Union First Market Bankshares Reports Fourth Quarter And Full Year Results

Jan 23, 2013, 08:30 ET from Union First Market Bankshares Corporation

RICHMOND, Va., Jan. 23, 2013 /PRNewswire/ -- Union First Market Bankshares Corporation (the "Company") (NASDAQ: UBSH) today reported net income of $9.4 million and earnings per share of $0.37 for its fourth quarter ended December 31, 2012.  The quarterly results represent a decrease of $184,000, or 1.9%, in net income from the most recent quarter and an increase of $1.1 million, or 12.9%, from the same quarter ended December 31, 2011.  Reported earnings per share of $0.37 for the current quarter were unchanged from the most recent quarter and increased $0.09, or 32.1%, from the prior year's fourth quarter.  Net income for the year ended December 31, 2012 was $35.4 million, an increase of $5.0 million, or 16.3%, from 2011 resulting in earnings per share of $1.37, an increase of $0.30, or 28.0%, from $1.07 for the year ended December 31, 2011. Earnings per share for the quarter and the year ended December 31, 2011 included preferred dividends and discount accretion on preferred stock of $1.1 million and $2.7 million, respectively.

(Logo: http://photos.prnewswire.com/prnh/20091027/NE00206LOGO )

"The fourth quarter and full year results demonstrate the continued success and resilience of our business strategy as Union remains committed to achieving top quartile financial performance nationally and providing our shareholders with above average returns on their investment," said G. William Beale, Chief Executive Officer of Union First Market Bankshares.  "Our disciplined approach to loan and deposit growth and related pricing, focus on increasing revenues through new product and service offerings, our ongoing pursuit to more efficiently deliver best in class service to our customers and to diligently manage expenses, as well as our steadfast focus on asset quality served us well in 2012 and effectively positions us to deliver sustainable top tier financial performance in the future." 

"During the quarter, our growth strategy continued to yield results as the company experienced loan growth for the fifth consecutive quarter, customer deposit levels grew at a strong pace and Union Mortgage continued to increase its contribution to the Company's bottom line.  In addition, asset quality trends remained positive during the quarter as nonperforming assets declined to their lowest levels in three years. As part of our ongoing efforts to improve the Company's efficiency ratio we completed the implementation of several initiatives that will result in increased non-interest income and expense savings in 2013.  Finally, during the quarter we increased the Company's dividend for the third time in 2012 and repurchased 750,000 shares as part of our commitment to shareholder returns and effective capital management.  All in all, it was another solid quarter and year for Union and one that we expect to build upon in the quarters ahead," Beale concluded.

Select highlights:

  • The Company earned a Return on Average Equity ("ROE") of 8.41% for the quarter ended December 31, 2012 compared to ROE of 8.70% and 7.49% for the prior quarter and the same quarter of the prior year.   For the year ended December 31, 2012, ROE was 8.13% compared to 6.90% for the prior year.
  • The Company earned a Return on Average Assets ("ROA") of 0.93% for the quarter ended December 31, 2012 compared to ROA of 0.96% and 0.84% for the prior quarter and the same quarter of the prior year.  For the year ended December 31, 2012, ROA was 0.89% compared to 0.79% for the prior year.
  • Nonperforming assets ("NPAs") decreased $7.6 million, or 11.4%, from the third quarter and decreased $18.1 million, or 23.5%, compared to the same period a year ago.  NPAs as a percentage of total outstanding loans declined 30 basis points to 1.99% from 2.29% last quarter and 75 basis points from 2.74% a year earlier.
  • Loan demand continued to improve with an increase in loans outstanding of $58.3 million, or 2.0% from the prior quarter (8.0% annualized), primarily due to growth in the commercial sector. On an annual basis, loans outstanding increased 5.3%.
  • Deposit balances increased $98.0 million or 3.1% from the prior quarter (12.4 % annualized). On an annual basis, deposit balances increased 3.9%.
  • Results for the quarter included approximately $594,000, or $0.02 per share, in non-recurring costs related to the previously announced closure of four branches and other efficiency initiatives implemented in the fourth quarter.  The completion of these initiatives will result in increased non-interest income and expense savings in 2013.

Fourth quarter net income decreased $184,000, or 1.9%, compared to the third quarter.  The decrease was largely a result of additional provision for loan losses of $900,000, and costs incurred related to branch closures and other efficiency initiatives of $594,000, partially offset by increased gains on sales of mortgage loans, net of commissions, of $544,000 driven by higher loan production volume and increased net interest income. The increase in net interest income was driven by higher earning asset balances offset by the impact of lower net interest margin.

Net income for the quarter ended December 31, 2012 increased $1.1 million, or 12.9%, from the same quarter in the prior year.  The increase was principally a result of higher gains on sales of mortgage loans, net of commissions, of $2.0 million, an increase in net interest income driven by higher earning asset balances offset by the impact of lower net interest margin as well as lower OREO expenses and lower marketing and advertising costs. These results were partially offset by increased provision for loan losses of $900,000 and higher salaries and benefits expenses due to the addition of mortgage loan originators and support personnel in 2012, increased incentive compensation tied to higher earnings, and severance related costs.  Net income available to common shareholders increased $2.2 million, or 30.0%, from the prior year's fourth quarter, which included preferred dividends and discount accretion on preferred stock of $1.1 million.

Net income for the year ended December 31, 2012 increased $5.0 million, or 16.3%, from the prior year.  The increase was principally a result of higher gains on sales of mortgage loans driven by higher origination volumes, lower provision for loan losses, reductions in FDIC insurance expense due to changes in the assessment base and rate, lower core deposit intangible amortization expense, and an increase in account service charges and net interchange fees.  Partially offsetting these results were higher salaries and benefits related to the addition of mortgage loan originators and support personnel in 2012 and lower net interest income driven by reductions in interest income on interest-earning assets that outpaced the impact of lower costs on interest-bearing liabilities.  Net income available to common shareholders increased $7.6 million, or 27.5%, from the prior year, which included preferred dividends and discount accretion on preferred stock of $2.7 million.

