets$9,315,179 $8,426,793
LIABILITIES
Noninterest-bearing demand deposits$1,502,208 $1,393,625
Interest-bearing deposits5,489,510 4,985,864
Total deposits6,991,718 6,379,489
Securities sold under agreements to repurchase49,152 59,281
Other short-term borrowings745,000 517,500
Long-term borrowings425,262 413,308
Other liabilities57,718 56,183
Total liabilities8,268,850 7,425,761
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding,
43,743,318 shares and 43,609,317 shares, respectively
57,744 57,506
Additional paid-in capital610,001 605,397
Retained earnings379,468 341,938
Accumulated other comprehensive income(884) (3,809)
Total stockholders' equity1,046,329 1,001,032
Total liabilities and stockholders' equity$9,315,179 $8,426,793


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
Three Months Ended Year Ended
December 31, September 30, December 31, December 31, December 31,
2017 2017 2016 2017 2016
Interest and dividend income:(unaudited) (unaudited) (unaudited) (unaudited) (audited)
Interest and fees on loans$78,501 $75,948 $68,683 $295,146 $262,567
Interest on deposits in other banks172 181 67 539 244
Interest and dividends on securities:
Taxable5,225 5,175 4,761 20,305 18,319
Nontaxable3,584 3,546 3,446 14,204 13,790
Total interest and dividend income87,482 84,850 76,957 330,194 294,920
Interest expense:
Interest on deposits7,696 7,234 4,786 26,106 17,731
Interest on short-term borrowings1,814 1,871 797 6,035 2,894
Interest on long-term borrowings4,580 4,547 2,759 17,896 9,145
Total interest expense14,090 13,652 8,342 50,037 29,770
Net interest income73,392 71,198 68,615 280,157 265,150
Provision for credit losses3,411 3,050 1,723 10,756 9,100
Net interest income after provision for credit losses69,981 68,148 66,892 269,401 256,050
Noninterest income:
Service charges on deposit accounts5,266 5,153 5,042 20,212 19,496
Other service charges and fees4,630 4,529 4,204 18,205 17,175
Fiduciary and asset management fees2,933 2,794 2,884 11,245 10,199
Mortgage banking income, net2,118 2,305 2,629 9,241 10,953
Gains on securities transactions, net18 184 60 800 205
Bank owned life insurance income1,306 1,377 1,391 6,144 5,513
Loan-related interest rate swap fees424 416 1,198 3,051 4,254
Other operating income548 778 642 2,776 3,112
Total noninterest income17,243 17,536 18,050 71,674 70,907
Noninterest expenses:
Salaries and benefits29,723 29,769 30,042 122,222 117,103
Occupancy expenses5,034 4,939 4,901 19,594 19,528
Furniture and equipment expenses2,621 2,559 2,608 10,503 10,475
Printing, postage, and supplies1,252 1,154 1,126 4,962 4,692
Communications expense740 798 887 3,319 3,850
Technology and data processing4,426 4,232 4,028 16,485 15,368
Professional services2,190 1,985 1,653 7,925 8,085
Marketing and advertising expense1,876 1,944 1,946 7,838 7,784
FDIC assessment premiums and other insurance1,255 1,141 1,403 4,048 5,406
Other taxes2,022 2,022 1,592 8,087 5,456
Loan-related expenses1,369 1,349 1,152 5,328 4,790
OREO and credit-related expenses1,741 1,139 637 3,764 2,602
Amortization of intangible assets1,427 1,480 1,742 6,088 7,210
Training and other personnel costs1,034 887 923 3,934 3,435
Merger-related costs1,917 732 5,393
Other expenses1,317 1,366 1,627 5,275 6,919
Total noninterest expenses59,944 57,496 56,267 234,765 222,703
Income before income taxes27,280 28,188 28,675 106,310 104,254
Income tax expense12,095 7,530 7,899 33,387 26,778
Net income$15,185 $20,658 $20,776 $72,923 $77,476
Basic earnings per common share$0.35 $0.47 $0.48 $1.67 $1.77
Diluted earnings per common share$0.35 $0.47 $0.48 $1.67 $1.77


