Union First Market Bankshares Reports Second Quarter Results

Jul 24, 2012, 14:30 ET from Union First Market Bankshares Corporation

RICHMOND, Va., July 24, 2012 /PRNewswire/ -- Union First Market Bankshares Corporation (the "Company") (NASDAQ: UBSH) today reported net income of $8.4 million, a 23.5% increase over a year ago, and earnings per share of $0.32 for its second quarter ended June 30, 2012.  The quarterly results represent an increase of $497,000 in net income, or an increase of $0.01 earnings per share from the most recent quarter, and an increase of $1.6 million in net income or $0.08 in earnings per share from the quarter ended June 30, 2011.  Net income available to common shareholders was $8.4 million, compared to $6.3 million for the prior year's second quarter which included preferred dividends and discount accretion on preferred stock of $527,000.

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

"The second quarter saw a number of positive trends carry forward from prior periods as our growth strategy continues to deliver results." said G. William Beale, chief executive officer of Union First Market Bankshares.  "Union Mortgage posted a strong quarter and we believe there is still more growth opportunity ahead in this historically low rate environment as the new originators get fully up to speed.  On the bank side, more than 900 new households joined Union during the second quarter as consumers continued to search for a better place to bank.  The Bank experienced loan growth for the third consecutive quarter and asset quality continues to improve.  While the Company is still focused on growth opportunities, we are looking to increase revenue with new products and services, pursuing opportunities to deliver outstanding customer service more efficiently as well as reduce expenses."

Select highlights:

  • Gains on sales of mortgage loans increased $2.0 million from the prior quarter due to a $73.4 million, or 39.9%, increase in origination volume as a result of the favorable rate environment and the contribution of additional mortgage loan originators hired in the first quarter.
  • The Company earned a Return on Average Equity ("ROE") of 7.84% and Return on Average Assets ("ROA") of 0.86% for the quarter ended June 30, 2012.  This represents continued improvement in the ROE and ROA compared to 7.51% and 0.82%, respectively, for the quarter ended March 31, 2012 and 6.21% and 0.71% respectively, for the quarter ended June 30, 2011.
  • Nonperforming assets ("NPAs") decreased $5.1 million from the first quarter and decreased $16.3 million compared to a year ago.  NPAs as a percentage of total outstanding loans declined 22 basis points from 2.82% last quarter and 59 basis points from 3.19% a year earlier to 2.60% at June 30, 2012. 
  • Loan demand improved with an increase in loans outstanding of $46.0 million, or 1.6% (6.4% annualized rate), from the prior quarter, and $69.2 million, or 2.5% (5% annualized rate), from the year ended December 31, 2011.
  • Provision for loan losses decreased $500,000 from the most recent quarter and $1.5 million from the same quarter a year ago.

Second quarter net income increased $497,000, or 6.3%, compared to the first quarter.  The increase was largely a result of gains on sales of mortgage loans and increased income from service charges, fees, and brokerage commission income partially offset by an increase in mortgage commission expense, other real estate owned ("OREO") expenses on foreclosed properties, employee training costs, and occupancy costs.  In addition, the Company recorded $500,000 less in provision for loan losses than the prior quarter.  Also during the quarter, interest income declined at a faster pace than interest expense, a result of less attractive yield loan and investment opportunities in the current low rate environment.

Net income for the quarter ended June 30, 2012 increased $1.6 million, or 23.5%, from the same quarter in the prior year.  The increase was principally a result of higher gains on sales of loans in the mortgage segment and a lower provision for loan losses, partially offset by an increase in commission expense related to loan origination volume, lower gains on sales of bank property and an increase in account service charges and fees.  Also during the quarter, interest income declined at a faster pace than interest expense, a result of less attractive yield loan and investment opportunities in the current low rate environment.

NET INTEREST INCOME

On a linked quarter basis, tax-equivalent net interest income was $39.1 million, a decrease of $266,000, or 0.7%, from the first quarter of 2012.  This decrease was principally due to lower yields on average interest-earning assets outpacing lower costs of interest-bearing liabilities.  Second quarter tax-equivalent net interest margin decreased to 4.36% from 4.44% in the most recent quarter.  The change in net interest margin was principally attributable to the continued decline in net accretion on the acquired net earning assets (5 bps)  and to a decrease in investment and loan yields outpacing lower cost of interest-bearing liabilities (3 bps).  Loan yields continue to be affected negatively by competitive pricing and a low rate environment while yields on investment securities were impacted by lower reinvestment rates and faster prepayments related to mortgage-backed securities during the quarter.  The cost of interest-bearing deposits was affected positively by a shift in mix from term deposits to transaction deposits.

The following table shows average interest-earning assets, interest-bearing liabilities, the related income/expense and change for the periods shown:

Linked quarter results

Dollars in thousands

Three Months Ended

06/30/12

03/31/12

Change

Average interest-earning assets

$      3,615,718

$      3,578,513

$        37,206

Interest income

$           46,340

$           46,919

$           (579)

Yield on interest-earning assets

5.15%

5.27%

(12)

bps

Average interest-bearing liabilities

$      2,910,987

$      2,908,822

$          2,165

Interest expense

$             7,215

$             7,528

$           (313)

Cost of interest-bearing liabilities

1.00%

1.04%

(4)

bps

For the three months ended June 30, 2012, tax-equivalent net interest income decreased $1.6 million, or 3.9%, when compared to the same period last year.  The tax-equivalent net interest margin decreased to 4.36% from 4.68% in the prior year.  This decrease was principally due to the continued decline in accretion on the acquired net earning assets (10 bps) and a decline in income from interest-earning assets outpacing lower costs on interest-bearing liabilities (22 bps).  Lower interest-earning asset income was principally due to lower yields on loans and investment securities as new loans are originated at lower rates and cash flows from securities investments and loans are reinvested at lower yields. 