NET INTEREST INCOME

Three Months Ended

Dollars in thousands

12/31/12

09/30/12

Change

12/31/11

Change

Average interest-earning assets

$       3,732,684

$       3,671,398

$         61,286

$    3,591,739

$       140,945

Interest income (FTE)

$            46,272

$            46,555

$             (283)

$         47,386

$          (1,114)

Yield on interest-earning assets

4.93%

5.04%

(11)

bps

5.23%

(30)

bps

Average interest-bearing liabilities

$       2,944,086

$       2,925,322

$         18,764

$    2,906,758

$         37,328

Interest expense

$              6,022

$              6,740

$             (718)

$           7,829

$          (1,807)

Cost of interest-bearing liabilities

0.81%

0.92%

(11)

bps

1.07%

(26)

bps

Cost of funds

0.64%

0.73%

(9)

bps

0.86%

(22)

bps

Net Interest Income (FTE)

$            40,250

$            39,815

$              435

$         39,558

$              692

Net Interest Margin (FTE)

4.29%

4.31%

(2)

bps

4.37%

(8)

bps

Net Interest Margin, core (FTE)1

4.22%

4.23%

(1)

bps

4.20%

2

bps

(1)  The core net interest margin, fully taxable equivalent ("FTE") excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.

   

On a linked quarter basis, tax-equivalent net interest income was $40.2 million, an increase of $435,000, or 1.1%, from the third quarter of 2012.  This increase was principally due to higher loan balances offset by the impact of lower net interest margin.  The fourth quarter tax-equivalent net interest margin declined by 2 basis points to 4.29% from 4.31% in the previous quarter.  The change in net interest margin was principally attributable to the continued decline in net accretion on the acquired net earning assets (1 bps) and lower investment and loan yields outpacing the reduction in the cost of interest-bearing liabilities (1 bps). Loan yields continued to be negatively affected by the low rate environment as new and renewed loans were originated and repriced at lower rates while yields on investment securities were impacted by lower average balances, faster prepayments on mortgage-backed securities, and lower reinvestment rates during the quarter.  The cost of interest-bearing deposits declined during the quarter driven by the continued shift in mix from time deposits to transaction deposits, reductions in deposit rates and lower wholesale borrowing costs.

For the three months ended December 31, 2012, tax-equivalent net interest income increased $692,000, or 1.7%, when compared to the same period last year.  The tax-equivalent net interest margin decreased by 8 basis points to 4.29% from 4.37% in the prior year.  The decline in net interest margin was principally due to the continued decline in accretion on the acquired net earning assets (10 bps) partially offset by declines in the cost of interest-bearing liabilities that exceeded the decrease in earning asset yields (2 bps). Lower interest-earning asset income was principally due to lower yields on loans as new and renewed loans were originated and repriced at lower rates, faster prepayments on mortgage backed securities, and cash flows from securities investments reinvested at lower yields.  The cost of interest-bearing deposits declined from the prior year's fourth quarter driven by a shift in mix from time deposits to transaction deposits, reductions in deposit rates, and lower wholesale borrowing costs.

The Company believes that its net interest margin will continue to decline modestly over the next several quarters as decreases in earning asset yields are projected to outpace declines in interest-bearing liabilities rates.

 

Year-over-year results

Dollars in thousands

Twelve Months Ended 

12/31/12

12/31/11

Change

Average interest-earning assets

$       3,649,865

$       3,518,643

$       131,222

Interest income (FTE)

$          186,086

$          193,399

$          (7,313)

Yield on interest-earning assets

5.10%

5.50%

(40)

bps

Average interest-bearing liabilities

$       2,922,373

$       2,875,242

$         47,131

Interest expense

$            27,508

$            32,713

$          (5,205)

Cost of interest-bearing liabilities

0.94%

1.14%

(20)

bps

Cost of funds

0.75%

0.93%

(18)

bps

Net Interest Income (FTE)

$          158,577

$          160,686

$          (2,109)

Net Interest Margin (FTE)

4.34%

4.57%

(23)

bps

Net Interest Margin, core (FTE)1

4.24%

4.37%

(13)

bps

(1)The core net interest margin, fully taxable equivalent ("FTE") excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.

For the year ended December 31, 2012, tax-equivalent net interest income was $158.6 million, a decrease of $2.1 million, or 1.3%, when compared to the same period last year.  The tax-equivalent net interest margin decreased by 23 basis points to 4.34% from 4.57% in the prior year.  The decline in the net interest margin was principally due to the continued decline in accretion on the acquired net earning assets (10 bps) and a decline in the yield on interest-earning assets that outpaced the reduction in the cost of interest-bearing liabilities (13 bps). Lower interest-earning asset income was principally due to lower yields on loans and investment securities as new loans and renewed loans were originated and repriced at lower rates, faster prepayments on mortgage backed securities, and cash flows from securities investments reinvested at lower yields. 

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments that were recorded during 2010 and 2011.   The 2012 and remaining estimated discount/premium and net accretion impact are reflected in the following table (dollars in thousands):

 

Loan Accretion

Certificates of Deposit

Investment Securities

Borrowings

Total

For the quarter ended December 31, 2012

$        717

$             2

$           46

$        (122)

$          643

For the year ended December 31, 2012

3,719

233

201

(489)

3,664

For the years ending:

2013

2,059

7

15

(489)

1,592

2014

1,459

4

-

(489)

974

2015

1,002

-

-

(489)

513

2016

557

-

-

(163)

394

2017

172

-

-

-

172

Thereafter

120

-

-

-

120

ASSET QUALITY/LOAN LOSS PROVISION

Overview During the fourth quarter, the Company continued to experience improvement in asset quality.  Improving market conditions in the Company's local markets led to a reduction in nonperforming assets, which are at their lowest levels since the fourth quarter of 2009. The Company's reduction in nonperforming assets and impaired loans, lower past due loan levels, stable levels of troubled debt restructurings, and decreased allowance to total loans ratio demonstrate that its diligent efforts to improve asset quality are having a positive impact.  The allowance to nonperforming loans coverage ratio has continued to increase and is at its highest level since the fourth quarter of 2009.  The magnitude of any change in the real estate market and its impact on the Company is still largely dependent upon continued recovery of residential housing and commercial real estate and the pace at which the local economies in the Company's operating markets improve.

