Union First Market Bankshares Reports Second Quarter Results

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.

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"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


59,400


59,400


Other assets

111,697


112,699


115,278


Total assets

$             3,982,288


$             3,907,087


$             3,851,524









LIABILITIES







Noninterest-bearing demand deposits

$                591,757


$                534,535


$                520,511


Interest-bearing deposits:







NOW accounts

425,188


412,605


378,511


Money market accounts

905,739


904,893


842,135


Savings accounts

198,728


179,157


175,709


Time deposits of $100,000 and over

534,682


511,614


505,993


Other time deposits

562,892


632,301


660,194


Total interest-bearing deposits

2,627,229


2,640,570


2,562,542


Total deposits

3,218,986


3,175,105


3,083,053









Securities sold under agreements to repurchase

75,394


62,995


77,324


Other short-term borrowings

-


-


2,900


Trust preferred capital notes

60,310


60,310


60,310


Long-term borrowings

155,625


155,381


155,136


Other liabilities

38,537


31,657


29,685


Total liabilities

3,548,852


3,485,448


3,408,408









Commitments and contingencies














STOCKHOLDERS' EQUITY







Preferred stock, $10.00 par value, $1,000 liquidation value, shares

authorized 500,000; issued and outstanding, 35,595 shares at June

30, 2011 and zero at December 31, 2011 and June 30, 2012.

-


-


35,595


Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 25,952,035 shares, 26,134,830 shares, and 26,043,633 shares, respectively.

34,415


34,672


34,569


Surplus

185,733


187,493


186,177


Retained earnings

202,278


189,824


178,125


Discount on preferred stock

-


-


(1,048)


Accumulated other comprehensive income 

11,010


9,650


9,698


Total stockholders' equity

433,436


421,639


443,116









Total liabilities and stockholders' equity

$             3,982,288


$             3,907,087


$             3,851,524









 

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF INCOME





(Dollars in thousands, except per share amounts)
















 Three Months Ended 


 Six Months Ended 



 June 30 


 June 30 



2012


2011


2012


2011


Interest and dividend income:

(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)


Interest and fees on loans

$          40,299


$          42,332


$          80,907


$          84,335


Interest on deposits in other banks

34


28


58


33


Interest and dividends on securities:









Taxable

3,182


3,627


6,636


7,257


Nontaxable

1,789


1,769


3,577


3,523


Total interest and dividend income

45,304


47,756


91,178


95,148











Interest expense:









Interest on deposits

5,023


6,166


10,358


12,850


Interest on Federal funds purchased

1


-


1


7


Interest on short-term borrowings

(313)


211


91


372


Interest on long-term borrowings

2,506


1,756


4,294


3,496


Total interest expense

7,217


8,133


14,744


16,725











Net interest income

38,087


39,623


76,434


78,423


Provision for loan losses

3,000


4,500


6,500


10,800


Net interest income after provision for loan losses

35,087


35,123


69,934


67,623











Noninterest income:









Service charges on deposit accounts

2,291


2,216


4,421


4,274


Other service charges, commissions and fees

3,627


3,351


7,037


6,275


Losses on securities transactions, net

10


-


5


(16)


Gains on sales of mortgage loans

7,315


4,303


12,611


9,271


Losses (gains) on sales of other real estate and bank premises, net

195


(791)


137


(1,090)


Other operating income

972


884


2,017


1,796


Total noninterest income

14,410


9,963


26,228


20,510











Noninterest expenses:









Salaries and benefits

20,418


17,580


39,925


35,234


Occupancy expenses

3,092


2,668


5,739


5,422


Furniture and equipment expenses

1,868


1,679


3,631


3,341


Other operating expenses

12,386


13,945


24,078


26,642