The Company continues to expect that its net interest margin will decline slightly over the next several quarters as decreases in earning asset yields are expected to outpace declines in costs of interest-bearing liabilities.

The following table shows average interest-earning assets, interest-bearing liabilities, the related income/expense and change for the periods shown:

Year-over-year results

Dollars in thousands

Three Months Ended

06/30/12

06/30/11

Change

Average interest-earning assets

$       3,615,718

$       3,486,949

$       128,769

Interest income

$            46,340

$            48,848

$         (2,508)

Yield on interest-earning assets

5.15%

5.62%

(47)

bps

Average interest-bearing liabilities

$       2,910,987

$       2,861,567

$         49,420

Interest expense

$              7,215

$              8,133

$            (918)

Cost of interest-bearing liabilities

1.00%

1.14%

(14)

bps

For the six months ended June 30, 2012, tax-equivalent net interest income decreased $2.1 million, or 2.6%, when compared to the same period last year.  The tax-equivalent net interest margin decreased 29 basis points to 4.39% from 4.68% 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 (8 bps) and a decline in income from interest-earning assets outpacing lower costs on interest-bearing liabilities (21 bps).  Lower interest-earning asset income was principally due to lower yields on loans and investment securities as new loans are originated at lower rates and cash flows from securities investments and loans are reinvested at lower yields. 

Year-over-year results

Dollars in thousands

Six Months Ended 

06/30/12

06/30/11

Change

Average interest-earning assets

$       3,597,115

$       3,473,467

$        123,648

Interest income

$            93,259

$            97,339

$          (4,080)

Yield on interest-earning assets

5.21%

5.65%

(44)

bps

Average interest-bearing liabilities

$       2,909,904

$       2,859,995

$          49,909

Interest expense

$            14,744

$            16,725

$          (1,981)

Cost of interest-bearing liabilities

1.02%

1.18%

(16)

bps

Acquisition Activity – Net Interest Margin The favorable impact of acquisition accounting fair value adjustments on net interest income was $951,000 ($787,000 – First Market Bank ("FMB"); $164,000Harrisonburg Branch) and $2.3 million ($1.9 million – FMB; $378,000Harrisonburg Branch) for the three and six months ended June 30, 2012, respectively.  If not for this favorable impact, the net interest margin for the second quarter would have been 4.25%, compared to 4.28% from the first quarter of 2012 and 4.47% from the second quarter of 2011. 

The acquired loan portfolios of the Harrisonburg Branch and FMB were marked-to-market with a fair value discount to market rates.  Performing loan discount accretion is recognized as interest income over the estimated remaining life of the loans.  For the FMB acquisition, the acquired investment security portfolios were marked-to-market with a fair value discount to market rates.  The Company also assumed borrowings (Federal Home Loan Bank ("FHLB") and subordinated debt).  These liabilities were marked-to-market with estimates of fair value on acquisition date.  The resulting discount/premium to market is accreted/amortized as an increase/decrease to net interest income over the estimated lives of the liabilities.  Additional credit quality deterioration above the original credit mark is recorded as additional provisions for loan losses.  The Company also assumed certificates of deposit at a premium to market.  These were marked-to-market with estimates of fair value on acquisition date.  The resulting premium to market is being amortized as a decrease to interest expense over the estimated lives of the certificates of deposit.

The second quarter and remaining estimated discount/premium are reflected in the following table (dollars in thousands):

Harrisonburg Branch

 First Market Bank  

Loan Accretion

Certificates of Deposit

Loan Accretion

Investment Securities

Borrowings

Certificates of Deposit

Total

For the quarter ended June 30, 2012

$        160

$             3

$          755

$           46

$        (122)

$          108

$        950

For the remaining six months of 2012

217

5

1,355

93

(245)

-

1,425

For the years ending:

2013

148

7

2,142

15

(489)

-

1,823

2014

37

4

1,511

-

(489)

-

1,063

2015

26

-

903

-

(489)

-

440

2016

27

-

345

-

(163)

-

209

2017

23

-

18

-

-

-

41

Thereafter

120

-

-

-

-

-

120

ASSET QUALITY/LOAN LOSS PROVISION

Overview During the second quarter, the Company experienced encouraging improvement in asset quality.  Improving market conditions in the Company's local market led to a reduction in both OREO and nonaccrual loans, which are at their lowest levels since the first quarter of 2010. The Company's favorable trends in provisions for loan losses, stable allowance to total loans ratio, and decreased levels of charge-offs, troubled debt restructurings, and impaired loans demonstrate that its focused efforts to improve asset quality are having a positive impact.  The allowance to nonperforming loans coverage ratio has increased significantly 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 commercial real estate and residential housing and the pace at which the local economies in the Company's operating markets improve.