Nonperforming Assets ("NPAs") At December 31, 2012, nonperforming assets totaled $59.0 million, a decline of $7.6 million, or 11.4%, from the third quarter and a decrease of $18.1 million, or 23.5%, from a year ago.  In addition, NPAs as a percentage of total outstanding loans declined 30 basis points to 1.99% from 2.29% last quarter and 75 basis points from 2.74% a year earlier.  The reduction in NPAs from the third quarter related to a net decrease in nonaccrual loans, excluding purchased impaired loans, of $6.0 million as well as a net decrease in OREO of $1.6 million.

Nonperforming assets at December 31, 2012 included $26.2 million in nonaccrual loans (excluding purchased impaired loans), a net decrease of $6.0 million, or 18.6%, from the prior quarter and a reduction of $18.6 million, or 41.5%, from December 31, 2011.  The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands): 

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

Beginning Balance

$         32,159

$         39,171

$   42,391

$        44,834

$        51,965

Net customer payments

(1,898)

(5,774)

(3,174)

(2,778)

(6,556)

Additions

2,306

2,586

2,568

2,805

5,364

Charge-offs

(3,388)

(3,012)

(561)

(1,549)

(2,304)

Loans returning to accruing status

(840)

(812)

(1,803)

-

(1,950)

Transfers to OREO

(2,133)

-

(250)

(921)

(1,685)

Ending Balance

$         26,206

$         32,159

$   39,171

$        42,391

$        44,834

The following table presents the composition of nonaccrual loans (excluding purchased impaired loans) and the coverage ratio, which is the allowance for loan losses expressed as a percentage of nonaccrual loans, at the quarter ended (dollars in thousands):

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

Raw Land and Lots

$            8,760

$         10,995

$   12,139

$       13,064

$          13,322

Commercial Construction

5,781

7,846

9,763

9,835

10,276

Commercial Real Estate

3,018

2,752

5,711

6,299

7,993

Single Family Investment Real Estate

3,420

4,081

3,476

4,507

5,048

Commercial and Industrial

2,036

2,678

4,715

5,318

5,297

Other Commercial

193

195

231

233

238

Consumer

2,998

3,612

3,136

3,135

2,660

Total

$          26,206

$         32,159

$   39,171

$       42,391

$          44,834

Coverage Ratio

133.24%

124.05%

104.63%

94.84%

88.04%

Impairment analyses provided appropriate reserves on these nonperforming loans while appropriate reserves on homogenous pools continue to be maintained.  The increase in the coverage ratio is primarily related to a decline in nonperforming loans.

Nonperforming assets at December 31, 2012 also included $32.8 million in OREO, a net decrease of $1.6 million, or 4.7%, from the prior quarter and an increase of $571,000, or 1.8%, from the prior year.  The following table shows the activity in OREO for the quarter ended (dollars in thousands):

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

Beginning Balance

$        34,440

$         35,802

$   37,663

$        32,263

$         34,464

Additions

2,866

929

3,887

6,593

2,543

Capitalized Improvements

22

16

23

319

197

Valuation Adjustments

(301)

-

-

-

(530)

Proceeds from sales

(4,004)

(2,071)

(5,592)

(1,485)

(3,674)

Gains (losses) from sales

(189)

(236)

(179)

(27)

(737)

Ending Balance

$        32,834

$         34,440

$   35,802

$        37,663

$         32,263

The additions to OREO were principally related to raw land and developed commercial and residential lots; sales from OREO were principally related to residential real estate, land previously held for branch sites, and closed branch property.

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

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

December 31, 2011

Land

$           8,657

$           6,953

$     6,953

$    6,327

$           6,327

Land Development

10,886

11,034

11,313

11,559

11,309

Residential Real Estate

7,939

9,729

10,431

12,482

11,024

Commercial Real Estate

5,352

5,640

6,085

6,275

2,583

Former Bank Premises (1)

-

1,084

1,020

1,020

1,020

Total

$         32,834

$         34,440

$   35,802

$  37,663

$         32,263

(1) Includes closed branch property and land previously held for branch sites.

Included in land development is $9.2 million related to a residential community in the Northern Neck region of Virginia, which includes developed residential lots, a golf course, and undeveloped land.  Foreclosed properties were adjusted to their fair values at the time of each foreclosure and any losses were taken as loan charge-offs against the allowance for loan losses at that time.  OREO asset valuations are also evaluated at least quarterly by the Bank's Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment. 

Past Due Loans At December 31, 2012, total accruing past due loans were $32.4 million, or 1.09% of total loans, a decrease from $39.0 million, or 1.34%, at September 30, 2012 and from $39.3 million, or 1.40%, a year ago.  The favorable trend in decreased past due loans is a result of management's diligence in handling problem loans and an improving economy.

Charge-offs For the quarter ended December 31, 2012, net charge-offs of loans were $8.3 million, or 1.11% on an annualized basis, compared to $3.5 million, or 0.48%, for the third quarter and $4.2 million, or 0.59%, for the same quarter last year.  The uptick in charge-offs from the prior quarter and prior year quarter relate to loans that were previously considered impaired and specifically reserved for in prior periods.  Of the $8.3 million in net charge-offs in the current quarter, $6.7 million, or 81%, related to impaired loans specifically reserved for in prior periods including two loan relationships totaling $5.6 million that were charged off.  Net charge-offs in the current quarter included commercial loans of $6.8 million and consumer loans of $1.5 million.  

For the year ended December 31, 2012, net charge-offs of loans were $16.8 million, or 0.56%, compared to $15.7 million, or 0.56%, for the year ended December 31, 2011.  The increase in charge-offs relates to impaired loans reserved for in prior periods, as management has continued to work diligently to mitigate risks within the portfolio.