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Dollars in thousands)
Community Bank Mortgage Eliminations Consolidated
Three Months Ended December 31, 2017 (unaudited)
Net interest income$72,936 $456 $ $73,392
Provision for credit losses3,458 (47) 3,411
Net interest income after provision for credit losses69,478 503 69,981
Noninterest income15,040 2,329 (126) 17,243
Noninterest expenses57,722 2,348 (126) 59,944
Income before income taxes26,796 484 27,280
Income tax expense11,810 285 12,095
Net income14,986 199 15,185
Plus: Merger-related costs, net of tax1,386 1,386
Plus: Nonrecurring tax expenses6,120 130 6,250
Net operating earnings (non-GAAP)$22,492 $329 $ $22,821
Total assets$9,305,660 $111,845 $(102,326) $9,315,179
Three Months Ended September 30, 2017 (unaudited)
Net interest income$70,718 $480 $ $71,198
Provision for credit losses3,056 (6) 3,050
Net interest income after provision for credit losses67,662 486 68,148
Noninterest income15,121 2,527 (112) 17,536
Noninterest expenses55,133 2,475 (112) 57,496
Income before income taxes27,650 538 28,188
Income tax expense7,339 191 7,530
Net income20,311 347 20,658
Plus: Merger-related costs, net of tax661 661
Net operating earnings (non-GAAP)$20,972 $347 $ $21,319
Total assets$9,020,486 $97,154 $(88,204) $9,029,436
Three Months Ended December 31, 2016 (unaudited)
Net interest income$68,205 $410 $ $68,615
Provision for credit losses1,668 55 1,723
Net interest income after provision for credit losses66,537 355 66,892
Noninterest income15,368 2,823 (141) 18,050
Noninterest expenses53,810 2,598 (141) 56,267
Income before income taxes28,095 580 28,675
Income tax expense7,701 198 7,899
Net income$20,394 $382 $ $20,776
Total assets$8,419,625 $93,581 $(86,413) $8,426,793
Year Ended December 31, 2017 (unaudited)
Net interest income$278,470 $1,687 $ $280,157
Provision for credit losses10,802 (46) 10,756
Net interest income after provision for credit losses267,668 1,733 269,401
Noninterest income62,120 10,073 (519) 71,674
Noninterest expenses225,366 9,918 (519) 234,765
Income before income taxes104,422 1,888 106,310
Income tax expense32,600 787 33,387
Net income71,822 1,101 72,923
Plus: Merger-related costs, net of tax4,405 4,405
Plus: Nonrecurring tax expenses6,120 130 6,250
Net operating earnings (non-GAAP)$82,347 $1,231 $ $83,578
Total assets$9,305,660 $111,845 $(102,326) $9,315,179
Year Ended December 31, 2016 (audited)
Net interest income$263,714 $1,436 $ $265,150
Provision for credit losses8,883 217 9,100
Net interest income after provision for credit losses254,831 1,219 256,050
Noninterest income59,505 12,008 (606) 70,907
Noninterest expenses212,774 10,535 (606) 222,703
Income before income taxes101,562 2,692 104,254
Income tax expense25,846 932 26,778
Net income$75,716 $1,760 $ $77,476
Total assets$8,419,625 $93,581 $(86,413) $8,426,793


AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)
For the Quarter Ended
December 31, 2017 September 30, 2017
Average
Balance
Interest
Income /
Expense (1)
Yield /
Rate (1)(2)
Average
Balance
Interest
Income /
Expense (1)
Yield /
Rate (1)(2)
Assets: (unaudited) (unaudited)
Securities:
Taxable$758,189 $5,225 2.73% $774,513 $5,175 2.65%
Tax-exempt480,474 5,513 4.55% 469,391 5,455 4.61%
Total securities1,238,663 10,738 3.44% 1,243,904 10,630 3.39%
Loans, net (3) (4)6,962,299 79,048 4.50% 6,822,498 76,333 4.44%
Other earning assets92,404 477 2.05% 101,517 535 2.09%
Total earning assets8,293,366 $90,263 4.32% 8,167,919 $87,498 4.25%
Allowance for loan losses(37,449) (38,138)
Total non-earning assets829,294 844,183
Total assets$9,085,211 $8,973,964
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts $3,551,759 $3,703 0.41% $3,457,279 $3,491 0.40%
Regular savings548,589 150 0.11% 555,153 151 0.11%
Time deposits1,335,357 3,843 1.14% 1,289,794 3,592 1.10%
Total interest-bearing deposits5,435,705 7,696 0.56% 5,302,226 7,234 0.54%
Other borrowings (5)1,022,307 6,394 2.48% 1,080,226 6,418 2.36%
Total interest-bearing liabilities6,458,012 14,090 0.87% 6,382,452 13,652 0.85%
Noninterest-bearing liabilities:
Demand deposits1,520,244 1,495,614
Other liabilities58,323 58,106
Total liabilities8,036,579 7,936,172
Stockholders' equity1,048,632 1,037,792
Total liabilities and stockholders' equity$9,085,211 $8,973,964
Net interest income $76,173 $73,846
Interest rate spread 3.45% 3.40%
Cost of funds 0.68% 0.66%
Net interest margin 3.64% 3.59%
(1) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.
(2) Rates and yields are annualized and calculated from actual, not rounded, amounts in thousands, which appear above.
(3) Nonaccrual loans are included in average loans outstanding.
(4) Interest income on loans includes $2.1 million and $1.7 million for the three months ended December 31, 2017 and September 30, 2017, respectively, in accretion of the fair market value adjustments related to acquisitions.
(5) Interest expense on borrowings includes $27,000 and $47,000 for the both three months ended December 31, 2017 and September 30, 2017, respectively, in accretion of the fair market value adjustments related to acquisitions.