Nonperforming Assets ("NPAs") At June 30, 2012, nonperforming assets totaled $75.0 million, a decrease of $5.1 million from the first quarter and a decrease of $16.3 million from a year ago.  In addition, NPAs as a percentage of total outstanding loans declined 22 basis points from 2.82% in the first quarter and 59 basis points from 3.19% in the second quarter of the prior year to 2.60% at June 30, 2012.  The current quarter decrease in NPAs from the first quarter related to a net decrease in nonaccrual loans, excluding purchased impaired loans, of $3.2 million as well as a net decrease in OREO of $1.9 million.

Nonperforming assets at June 30, 2012 included $39.2 million in nonaccrual loans (excluding purchased impaired loans), a net decrease of $3.2 million, or 7.55%, from the prior quarter.  The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands): 

June 30, 2012

March 31, 2012

June 30, 2011

Beginning Balance

$  42,391

$  44,834

$   62,642

Net customer payments

(3,174)

(2,778)

(7,599)

Additions

2,568

2,805

4,223

Charge-offs

(561)

(1,549)

(3,581)

Loans returning to accruing status

(1,803)

-

(658)

Transfers to OREO

(250)

(921)

(705)

Ending Balance

$  39,171

$  42,391

$   54,322

The nonperforming loans added during the quarter were principally related to commercial loans as borrowers continued to experience financial difficulties with the prolonged economic recovery exhausting their cash reserves and other repayment sources. 

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):

June 30, 2012

March 31, 2012

June 30, 2011

Raw Land and Lots

$  12,139

$  13,064

$   17,587

Commercial Construction

9,763

9,835

9,886

Commercial Real Estate

5,711

6,299

8,662

Single Family Investment Real Estate

3,476

4,507

8,268

Commercial and Industrial

4,715

5,318

4,369

Other Commercial

231

233

262

Consumer

3,136

3,135

5,288

Total

$  39,171

$  42,391

$   54,322

Coverage Ratio

104.63%

94.84%

72.96%

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 June 30, 2012 also included $35.8 million in OREO, a net decrease of $1.9 million, or 5.04%, from the prior quarter.  The following table shows the activity in OREO for the quarter ended (dollars in thousands):

June 30, 2012

March 31, 2012

June 30, 2011

Beginning Balance

$  37,663

$  32,263

$   38,674

Additions

3,887

6,593

2,228

Capitalized Improvements

23

319

52

Valuation Adjustments

-

-

(165)

Proceeds from sales

(5,592)

(1,485)

(3,701)

Gains (losses) from sales

(179)

(27)

(153)

Ending Balance

$  35,802

$  37,663

$   36,935

The additions were principally related to commercial real estate and raw land; sales from OREO were principally related to commercial retail property and residential real estate and lots. 

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

June 30, 2012

March 31, 2012

June 30, 2011

Land

$   6,953

$    6,327

$     8,537

Land Development

11,313

11,559

12,088

Residential Real Estate

10,431

12,482

14,058

Commercial Real Estate

6,085

6,275

1,232

Land Previously Held for Branch Sites

1,020

1,020

1,020

Total

$  35,802

$  37,663

$   36,935

Included in land development is $9.1 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 and any necessary write downs to fair values are recorded as impairment. 

Charge-offs For the quarter ended June 30, 2012, net charge-offs of loans were $2.2 million, or 0.31% on an annualized basis, compared to $2.8 million, or 0.39%, for the first quarter and $5.3 million, or 0.74%, for the same quarter last year.  Net charge-offs in the current quarter included commercial loans of $1.5 million and consumer loans of $700,000.  At June 30, 2012, total accruing past due loans were $33.2 million, or 1.15% of total loans, a decrease from 1.44% at March 31, 2012 and from 1.33% a year ago. 

Provision The provision for loan losses for the current quarter was $3.0 million, a decrease of $500,000 from the first quarter and of $1.5 million from the same quarter a year ago.  The decrease in provision is largely due to reduced charge-offs for the quarter, and to a lesser extent, a stabilizing rate of delinquencies. 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. 

The allowance for loan losses as a percentage of the total loan portfolio was 1.42% at June 30, 2012, 1.41% at March 31, 2012, and 1.39% at June 30, 2011.  The increase in the allowance ratio was attributable to an increase in specific reserves on impaired loans.  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, adjusted for loans acquired in the FMB and Harrisonburg Branch acquisitions, was 1.74% at June 30, 2012, a decrease from 1.77% at March 31, 2012 and 1.88% from year ago.    The nonaccrual loan coverage ratio significantly improved, as it increased from 94.84% at March 31, 2012 and from 72.96% the same quarter last year to 104.63% at June 30, 2012.  The rise in the coverage ratio, which is at the highest level since the first quarter of 2010, further shows that management's proactive diligence in working through problem credits is having a positive impact on asset quality. 