Provision The provision for loan losses for the current quarter was $3.3 million, an increase of $900,000 from both the third quarter and from the same quarter a year ago.  The higher provision was due to the increased levels of charge offs, which negatively impacted the historical loss factor used in the Company's allowance for loan losses model, and higher period end loan balances.  The provision to loans ratio for the quarter ended December 31, 2012 was 0.44% on an annualized basis compared to 0.33% last quarter and 0.34% the same quarter a year ago.

Allowance for Loan Losses The allowance for loan losses ("ALLL") as a percentage of the total loan portfolio, adjusted for acquired loans (non-GAAP), was 1.40% at December 31, 2012, a decrease from 1.66% at September 30, 2012 and 1.83% from a year ago.  In acquisition accounting, there is no carryover of previously established allowance for loan losses.  The allowance for loan losses as a percentage of the total loan portfolio was 1.18% at December 31, 2012, 1.37% at September 30, 2012, and 1.40% at December 31, 2011.  The decrease in the allowance and related ratios was primarily attributable to the charge off of impaired loans specifically reserved for in prior periods as shown in the following table:

December 31,

September 30,

June 30,

March 31,

December 31,

December 31,

2012

2012

2012

2012

2011

2010

Loans individually evaluated for impairment

142,415

161,196

189,399

230,789

242,833

274,932

Related allowance

6,921

11,438

11,500

11,288

10,298

11,257

ALLL to loans individually evaluated for impairment

4.86%

7.10%

6.07%

4.89%

4.24%

4.09%

The Company continued to see favorable trends in both past due loans and impaired loans during the current quarter.  Past due loans have decreased, as previously described, and impaired loans (individually and collectively evaluated for impairment) have declined from $177.9 million at September 30, 2012 and from $255.1 million at December 31, 2011 to $155.4 million at December 31, 2012.  The nonaccrual loan coverage ratio also improved, as it increased to 133.24% at December 31, 2012 from 124.05% at September 30, 2012 and from 88.04% the same quarter last year.  The rise in the coverage ratio, which is at the highest level since the fourth quarter of 2009, further shows that management's proactive diligence in working through problem credits is having a positive impact on asset quality.  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 in assessing the adequacy of the allowance for loan losses. 

Troubled Debt Restructurings ("TDRs") The total recorded investment in TDRs as of December 31, 2012 was $63.5 million, a decrease of $300,000, or 0.5%, from $63.8 million at September 30, 2012 and a decline of $49.1 million, or 43.6%, from $112.6 million at December 31, 2011.  Of the $63.5 million of TDRs at December 31, 2012, $51.5 million, or 81.1%, were considered performing while the remaining $12.0 million were considered nonperforming.  The decline in the TDR balance from the prior quarter is attributable to $1.8 million being removed from TDR status, $3.1 million in net payments, and $300,000 in charge-offs, partially offset by additions of $4.9 million.  The decline in the TDR balance from the prior year is attributable to $42.2 million being removed from TDR status, $19.9 million in net payments, and $300,000 in charge-offs, partially offset by additions of $13.3 million.  Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring, which were performing in accordance with their modified terms for a consecutive twelve month period and that were no longer considered impaired. 

The following table shows the Company's performing and nonperforming TDRs by modification type for the quarter ended (dollars in thousands):

 

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

December 31,

2011

Performing

Modified to interest only

$             1,877

$           1,437

$  2,191

$    1,812

$            699

Term modification, at a market rate

38,974

39,195

53,905

75,455

87,920

Term modification, below market rate

8,227

8,911

9,004

8,797

10,215

Interest rate modification, below market rate

2,390

2,390

2,390

-

-

Total performing

$           51,468

$         51,933

$ 67,490

$  86,064

$        98,834

Nonperforming

Modified to interest only

$               672

$             920

$     642

$      649

$          1,190

Term modification, at a market rate

3,653

3,288

3,451

4,290

3,660

Term modification, below market rate

7,666

7,672

8,587

8,804

8,954

Total nonperforming

$           11,991

$         11,880

$ 12,680

$  13,743

$        13,804

Total performing & nonperforming

$           63,459

$         63,813

$ 80,170

$  99,807

$      112,638

 

NONINTEREST INCOME

 For the Three Months Ended  

 Dollars in thousands 

12/31/12

09/30/12

$

%

12/31/11

$

%

Noninterest income:

Service charges on deposit accounts

$      2,390

$      2,222

168

7.6%

$    2,258

$         132

5.8%

Other service charges, commissions and fees

2,784

2,769

15

0.5%

2,521

263

10.4%

Losses (gains) on securities transactions, net

185

(1)

186

NM

430

(245)

-57.0%

Gains on sales of mortgage loans, net of commissions

5,299

4,755

544

11.4%

3,270

2,029

62.0%

Gains (losses) on bank premises, net

(32)

(308)

276

NM

(351)

319

NM

Other operating income

1,209

1,067

142

13.3%

1,119

90

8.0%

Total noninterest income

$    11,835

$    10,504

$      1,331

12.7%

$    9,247

$      2,588

28.0%

Mortgage segment operations

$     (5,303)

$     (4,756)

$        (547)

11.5%

$   (3,266)

$     (2,037)

62.4%

Intercompany eliminations

117

117

-

0.0%

117

-

0.0%

$      6,649

$      5,865

$         784

13.4%

$    6,098

$         551

9.0%

NM - Not Meaningful

On a linked quarter basis, noninterest income increased $1.3 million, or 12.7%, to $11.8 million from $10.5 million in the third quarter.  Of this increase, gains on sales of mortgage loans, net of commissions, increased $544,000 or 11.4%, driven by an increase in loan origination volume as mortgage rates remained at historically low levels.  Gains on bank premises increased $276,000 largely due to the write down of a former branch location in the prior quarter.  Gains on securities increased $186,000. Service charges on deposit accounts and other account fees increased $183,000 from the prior quarter.  Excluding mortgage segment operations, noninterest income increased $784,000, or 13.4%.