XENITH BANKSHARES, INC.
KEY FINANCIAL RESULTS
(Dollars in thousands, except share data)
(FTE - "Fully Taxable Equivalent")
Three Months Ended Year Ended
12/31/17 9/30/17 12/31/16 12/31/17 12/31/16
Results of Operations(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Interest and dividend income$30,987 $30,412 $28,965 $120,648 $92,417
Interest expense5,399 5,187 4,831 20,274 15,548
Net interest income25,588 25,225 24,134 100,374 76,869
Provision for credit losses865 625 874 11,329
Net interest income after provision for credit losses 24,723 25,225 23,509 99,500 65,540
Noninterest income3,563 4,172 3,130 14,688 11,124
Noninterest expenses25,557 18,779 18,461 83,305 80,878
Income before income taxes2,729 10,618 8,178 30,883 (4,214)
Income tax expense58,634 3,453 3,066 67,632 (59,728)
Net income (loss)(55,905) 7,165 5,112 (36,749) 55,514
Net income (loss) from discontinued operations83 (7) 61 15 1,528
Net income (loss) attributable to Company(55,822) 7,158 5,173 (36,734) 57,042
Plus: Merger-related costs, net of tax5,511 896 755 8,275 11,975
Plus: Nonrecurring tax expenses57,200 57,200
Plus: Tax benefit (59,950)
Net operating earnings (non-GAAP) (1)$6,889 $8,054 $5,928 $28,741 $9,067
Net interest margin3.51% 3.50% 3.25% 3.49% 3.35%
Net interest margin (FTE) (2)3.53% 3.51% 3.27% 3.51% 3.38%
Financial Condition
Assets$3,270,726 $3,255,771 $3,267,192 $3,270,726 $3,267,192
Loans held for investment2,506,589 2,424,140 2,464,056 2,506,589 2,464,056
Earning Assets2,987,115 2,921,542 2,924,263 2,987,115 2,924,263
Goodwill26,931 26,931 26,931 26,931 26,931
Amortizable intangibles, net3,261 3,393 3,787 3,261 3,787
Deposits2,545,547 2,605,390 2,571,970 2,545,547 2,571,970
Stockholders' equity429,740 484,261 463,638 429,740 463,638
Tangible common equity (3)399,548 453,937 432,920 399,548 432,920
Averages
Assets$3,223,346 $3,199,595 $3,320,516 $3,210,633 $2,568,744
Loans held for investment2,453,025 2,412,871 2,452,449 2,415,868 1,965,504
Earning assets2,891,879 2,861,996 2,956,592 2,871,979 2,296,457
Deposits2,541,618 2,556,577 2,604,622 2,573,685 2,065,933
Stockholders' equity488,269 484,282 466,254 479,637 357,552
Tangible common equity (3)458,002 453,878 435,977 449,170 346,014
Alternative Performance Measures (non-GAAP)
Net interest income (FTE)
Net interest income (GAAP)$25,588 $25,225 $24,134 $100,374 $76,869
FTE adjustment166 126 197 477 719
Net interest income (FTE) (non-GAAP) (2)$25,754 $25,351 $24,331 $100,851 $77,588
Tangible Common Equity (3)
Ending equity (GAAP)$429,740 $484,261 $463,638 $429,740 $463,638
Less: Ending goodwill26,931 26,931 26,931 26,931 26,931
Less: Ending amortizable intangibles3,261 3,393 3,787 3,261 3,787
Ending tangible common equity (non-GAAP)$399,548 $453,937 $432,920 $399,548 $432,920
Average equity (GAAP)$488,269 $484,282 $466,254 $479,637 $357,552
Less: Average goodwill26,931 26,931 26,404 26,931 9,969
Less: Average amortizable intangibles3,336 3,473 3,873 3,536 1,569
Average tangible common equity (non-GAAP)$458,002 $453,878 $435,977 $449,170 $346,014

(1) Operating earnings excludes after-tax merger-related costs and nonrecurring and unusual tax expenses unrelated to the Company’s normal operations. The Company believes these measures are useful to investors as they exclude certain costs resulting from acquisition activity and allow investors to more clearly see the combined economic results of the organization's operations.

(2) Net interest income (FTE), which is used in computing net interest margin (FTE), provides valuable additional insight into the net interest margin by adjusting for differences in tax treatment of interest income sources. The entire FTE adjustment is attributable to interest income on earning assets, which is used in computing yield on earning assets. Interest expense and the related cost of interest-bearing liabilities and cost of funds ratios are not affected by the FTE components.

(3) Tangible common equity is used in the calculation of certain profitability, 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.

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


Source:Union Bankshares Corporation