Troubled Debt Restructurings ("TDRs") The total recorded investment in TDRs as of June 30, 2012 was $80.2 million, a decrease of $19.6 million from $99.8 million at March 31, 2012.  Of the $80.2 million of TDRs at June 30, 2012, $67.5 million, or 84.16%, were considered performing while the remaining $12.7 million were considered nonperforming.  The primary cause for the decline in TDRs is related to 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 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):

June 30, 2012

March 31, 2012

December 31, 2011

September 30, 2011

Performing

Modified to interest only

$      2,191

$   1,812

$            699

$              839

Term modification, at a market rate

53,905

75,455

87,920

91,039

Term modification, below market rate

9,004

8,797

10,215

10,254

Interest rate modification, below market rate

2,390

-

-

-

Total performing

$    67,490

$  86,064

$        98,834

$       102,132

Nonperforming

Modified to interest only

$         642

$       649

$          1,190

$              658

Term modification, at a market rate

3,451

4,290

3,660

4,187

Term modification, below market rate

8,587

8,804

8,954

9,398

Total nonperforming

$    12,680

$  13,743

$        13,804

$         14,243

Total performing & nonperforming

$    80,170

$  99,807

$      112,638

$       116,375

NONINTEREST INCOME

On a linked quarter basis, noninterest income increased $2.6 million, or 21.9%, to $14.4 million from $11.8 million in the first quarter.  During the quarter, the Company recorded an increase in gains on sales of mortgage loans of $2.0 million driven by an increase in loan origination volume, a result of additional loan originators hired in the first quarter and historically low interest rates.  Service charges on deposit accounts and other account fees increased $378,000 primarily related to higher VISA interchange income, higher brokerage commissions due to improved market conditions and higher fee-based account balances, higher overdraft and returned check fees and commercial account service charges.  Gains on sales of bank property increased $253,000 largely due to a sale of a former branch building.  Excluding mortgage segment operations and the impact of bank property sales, noninterest income increased $308,000, or 4.06%.

For the quarter ended June 30, 2012, noninterest income increased $4.4 million, or 44.6%, to $14.4 million from $10.0 million in the prior year's second quarter.  Gains on sales of mortgage loans increased $3.0 million, or 70.0%, due to higher origination volume, a result of additional loan originators hired in the first quarter of 2012 and historically low interest rates.  Service charges on deposit accounts and other account fees increased $351,000, driven by higher VISA interchange fee income, and ATM charges.  In addition, gains on sales of bank property increased $986,000.  During 2011, the Company recorded a loss on the sale of a former branch building for $626,000 versus a current quarter gain of $239,000 on the sale of a former branch building.  Excluding the mortgage segment operations and the impact of bank property sales, noninterest income increased $440,000, or 6.7%, from the same period a year ago.

 For the Three Months Ended  

06/30/12

03/31/12

$

%

06/30/11

$

%

Noninterest income:

Service charges on deposit accounts

$      2,291

$      2,130

161

7.6%

$    2,216

$           75

3.4%

Other service charges, commissions and fees

3,627

3,410

217

6.4%

3,351

276

8.2%

Losses (gains) on securities transactions, net

10

(5)

15

NM

-

10

0.0%

Gains on sales of loans

7,315

5,296

2,019

38.1%

4,303

3,012

70.0%

Losses on sales of other real estate owned and

bank premises, net

195

(58)

253

NM

(791)

986

NM

Other operating income

972

1,045

(73)

(7.0%)

884

88

10.0%

Total noninterest income

$    14,410

$    11,818

$      2,592

21.9%

$    9,963

$      4,447

44.6%

NM - Not Meaningful

For the six months ending June 30, 2012,  noninterest income increased $5.7 million, or 27.9%, to $26.2 million, from $20.5 million a year ago.  Gains on sales of loans in the mortgage segment increased $3.3 million driven by an increase in loan origination volume, a result of additional loan originators hired in the first quarter and historically low interest rates.  In addition, gains on sales of bank property and other real estate owned increased $1.2 million, a function of current and prior period transactions.  During 2011, the Company sold a former branch building as mentioned above and recorded a loss on the sale of $626,000 and incurred losses on sales of other real estate owned of $461,000.  Service charges on deposit accounts and other account fees increased $909,000 primarily related to higher VISA interchange income, higher overdraft and returned check fees and higher ATM fees.  Excluding the mortgage segment operations and the impact of sales of bank property and other real estate owned, noninterest income increased $1.3 million or 10.4%, from the same period a year ago.

 For the Six  Months Ended 

06/30/12

06/30/11

$

%

Noninterest income:

Service charges on deposit accounts

$      4,421

$      4,274

147

3.4%

Other service charges, commissions and fees

7,037

6,275

762

12.1%

Losses (gains) on securities transactions, net

5

(16)

21

NM

Gains on sales of loans

12,611

9,271

3,340

36.0%

Losses on sales of other real estate owned and bank premises, net

137

(1,090)

1,227

NM

Other operating income

2,017

1,796

221

12.3%

Total noninterest income

$    26,228

$    20,510

$    5,718

27.9%

NM - Not Meaningful

NONINTEREST EXPENSE

On a linked quarter basis, noninterest expense increased $2.2 million, or 6.1%, to $37.8 million from $35.6 million when compared to the first quarter.  Salaries and benefit expense increased $911,000 primarily due to higher commission expense related to loan origination volume in the mortgage segment.  Other operating expenses increased $695,000 largely related to expenses on foreclosed properties, employee training costs, and lower recovery of previously charged off deposit account fees.  Occupancy expenses increased $445,000.  Excluding the mortgage segment operations, noninterest expense increased $567,000 thousand, or 1.9%, compared to the first quarter.