For the quarter ended December 31, 2012, noninterest income increased $2.6 million, or 28.0%, to $11.8 million from $9.2 million in the prior year's fourth quarter.  Gains on sales of mortgage loans, net of commissions, increased $2.0 million, or 62.0%, due to higher origination volume, a result of additional loan originators hired in 2012 and historically low interest rates.  Service charges on deposit accounts and other account fees increased $395,000 or 8.3%, driven by higher net interchange fee income and higher brokerage commissions.  Gains on bank premises increased $319,000 due to a loss incurred in the fourth quarter of 2011 related to the disposal of bank owned property.  Gains on securities transactions decreased $245,000 as a result of higher gains recorded in the prior year.  Excluding mortgage segment operations, noninterest income increased $551,000, or 9.0%, from the same period a year ago.

 

 For the Twelve  Months Ended 

 Dollars in thousands 

12/31/12

12/31/11

$

%

Noninterest income:

Service charges on deposit accounts

$      9,033

$      8,826

207

2.3%

Other service charges, commissions and fees

10,898

9,736

1,162

11.9%

Losses (gains) on securities transactions, net

190

913

(723)

NM

Other-than-temporary impairment losses

-

(400)

400

-100.0%

Gains on sales of mortgage loans, net of commissions

16,651

11,052

5,599

50.7%

Gains (losses) on bank premises, net

2

(996)

998

NM

Other operating income

4,294

3,833

461

12.0%

Total noninterest income

$    41,068

$    32,964

$    8,104

24.6%

Mortgage segment operations

$   (16,660)

$   (11,050)

$  (5,610)

50.8%

Intercompany eliminations

468

468

-

0.0%

$    24,876

$    22,382

$    2,494

11.1%

NM - Not Meaningful

For the year ending December 31, 2012, noninterest income increased $8.1 million, or 24.6%, to $41.1 million, from $33.0 million a year ago.  Gains on sales of mortgage loans, net of commissions, increased $5.6 million driven by an increase in loan origination volume, a result of additional loan originators hired in 2012 and historically low interest rates.  Service charges on deposit accounts and other account fees increased $1.4 million primarily related to higher net interchange fee income, higher brokerage commissions, and higher ATM fee income.  In addition, gains on bank premises increased $998,000 as the Company sold a former branch building and recorded a loss on the sale of $626,000 during 2011.  Gains on securities transactions decreased $723,000 as a result of a gain on the sale of municipal securities in the prior year.  Also, other-than-temporary losses of $400,000 related to a single issuer Trust Preferred security was recorded in the prior year.  Excluding mortgage segment operations, noninterest income increased $2.5 million, or 11.1%, from the same period a year ago.

NONINTEREST EXPENSE

 

 For the Three Months Ended  

 Dollars in thousands 

12/31/12

09/30/12

$

%

12/31/11

$

%

Noninterest expense:

Salaries and benefits

$    17,620

$    17,116

$      504

2.9%

$  15,904

$    1,716

10.8%

Occupancy expenses

3,149

3,262

(113)

-3.5%

2,797

352

12.6%

Furniture and equipment expenses

1,811

1,809

2

0.1%

1,823

(12)

-0.7%

OREO and related costs (1)

1,366

1,036

330

31.9%

2,279

(913)

-40.1%

Other operating expenses

10,390

10,045

345

3.4%

11,073

(683)

-6.2%

Total noninterest expense

$    34,336

$    33,268

$    1,068

3.2%

$  33,876

460

1.4%

Mortgage segment operations

$     (4,256)

$     (3,676)

$     (580)

15.8%

$   (2,531)

$  (1,726)

68.2%

Intercompany eliminations

117

117

-

0.0%

117

-

0.0%

$    30,197

$    29,709

$      488

1.6%

$  31,462

$  (1,265)

-4.0%

  NM - Not Meaningful

 (1)OREO related costs include foreclosure related expenses, gains/losses on the sale of OREO, valuation reserves, and asset resolution related legal expenses.

On a linked quarter basis, noninterest expense increased $1.1 million, or 3.2%, to $34.4 million from $33.3 million when compared to the third quarter.  This increase was primarily driven by salaries and benefit expense, which increased $504,000 due to increased incentive awards related to higher earnings and severance payments related to branch closures and other efficiency initiatives.  OREO and related costs increased $330,000, due to a $301,000 valuation adjustment recorded in the fourth quarter.  The Company reviews the carrying value of OREO on a quarterly basis and records valuation reserves as necessary based on current available information.  In addition, other operating expenses increased $345,000 largely due to contract termination expenses related to branch closures and other efficiency initiatives of $363,000 in the fourth quarter.  Excluding mortgage segment operations, noninterest expense increased $488,000, or 1.6% compared to the third quarter.

For the quarter ended December 31, 2012, noninterest expense increased $460,000, or 1.4%, to $34.4 million from $33.9 million for the fourth quarter of 2011.  Salaries and benefits expenses increased $1.7 million primarily related to the costs associated with the addition of mortgage loan originators and support personnel in 2012 and severance payments related to branch closures and other efficiency initiatives in 2012.  Occupancy expenses increased $352,000 primarily due to the addition of mortgage offices in the first quarter of 2012 and increases in bank branch lease costs.  These increases were offset by lower OREO and related costs and other operating expenses. OREO and related costs decreased $913,000 from the prior year's fourth quarter due to lower valuation adjustments and losses on sales of OREO and declines in problem loan legal fees as asset quality continues to improve.  Other operating expenses were lower by $682,000, attributable to lower marketing and advertising expense, reduced FDIC insurance expense and declining core deposit intangible amortization expense.  Excluding mortgage segment operations, noninterest expense decreased $1.3 million, or 4.0%, compared to the fourth quarter of 2011.

 For the Twelve Months Ended 

 Dollars in thousands 

12/31/12

12/31/11

$

%

Noninterest expense:

Salaries and benefits

$    68,648

$    62,865

$    5,783

9.2%

Occupancy expenses

12,150

11,104

1,046

9.4%

Furniture and equipment expenses

7,251

6,920

331

4.8%

OREO and related costs (1)

4,639

5,668

(1,029)

-18.2%

Other operating expenses

40,791

44,258

(3,467)

-7.8%

Total noninterest expense

$   133,479

$   130,815

$    2,664

2.0%

Mortgage segment operations

$   (13,971)

$     (9,793)

$  (4,178)

42.7%

Intercompany eliminations

468

468

-

0.0%

$   119,976

$   121,490

$  (1,514)

-1.2%

 (1)OREO related costs include foreclosure related expenses, gains/losses on the sale of OREO, valuation reserves, and asset resolution related legal expenses.

For the year ending December 31, 2012, noninterest expense increased $2.7 million, or 2.0% to $133.5 million, from $130.8 million a year ago.  Salaries and benefits expense increased $5.8 million due to the addition of mortgage loan originators and support personnel hired in 2012, group insurance cost increases, and severance expense recorded in the current quarter.  Occupancy costs increased $1.0 million primarily due to the addition of mortgage offices in the first quarter of 2012 and increases in bank branch lease costs.  Furniture and equipment expense increased $331,000, primarily related to equipment maintenance contracts and software amortization.  Partially offsetting these increases were other operating expenses which decreased $3.5 million, or 7.8% primarily due to reductions in FDIC insurance expense of $2.6 million resulting from changes in the assessment base and rate as well as lower core deposit intangible amortization expense of $1.2 million.  OREO and related costs decreased $1.0 million, or 18.2%,  during the current year due to lower valuation adjustments and losses on sales of OREO and declines in problem loan legal fees as asset quality continues to improve.  Excluding mortgage segment operations, noninterest expense decreased $1.5 million, or 1.2%, compared to the same period in 2011.

BALANCE SHEET

At December 31, 2012, total assets were $4.1 billion, an increase of $188.8 million from December 31, 2011.  Total cash and cash equivalents were $82.9 million at December 31, 2012, a decrease of $13.8 million from the same period last year.  Investment in securities decreased $34.8 million, or 5.6%, from $620.2 million at December 31, 2011 to $585.4 million at December 31, 2012, respectively.  At December 31, 2012, loans (net of unearned income) were $3.0 billion, an increase of $148.3 million, or 5.3%, from December 31, 2011.  Mortgage loans held for sale were $167.7 million, an increase of $92.9 million from December 31, 2011 driven by an increase in mortgage origination volume resulting from the addition of mortgage loan originators and offices during 2012 and historically low mortgage interest rates. 

As of December 31, 2012, total deposits were $3.3 billion, an increase of $122.7 million, or 3.9%, when compared to December 31, 2011.  Total short-term borrowings, including FHLB borrowings and repurchase agreements, increased $69.3 million from December 31, 2011, as the Company relied on short-term borrowings to fund growth in mortgage loans held for sale balances and customer preference for repurchase agreements increased.  As of December 31, 2012, long-term borrowings declined $18.6 million when compared to December 31, 2011.  During the third quarter, the Company modified its fixed rate convertible Federal Home Loan Bank of Atlanta ("FHLB") advances to floating rate advances, which resulted in reducing the Company's FHLB borrowing costs.  In connection with this modification, the Company incurred a prepayment penalty of $19.6 million on the original advances which is being amortized, as a component of interest expense on borrowing, over the life of the advances.  The prepayment amount is reported as a component of long-term borrowings in the Company's consolidated balance sheet. 

The Company's capital ratios continued to be considered "well capitalized" for regulatory purposes. The Company's ratio of total capital to risk-weighted assets was 14.57% and 14.51% on December 31, 2012 and 2011, respectively.  The Company's ratio of Tier 1 capital to risk-weighted assets was 13.14% and 12.85% at December 31, 2012 and 2011, respectively.  During the fourth quarter of 2011, the Company paid the U.S.Treasury $35.7 million to redeem the Preferred Stock issued to the U.S. Treasury and assumed in the FMB acquisition.  In December 2012, the Company repurchased and retired 750,000 shares of its common stock for an aggregate purchase price of $11,580,000, or $15.44 per share.  The repurchase was funded with cash on hand. The Company's common equity to asset ratios at December 31, 2012 and 2011 were 10.64% and 10.79%, respectively, while its tangible common equity to tangible assets ratio increased to 8.97% from 8.91% at December 31, 2011.

MORTGAGE SEGMENT INFORMATION

On a linked quarter basis, the mortgage segment net income for the fourth quarter increased $122,000, or 14.2%, from $859,000 in the third quarter to $981,000.  Mortgage loan originations increased by $8.7 million or 2.7% in the current quarter to $331.8 million from $323.1 million in the third quarter aided by historically low interest rates. As a result, gains on the sale of loans, net of commission expenses, increased $544,000, or 11.4% to $5.3 million.  Salary and benefit expenses increased $263,000, or 11.6% to $2.5 million from $2.3 million primarily due to increased incentive awards and other benefit costs.  Operating expenses increased $330,000, or 39.2%, from the prior quarter due to increased supplies and other costs related to mortgage offices added in 2012, higher loan-related expenses due to volume, higher employee training, travel, and licensure costs, and contract termination costs of $78,000 related to cost saving initiatives.  Refinanced loans represented 57.0% of the originations during the fourth quarter compared to 57.6% during the third quarter. 

For the three months ended December 31, 2012, the mortgage segment net income increased $327,000 or 50.0% from $654,000 to $981,000 compared to the same period last year.  Originations increased by $145.2 million, or 77.8%, to $331.8 million from $186.6 million in the prior year due to the additions in production personnel in 2012 and the sustained low interest rate environment. In early 2012, the Company significantly increased its mortgage loan production capacity by hiring additional loan originators and support personnel who were formerly employed by a national mortgage company that exited the mortgage origination business. During the current quarter, the Company recorded gains on the sale of mortgage loans, net of commission expenses, that were $2.0 million, or 62.0%, higher than the same period last year.  Salaries and benefits increased $1.2 million, or 92.6%, primarily due to the personnel additions noted above in 2012.  Refinanced loans represented 57.0% of originations during the fourth quarter of 2012 compared to 52.2% during the same period a year ago. 