For the quarter ended June 30, 2012, noninterest expense increased $1.9 million, or 5.3%, to $37.8 million from $35.9 million for the second quarter of 2011.  Salaries and benefits expenses increased $2.8 million primarily related to origination volume driven commission expense, additional mortgage support personnel, higher group insurance costs due to additional employees, and severance payments to affected employees.  Occupancy expenses increased $424,000. Partially offsetting these expense increases, other operating expenses decreased $1.6 million, with $695,000 related to lower FDIC insurance expense based on lower base assessment and rate and lower amortization expense on acquired deposit portfolio of $297,000.  Also contributing to the decline were lower professional fees of $255,000 related to legal fees for problem loan workouts and use of outside consultants, lower loan and OREO expenses of $193,000 related to a lower OREO balance level in 2012, and absence of branch conversion costs in 2012.  Excluding the mortgage segment operations and acquisition related costs, noninterest expense decreased $400,000, or 1.3%, compared to the second quarter of 2011.

 For the Three Months Ended  

06/30/12

03/31/12

$

%

06/30/11

$

%

Noninterest expense:

Salaries and benefits

$    20,418

$    19,507

$      911

4.7%

$  17,580

$    2,838

16.1%

Occupancy expenses

3,092

2,647

445

16.8%

2,668

424

15.9%

Furniture and equipment expenses

1,868

1,763

105

6.0%

1,679

189

11.3%

Other operating expenses

12,386

11,692

694

5.9%

13,945

(1,559)

-11.2%

Total noninterest expense

$    37,764

$    35,609

$    2,155

6.1%

$  35,872

1,892

5.3%

Mortgage segment operations

$     (6,821)

$     (5,232)

$  (1,589)

30.4%

$   (4,325)

$  (2,496)

57.7%

Acquisition and conversion costs 

-

-

-

-

(204)

204

NM

Intercompany eliminations

118

117

1

0.9%

118

-

0.0%

$    31,061

$    30,494

$      567

1.9%

$  31,461

$     (400)

-1.3%

  NM - Not Meaningful

For the six months ending June 30, 2012, noninterest expense increased $2.7 million, to $73.4 million, from $70.6 million a year ago.  Salaries and benefits expense increased $4.7 million related to origination volume driven commission expense in the mortgage segment, additional employees and higher group insurance costs, and severance payments to affected employees.  Occupancy costs increased $317,000.  Partially offsetting these cost increases were other operating expenses which decreased $2.6 million, or 9.6%.  Included in the reduction of other operating expenses was a $1.8 million reduction in FDIC insurance due to change in base assessment and rate, lower amortization on the acquired deposit portfolio of $643,000, and a decrease in conversion costs of $355,000 related to acquisition activity during the prior year.  These other operating expense declines were partially offset by higher marketing and advertising expenses of $395,000 related to free checking account campaigns.  Excluding the mortgage segment operations and prior year conversion costs, noninterest expense increased $432,000, or 0.7%, compared to the same period in 2011.

 For the Six  Months Ended 

06/30/12

06/30/11

$

%

Noninterest expense:

Salaries and benefits

$    39,925

$    35,234

$    4,691

13.3%

Occupancy expenses

5,739

5,422

317

5.8%

Furniture and equipment expenses

3,631

3,341

290

8.7%

Other operating expenses

24,078

26,642

(2,564)

(9.6%)

Total noninterest expense

$    73,373

$    70,639

$    2,734

3.9%

Mortgage segment operations

$   (12,052)

$     (9,252)

$  (2,800)

30.3%

Acquisition and conversion costs

-

(498)

498

NM

Intercompany eliminations

234

234

-

0.0%

$    61,555

$     61,123

$      432

0.7%

   NM - Not Meaningful

BALANCE SHEET

At June 30, 2012, total cash and cash equivalents were $72.4 million, a decrease of $38.8 million from March 31, 2012, and an increase of $9.2 million from June 30, 2011.  During the fourth quarter of 2011, the Company paid the U.S.Treasury $35.7 million to redeem the Preferred Stock issued to the Treasury and assumed in the FMB acquisition.  At June 30, 2012, investment in securities increased $55.8 million when compared to prior year's second quarter.  At June 30, 2012, net loans were $2.8 billion, an increase of $45.3 million from the prior quarter, and an increase of $26.9 million from June 30, 2011.  Mortgage loans held for sale were $100.1 million, an increase of $26.5 million when compared to the prior quarter, and an increase of $49.6 million from June 30, 2011, which was primarily due to the increase of origination volume from the favorable rate environment and additional loan originators.  At June 30, 2012, total assets were $4.0 billion, an increase of $34.5 million compared to the first quarter, and an increase of $130.8 million from $3.9 billion at June 30, 2011. 

For three months ended June 30, 2012, total deposits grew $3.3 million, or 0.1%, when compared to March 31, 2012. Of this amount, interest-bearing deposits decreased $23.7 million compared to the prior quarter driven by lower volumes in NOW accounts and certificates of deposit accounts, partially offset by higher volumes of time deposits of $100,000 and over.   Total deposits grew $135.9 million, or 4.4%, from June 30, 2011.  Of this amount, interest-bearing deposits increased $64.7 million from June 30, 2011, as money market, NOW accounts, saving accounts, and time deposits of $100,000 and over balances increases were partially offset by runoff in certificates of deposit.  Total borrowings, including repurchase agreements, increased $22.5 million on a linked quarter basis and decreased $4.3 million from June 30, 2011 as the Company experienced increased customer preference for securities sold under agreements for repurchase.  The Company's equity to assets ratio was 10.88% and 11.50% at June 30, 2012 and 2011, respectively.  The decrease in the equity to assets ratio was due to the Company's redemption of the preferred stock described above.  The Company's tangible common equity to tangible assets ratio was 9.11% and 8.62% at June 30, 2012 and 2011, respectively.

MORTGAGE SEGMENT INFORMATION

On a linked quarter basis, the mortgage segment net income for the second quarter increased $236,000, or 100.9%, from $234,000 in the first quarter to $470,000.  In early 2012, the Company hired additional loan originators and support personnel who were formerly employed by a national mortgage company that exited the mortgage origination business.  As a result, and aided by historically low interest rates, loan originations increased by $73.4 million from $184.0 million to $257.4 million, or 39.8%, from the first quarter.  As a result, gains on the sale of loans increased $2.0 million, or 38.1% to $7.3 million.  Salary and benefit expenses increased $1.3 million, or 30.9% to $5.4 million, due to compensation related to the increased loan volume.  Operating expenses increased $213,000, or 30.0%, from the prior quarter due to costs incurred in relation to the increases in originations.  Refinanced loans represented 45.1% of the originations during the second quarter compared to 56.5% during the first quarter. 

For the three months ended June 30, 2012, the mortgage segment net income increased $303,000, from $167,000 to $470,000, or 181.4%, compared to the same period last year.  Originations increased by $109.7 million, or 74.2%, from $147.7 million to $257.4 million due to the additions in production personnel described above, and resulted in increased gains on the sale of loans of $3.0 million, or 70.0%, over the same period last year.  Salaries and benefits increased $2.2 million, or 69.3%, as a result of personnel additions and higher commissions related to loan origination growth.  Refinanced loans represented 45.1% of originations during the second quarter of 2012 compared to 20.2% during the same period a year ago. 

For the six months ended June 30, 2012, the mortgage segment net income increased $209,000, or 42.2%, to $704,000 from $495,000 during the same period last year.  Originations increased by $144.5 million from $296.8 million to $441.3 million, or 48.7%, during the same period last year due to production hiring efforts and a sustained low interest rate environment.  Noninterest income increased $3.3 million, or 36.0%, driven by origination growth.  Salary and benefit expenses increased $2.5 million, or 34.9%, primarily due to commissions related to increased loan production.  Refinanced loans represented 49.8% of originations during the first six months of the year compared to 29.2% during the same period a year ago. 

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 94 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

Six Months Ended

06/30/12

03/31/12

06/30/11

06/30/12

06/30/11

Results of Operations

Interest and dividend income

$          45,304

$          45,874

$          47,756

$        91,178

$        95,148

Interest expense

7,217

7,527

8,133

14,744

16,725

Net interest income

38,087

38,347

39,623

76,434

78,423

Provision for loan losses

3,000

3,500

4,500

6,500

10,800

Net interest income after provision for loan losses

35,087

34,847

35,123

69,934

67,623

Noninterest income

14,410

11,818

9,963

26,228

20,510

Noninterest expenses

37,764

35,609

35,872

73,373

70,639

Income before income taxes

11,733

11,056

9,214

22,789

17,494

Income tax expense 

3,313

3,133

2,394

6,446

4,480

Net income

$            8,420

$            7,923

$            6,820

$        16,343

$        13,014

Interest earned on loans (FTE)

$          40,371

$          40,690

$          42,473

$        81,061

$        84,629

Interest earned on securities (FTE)

5,937

6,206

6,349

12,143

12,677

Interest earned on earning assets (FTE)

46,340

46,919

48,849

93,259

97,339

Net interest income (FTE)

39,125

39,391

40,715

78,515

80,614

Interest expense on certificates of deposit

3,851

4,029

4,353

7,880

9,270

Interest expense on interest-bearing deposits 

5,023

5,335

6,167

10,358

12,851

Core deposit intangible amortization

1,225

1,310

1,553

2,535

3,178

Net income - community bank segment

$            7,950

$           7,689

$            6,654

$        15,639

$        12,519

Net income - mortgage segment

470

234

167

704

495

Key Ratios

Return on average assets (ROA)

0.86%

0.82%

0.71%

0.84%

0.69%

Return on average equity (ROE)

7.84%

7.51%

6.21%

7.68%

6.01%

Efficiency ratio

71.94%

70.98%

72.34%

71.47%

71.40%

Efficiency ratio - community bank segment

69.02%

68.26%

70.18%

68.64%

69.14%

Net interest margin (FTE)

4.36%

4.44%

4.68%

4.39%

4.68%

Net interest margin, core (FTE)1

4.25%

4.28%

4.47%

4.26%

4.47%

Yields on earning assets (FTE)

5.15%

5.27%

5.62%

5.21%

5.65%

Cost of interest-bearing liabilities (FTE)

1.00%

1.04%

1.14%

1.02%

1.18%

Noninterest expense less noninterest income / average assets

2.38%

2.45%

2.71%

2.42%

2.65%

Capital Ratios

Tier 1 risk-based capital ratio

12.99%

12.98%

13.26%

12.99%

13.26%

Total risk-based capital ratio

14.55%

14.64%

14.91%

14.55%

14.91%

Leverage ratio (Tier 1 capital to average assets)