For the year ended December 31, 2012, the mortgage segment net income increased $933,000, or 57.8%, from $1.6 million during the same period last year to $2.5 million.  Originations increased by $436.8 million, or 66.2%, to $1.1 billion from $659.4 million during the same period last year due to the addition of mortgage loan originators in 2012 noted above and the historically low interest rate environment.  Gains on sales of loans, net of commission expenses, increased $5.6 million, or 50.7%, while salary and benefit expenses increased $3.0 million, or 55.4%, primarily due to the addition of mortgage loan originators and support personnel in early 2012.  Refinanced loans represented 54.3% of originations during the year compared to 37.4% during 2011.

* * * * * * *

ABOUT UNION FIRST MARKET BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union First Market Bankshares Corporation is the holding company for Union First Market Bank, which has 90 branches and more than 150 ATMs throughout Virginia.  Non-bank affiliates of the holding company include: Union Investment Services, Inc., which provides full brokerage services; Union Mortgage Group, Inc., which provides a full line of mortgage products, and Union Insurance Group, LLC, which offers various lines of insurance products.  Union First Market Bank also owns a non-controlling interest in Johnson Mortgage Company, L.L.C. 

Additional information is available on the Company's website at http://investors.bankatunion.com.   Shares of the Company's common stock are traded on the NASDAQ Global Select Market under the symbol UBSH.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise and 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 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, changes in the stock and bond markets, accounting standards or interpretations of existing standards, mergers and acquisitions, technology, and consumer spending and savings habits.  More information is available on the Company's website, http://investors.bankatunion.com and on the Securities and Exchange Commission's website, www.sec.gov.  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 FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

KEY FINANCIAL RESULTS

(in thousands, except share data)

Three Months Ended

Twelve Months Ended

12/31/12

09/30/12

12/31/11

12/31/12

12/31/11

Results of Operations

Interest and dividend income

$          45,183

$          45,503

$          46,319

$      181,863

$      189,073

Interest expense

6,023

6,741

7,828

27,508

32,713

Net interest income

39,160

38,762

38,491

154,355

156,360

Provision for loan losses

3,300

2,400

2,400

12,200

16,800

Net interest income after provision for loan losses

35,860

36,362

36,091

142,155

139,560

Noninterest income (1)

11,835

10,504

9,247

41,068

32,964

Noninterest expenses (1)

34,336

33,270

33,876

133,479

130,815

Income before income taxes

13,359

13,596

11,462

49,744

41,709

Income tax expense 

3,917

3,970

3,102

14,333

11,264

Net income

$           9,442

$           9,626

$           8,360

$        35,411

$        30,445

Interest earned on loans (FTE)

$          40,981

$          40,913

$          41,584

$      162,956

$      168,991

Interest earned on securities (FTE)

5,286

5,638

5,734

23,067

24,284

Interest earned on earning assets (FTE)

46,272

46,555

47,386

186,086

193,399

Net interest income (FTE)

40,250

39,815

39,558

158,577

160,686

Interest expense on certificates of deposit

3,425

3,710

4,183

15,015

17,658

Interest expense on interest-bearing deposits 

4,362

4,725

5,572

19,446

24,347

Core deposit intangible amortization

1,188

1,212

1,448

4,936

6,122

Net income - community bank segment

$           8,461

$           8,767

$           7,707

$        32,867

$        28,833

Net income - mortgage segment

981

859

654

2,544

1,612

Key Ratios

Return on average assets (ROA)

0.93%

0.96%

0.84%

0.89%

0.79%

Return on average equity (ROE)

8.41%

8.70%

7.49%

8.13%

6.90%

Efficiency ratio (FTE) (1)

65.92%

66.12%

69.41%

66.86%

67.55%

Efficiency ratio - community bank segment (FTE) (1)

64.93%

65.52%

69.38%

65.88%

66.84%

Efficiency ratio - mortgage bank segment (FTE) (1)

74.72%

72.23%

70.76%

77.66%

79.20%

Net interest margin (FTE)

4.29%

4.31%

4.37%

4.34%

4.57%

Net interest margin, core (FTE) (2)

4.22%

4.23%

4.20%

4.24%

4.37%

Yields on earning assets (FTE)

4.93%

5.04%

5.23%

5.10%

5.50%

Cost of interest-bearing liabilities (FTE)

0.81%

0.92%

1.07%

0.94%

1.14%

Cost of funds

0.64%

0.73%

0.86%

0.75%

0.93%

Noninterest expense less noninterest income / average assets

2.21%

2.27%

2.49%

2.32%

2.53%

Capital Ratios

Tier 1 risk-based capital ratio

13.14%

13.44%

12.85%

13.14%

12.85%

Total risk-based capital ratio

14.57%

15.00%

14.51%

14.57%

14.51%

Leverage ratio (Tier 1 capital to average assets)