10.44%

10.34%

10.90%

10.44%

10.90%

Equity to total assets

10.88%

10.79%

11.50%

10.88%

11.50%

Tangible common equity to tangible assets

9.11%

8.97%

8.62%

9.11%

8.62%

Per Share Data

Earnings per common share, basic

$             0.32

$             0.31

$             0.24

$           0.63

$           0.46

Earnings per common share, diluted

0.32

0.31

0.24

0.63

0.46

Cash dividends paid per common share

0.08

0.07

0.07

0.15

0.14

Market value per share

14.45

14.00

12.18

14.45

12.18

Book value per common share

16.75

16.48

15.72

16.75

15.72

Tangible book value per common share 

13.74

13.42

12.50

13.74

12.50

Price to earnings ratio, diluted

11.23

11.41

12.65

11.41

13.13

Price to book value per common share ratio

0.86

0.85

0.77

0.86

0.77

Price to tangible common share ratio

1.05

1.04

0.97

1.05

0.97

Weighted average common shares outstanding, basic

25,868,174

25,856,916

25,969,806

25,899,648

25,963,996

Weighted average common shares outstanding, diluted

25,888,151

25,879,158

25,992,190

25,923,505

25,986,640

Common shares outstanding at end of period

25,952,035

25,944,530

26,043,633

25,952,035

26,043,633

Three Months Ended

Six Months Ended

06/30/12

03/31/12

06/30/11

06/30/12

06/30/11

Financial Condition

Assets

$     3,982,288

$     3,947,799

$     3,851,524

$   3,982,288

$   3,851,524

Loans, net of unearned income

2,887,790

2,841,758

2,859,569

2,887,790

2,859,569

Earning Assets

3,649,829

3,606,637

3,502,818

3,649,829

3,502,818

Goodwill

59,400

59,400

59,400

59,400

59,400

Core deposit intangibles, net

18,178

19,403

23,658

18,178

23,658

Deposits

3,218,986

3,215,707

3,083,053

3,218,986

3,083,053

Stockholders' equity

433,436

426,104

443,116

433,436

443,116

Tangible common equity

355,625

346,968

324,878

355,625

324,878

Averages

Assets

$     3,942,727

$     3,903,758

$     3,830,786

$   3,923,243

$   3,819,435

Loans, net of unearned income

2,847,087

2,829,881

2,823,186

2,838,484

2,817,829

Loans held for sale

73,518

67,906

42,341

70,712

48,214

Securities

649,121

642,351

586,407

645,736

581,949

Earning assets

3,615,718

3,578,513

3,486,949

3,597,115

3,473,467

Deposits

3,200,016

3,167,652

3,077,823

3,183,834

3,065,905

Certificates of deposit

1,112,964

1,138,100

1,170,341

1,125,532

1,195,580

Interest-bearing deposits

2,636,390

2,633,059

2,573,013

2,634,724

2,570,019

Borrowings

274,597

275,763

288,554

275,180

289,976

Interest-bearing liabilities

2,910,987

2,908,822

2,861,567

2,909,904

2,859,995

Stockholders' equity

431,915

424,289

440,359

428,102

436,405

Tangible common equity

353,473

344,447

323,195

348,985

318,432

Asset Quality

Allowance for Loan Losses (ALLL)

Beginning balance 

$          40,204

$          39,470

$          40,399

$        39,470

$        38,406

Add: Recoveries

350

341

514

691

887

Less: Charge-offs

2,569

3,107

5,782

5,676

10,462

Add: Provision for loan losses

3,000

3,500

4,500

6,500

10,800

Ending balance 

$          40,985

$          40,204

$          39,631

$        40,985

$        39,631

ALLL / total outstanding loans

1.42%

1.41%

1.39%

1.42%

1.39%

ALLL / total outstanding loans, adjusted for acquired2

1.74%

1.77%

1.88%

1.74%

1.88%

Net charge-offs / total outstanding loans

0.31%

0.39%

0.74%

0.35%

0.68%

Nonperforming Assets

Commercial

$          36,035

$          39,256

$          49,034

$        36,035

$        49,034

Consumer

3,136

3,135

5,288

3,136

5,288

Nonaccrual loans

39,171

42,391

54,322

39,171

54,322

Other real estate owned

35,802

37,663

36,935

35,802

36,935

Total nonperforming assets (NPAs)

74,973

80,054

91,257

74,973

91,257

Commercial

2,324

4,435

1,899

2,324

1,899

Consumer

8,444

7,832

7,174

8,444

7,174

Loans > 90 days and still accruing

10,768

12,267

9,073

10,768

9,073

Total nonperforming assets and loans > 90 days

$          85,741

$          92,321

$        100,330

$        85,741

$      100,330

NPAs / total outstanding loans

2.60%

2.82%

3.19%

2.60%

3.19%

NPAs / total assets

1.88%

2.03%

2.37%

1.88%

2.37%

ALLL / nonperforming loans

104.63%

94.84%

72.96%

104.63%

72.96%

Three Months Ended

Six Months Ended

06/30/12

03/31/12

06/30/11

06/30/12

06/30/11

Past Due Detail

Commercial

3,022

3,693

2,061

3,022

2,061

Consumer

3,602

4,801

3,540

3,602

3,540

Loans 60-89 days past due

$            6,624

$           8,494

$            5,601

$          6,624

$          5,601

Commercial

5,674

8,829

11,721

5,674

11,721

Consumer

10,147

11,449

11,604

10,147

11,604

Loans 30-59 days past due

$          15,821

$          20,278

$          23,325

$        15,821

$        23,325

Commercial

5,741

7,071

7,197

5,741

7,197

Consumer

1,034

1,069

1,093

1,034

1,093

Purchased impaired

$            6,775

$            8,140

$            8,290

$          6,775

$          8,290

Other Data

Mortgage loan originations

$        257,354

$        183,975

$        147,718

$      441,333

$      296,842

% of originations that are refinances

45.10%

56.50%

20.20%

49.80%

29.19%

End of period full-time employees

1,084

1,060

1,055

1,084

1,055

Number of full-service branches

94

98

99

94

99

Number of full automatic transaction machines (ATMs)