10.29%

10.53%

10.15%

10.52%

10.34%

Common equity to total assets

10.64%

11.00%

10.79%

10.64%

10.79%

Tangible common equity to tangible assets

8.97%

9.27%

8.91%

8.97%

8.91%

Per Share Data

Earnings per common share, basic

$             0.37

$             0.37

$             0.28

$           1.37

$           1.07

Earnings per common share, diluted

0.37

0.37

0.28

1.37

1.07

Cash dividends paid per common share

0.12

0.10

0.07

0.37

0.28

Market value per share

15.77

15.56

13.29

15.77

13.29

Book value per common share

17.30

17.11

16.17

17.30

16.17

Tangible book value per common share 

14.31

14.15

13.08

14.31

13.08

Price to earnings ratio, diluted

10.71

10.57

11.96

11.51

12.42

Price to book value per common share ratio

0.91

0.91

0.82

0.91

0.82

Price to tangible common share ratio

1.10

1.10

1.02

1.10

1.02

Weighted average common shares outstanding, basic

25,809,667

25,880,894

26,011,465

25,872,316

25,981,222

Weighted average common shares outstanding, diluted

25,854,623

25,907,909

26,036,922

25,900,863

26,009,839

Common shares outstanding at end of period

25,270,970

25,967,705

26,134,830

25,270,970

26,134,830

Three Months Ended

Twelve Months Ended

12/31/12

09/30/12

12/31/11

12/31/12

12/31/11

Financial Condition

Assets

$     4,095,865

$     4,028,194

$     3,907,087

$   4,095,865

$   3,907,087

Loans, net of unearned income

2,966,847

2,908,510

2,818,583

2,966,847

2,818,583

Earning Assets

3,752,089

3,703,468

3,566,480

3,752,089

3,566,480

Goodwill

59,400

59,400

59,400

59,400

59,400

Core deposit intangibles, net

15,778

16,966

20,714

15,778

20,714

Deposits

3,297,767

3,199,779

3,175,105

3,297,767

3,175,105

Stockholders' equity

435,863

442,949

421,639

435,863

421,639

Tangible common equity

360,652

366,450

341,092

360,652

341,092

Averages

Assets

$     4,058,455

$     3,994,830

$     3,929,529

$   3,975,225

$   3,861,629

Loans, net of unearned income

2,935,214

2,890,666

2,804,500

2,875,916

2,818,022

Loans held for sale

157,177

119,190

68,587

104,632

53,463

Securities

628,626

651,855

619,228

642,973

595,261

Earning assets

3,732,684

3,671,398

3,591,739

3,649,865

3,518,643

Deposits

3,252,380

3,192,239

3,156,596

3,203,177

3,098,818

Certificates of deposit

1,066,491

1,080,022

1,158,561

1,099,251

1,177,448

Interest-bearing deposits

2,627,741

2,604,760

2,617,459

2,625,437

2,585,466

Borrowings

316,345

320,562

289,299

296,935

289,776

Interest-bearing liabilities

2,944,086

2,925,322

2,906,758

2,922,373

2,875,242

Stockholders' equity

446,604

440,122

442,580

435,774

441,040

Tangible common equity

370,777

362,996

336,076

357,985

326,090

Asset Quality

Allowance for Loan Losses (ALLL)

Beginning balance 

$          39,894

$          40,985

$          41,290

$        39,470

$        38,406

Add: Recoveries

340

680

569

1,711

2,130

Less: Charge-offs

8,618

4,171

4,789

18,465

17,866

Add: Provision for loan losses

3,300

2,400

2,400

12,200

16,800

Ending balance 

$          34,916

$          39,894

$          39,470

$        34,916

$        39,470

Components of ALLL:

ALLL for Loans individually evaluated for impairment

$           6,921

$          11,309

10,213

$         6,921

10,213

ALLL for Loans collectively evaluated for impairment

27,995

28,585

$          29,257

27,995

$        29,257

$          34,916

$          39,894

$          39,470

$        34,916

$        39,470

ALLL / total outstanding loans

1.18%

1.37%

1.40%

1.18%

1.40%

ALLL / total outstanding loans, adjusted for acquired (3)

1.40%

1.66%

1.83%

1.40%

1.83%

Net charge-offs / total outstanding loans

1.11%

0.48%

0.59%

0.56%

0.56%

Provision/ total outstanding loans

0.44%

0.33%

0.34%

0.41%

0.60%

Nonperforming Assets

Commercial

$          23,208

$          28,547

$          42,174

$        23,208

$        42,174

Consumer

2,998

3,612

2,660

2,998

2,660

Nonaccrual loans

26,206

32,159

44,834

26,206

44,834

Other real estate owned

32,834

34,440

32,263

32,834

32,263

Total nonperforming assets (NPAs)

59,040

66,599

77,097

59,040

77,097

Commercial

3,191

1,931

12,865

3,191

12,865

Consumer

5,652

7,165

7,047

5,652

7,047

Loans ≥ 90 days and still accruing

8,843

9,096

19,912

8,843

19,912

Total nonperforming assets and loans ≥ 90 days

$          67,883

$          75,695

$          97,009

$        67,883

$        97,009

NPAs / total outstanding loans

1.99%

2.29%

2.74%

1.99%

2.74%

NPAs / total assets

1.44%

1.65%

1.97%

1.44%

1.97%

ALLL / nonperforming loans

133.24%

124.05%

88.04%

133.24%

88.04%

ALLL / nonperforming assets

59.14%

59.90%

51.20%

59.14%

51.20%

Three Months Ended

Twelve Months Ended

12/31/12

09/30/12

12/31/11

12/31/12

12/31/11

Past Due Detail

Commercial

$              929

$              382

$           1,468

$            929

$         1,468

Consumer

3,748

4,625

2,797

3,748

2,797

Loans 60-89 days past due

$           4,677

$           5,007

$           4,265

$         4,677

$         4,265

Commercial

$           5,643

$          15,421

$           2,184

$         5,643

$         2,184

Consumer

13,195

9,486

12,934

13,195

12,934

Loans 30-59 days past due

$          18,838

$          24,907

$          15,118

$        18,838

$        15,118

Commercial

$           3,594

$           5,431

$           8,828

$         3,594

$         8,828

Consumer

971

1,006

1,069

971

1,069

Purchased impaired

$           4,565

$           6,437

$           9,897

$         4,565

$         9,897

Other Data

Mortgage loan originations

$        334,734

$        323,077

$        186,559

$   1,096,140

$      659,441

% of originations that are refinances

57.00%

57.60%

52.20%

54.30%

37.40%

End of period full-time employees

1,044

1,054

1,045

1,044

1,045

Number of full-service branches

90

94

99

90

99

Number of full automatic transaction machines (ATMs)

155

158

165

155

165