158

161

168

158

168

Alternative Performance Measures 

Cash basis earnings3

Net income

$            8,420

$            7,923

$            6,820

$        16,343

$        13,014

Plus: Core deposit intangible amortization, net of tax

796

852

1,009

1,648

2,066

Plus: Trademark intangible amortization, net of tax

65

65

65

130

130

Cash basis operating earnings

$            9,281

$            8,840

$            7,894

$        18,121

$        15,210

Average assets

$     3,942,727

$     3,903,758

$     3,830,786

$   3,923,243

$   3,819,435

Less: Average trademark intangible

18,761

383

681

19,386

731

Less: Average goodwill

59,400

59,400

57,581

59,400

57,574

Less: Average core deposit intangibles

281

20,059

24,384

331

25,184

Average tangible assets

$     3,864,285

$     3,823,916

$     3,748,140

$   3,844,126

$   3,735,945

Average equity

$        431,915

$        424,289

$        440,359

$      428,102

$      436,405

Less: Average trademark intangible

18,761

383

681

19,386

731

Less: Average goodwill

59,400

59,400

57,581

59,400

57,574

Less: Average core deposit intangibles

281

20,059

24,384

331

25,184

Less: Average preferred equity

-

-

34,518

-

34,483

Average tangible common equity

$        353,473

$        344,447

$        323,195

$      348,985

$      318,432

Cash basis operating earnings per share, diluted

$              0.36

$              0.34

$              0.30

$            0.70

$            0.59

Cash basis operating return on average tangible assets

0.97%

0.93%

0.84%

0.95%

0.82%

Cash basis operating return on average tangible common equity

10.56%

10.32%

9.80%

10.44%

9.63%

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

(2) The allowance for loan losses, adjusted for acquired loans (non-GAAP) ratio includes the allowance for loan losses to the total loan portfolio less acquired loans without additional credit deterioration above the original credit mark (which have been provided for in the ALLL subsequent to acquisition).  GAAP requires the acquired allowance for loan losses not be carried over in an acquisition or merger.  We believe the presentation of the allowance for loan losses, adjusted for acquired loans ratio is useful to investors because the acquired loans were purchased at a market discount with no allowance for loan losses carried over to the Company.  Therefore, acquired loans without additional credit deterioration above the original credit mark are adjusted out of the loan balance denominator. 

Gross Loans

$      2,887,790

$      2,841,758

$      2,859,569

$    2,887,790

$     2,859,569

  less acquired loans without additional credit deterioration

(533,087)

(571,580)

(755,358)

(533,087)

(755,358)

Gross Loans, adjusted for acquired

2,354,703

2,270,178

2,104,211

2,354,703

2,104,211

Allowance for loan losses

40,985

40,204

39,631

40,985

39,631

ALLL / gross loans, adjusted for acquired

1.74%

1.77%

1.88%

1.74%

1.88%

(3) As a supplement to GAAP, management also reviews operating performance based on its "cash basis earnings" to fully analyze its core business.  Cash basis earnings exclude amortization expense attributable to intangibles (goodwill and core deposit intangibles) that do not qualify as regulatory capital.  Financial ratios based on cash basis earnings exclude the amortization of nonqualifying intangible assets from earnings and the unamortized balance of nonqualifying  intangibles from assets and equity.         In management's opinion, cash basis earnings are useful to investors because by excluding non-operating adjustments they allow investors to see clearly the economic impact on the results of Company.  These non-GAAP disclosures should not, however, be viewed in direct comparison with non-GAAP measures of other companies.     

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 June 30, 

 December 31, 

 June 30, 

2012

2011

2011

ASSETS

(Unaudited)

(Audited)

(Unaudited)

Cash and cash equivalents:

Cash and due from banks

$                 57,245

$                 69,786

$                 61,465

Interest-bearing deposits in other banks

14,975

26,556

1,583

Money market investments

1

155

27

Federal funds sold

163

162

159

Total cash and cash equivalents

72,384

96,659

63,234

Securities available for sale, at fair value

627,543

620,166

568,177

Restricted stock, at cost

19,291

20,661

22,883

Loans held for sale

100,066

74,823

50,420

Loans, net of unearned income

2,887,790

2,818,583

2,859,569

Less allowance for loan losses

40,985

39,470

39,631

Net loans

2,846,805

2,779,113

2,819,938

Bank premises and equipment, net

91,122

90,589

91,601

Other real estate owned, net of valuation allowance

35,802

32,263

36,935

Core deposit intangibles, net

18,178

20,714

23,658

Goodwill

59,400