Union First Market Bankshares Reports Second Quarter Results

Richmond, Va., July 22, 2013 /PRNewswire/ -- Union First Market Bankshares Corporation (the "Company") (NASDAQ: UBSH) today reported net income of $9.5 million and earnings per share of $0.38 for its second quarter ended June 30, 2013.  Excluding acquisition-related expenses of $919,000, operating earnings(1) for the quarter were $10.4 million and operating earnings per share(1) was $0.42.  The quarterly results represent an increase of $2.0 million, or 23.3%, in operating earnings from the same quarter of the prior year and an increase of $1.4 million, or 15.6%, from the quarter ended March 31, 2013.  Operating earnings per share of $0.42 for the current quarter increased $0.10, or 31.3%, from the prior year's second quarter and increased $0.06, or 16.7%, from the most recent quarter.

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

"Second quarter results demonstrate the progress Union First Market Bankshares is making to deliver top quartile financial performance nationally and provide our shareholders with above average returns on their investment over the long term," said G. William Beale, chief executive officer of Union First Market Bankshares. "In addition to reporting continued improvements in key financial performance metrics, the Company saw consistent growth in net new deposit households and in loan balances.  Overall asset quality continues to improve and quarterly net charge-offs were at a four year low. The mortgage company results reflect the changing interest rate environment as well as additional expenses associated with moving the mortgage company's headquarters to Richmond and our proactive efforts to improve the mortgage segment's operating capabilities and profitability.   Overall, we are pleased with the Company's performance in the first half of 2013 and are poised to generate strong financial results during the second half of the year."  

"During the quarter, we announced the signing of a definitive merger agreement to acquire StellarOne Corporation, which is expected to create the largest community banking institution in the Commonwealth of Virginia.  This is exciting news for Union as the combination of two of Virginia's largest community banks provides Union with the growth and synergies to continue to deliver a best in class customer experience, offer superior financial services and solutions, provide a rewarding experience for our teammates and generate top-tier financial performance for our shareholders.  We have already started the integration planning work with StellarOne and continue to expect to close the transaction on or around January 1, 2014, subject to customary closing conditions, including regulatory and shareholder approvals."

Select highlights:

  • Operating Return on Average Equity(1) increased to 9.58% for the quarter ended June 30, 2013 compared to Return on Average Equity ("ROE") of 7.84% and 8.32% for the same quarter of the prior year and the first quarter of 2013, respectively.  Including current quarter acquisition-related costs, ROE was 8.73%.
  • Operating Return on Average Assets(1)  increased to 1.03% for the quarter ended June 30, 2013 compared to Return on Average Assets ("ROA") of 0.86% and 0.90% for the same quarter of the prior year and the first quarter of 2013, respectively.  Including current quarter acquisition-related costs, ROA was 0.94%.
  • Operating efficiency ratio(1) of 66.73% declined 185 basis points when compared to the prior quarter and 134 basis points when compared to the same quarter of the prior year.
  • Loan demand continued to improve with an increase in loans outstanding of $113.1 million, or 3.9%, since June 30, 2012.  Loan balances increased $27.3 million, or 3.6% on an annualized basis from the prior quarter.
  • During the quarter, the Company added almost 1,100 net new core household accounts consistent with growth in the prior quarter and the 4.4% annualized growth rate in 2012.  Deposit balances increased $47.0 million, or 1.5%, from June 30, 2012 while deposit balances declined $31.8 million since year end primarily due to net run-off in higher cost time deposits.
  • Credit quality metrics continued to improve as nonperforming assets ("NPAs") and the ratio of NPAs compared to total loans declined from the same quarter last year.  Net charge-offs declined materially from the same quarter last year and from the most recent quarter.

(1) For a reconciliation of the non-GAAP measures operating earnings, ROA, ROE, EPS, and efficiency ratio, see "Alternative Performance Measures (non-GAAP)" section of the Key Financial Results.

NET INTEREST INCOME















Three Months Ended



Dollars in thousands



06/30/13

03/31/13


Change


06/30/12


Change















Average interest-earning assets

$

3,713,392

$

3,735,926

$

(22,534)


$

3,615,718

$

97,674


Interest income (FTE)

$

43,981

$

44,543

$

(562)


$

46,340

$

(2,359)


Yield on interest-earning assets


4.75%


4.84%


(9)

 bps


5.15%


(40)

 bps

Average interest-bearing liabilities

$

2,907,523

$

2,956,261

$

(48,738)


$

2,910,987

$

(3,464)


Interest expense

$

5,283

$

5,532

$

(249)


$

7,215

$

(1,932)


Cost of interest-bearing liabilities


0.73%


0.76%


(3)

 bps


1.00%


(27)

 bps

Cost of funds


0.57%


0.60%


(3)

 bps


0.79%


(22)

 bps

Net Interest Income (FTE)

$

38,698

$

39,011

$

(313)


$

39,125

$

(427)


Net Interest Margin (FTE)


4.18%


4.23%


(5)

 bps


4.36%


(18)

 bps

Core Net Interest Margin (FTE) (1)


4.14%


4.18%


(4)

 bps


4.25%


(11)

 bps














(1)  Core net interest margin (FTE) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.


 

On a linked quarter basis, tax-equivalent net interest income was $38.7 million, a decrease of $313,000, or 0.8%, from the first quarter of 2013.  The second quarter tax-equivalent net interest margin declined by 5 basis points to 4.18% from 4.23% in the previous quarter.  The change in net interest margin was principally attributable to the continued decline in net accretion on the acquired net earning assets (1 bp) and lower investment and loan yields outpacing the reduction in the cost of interest-bearing liabilities (4 bps).  Loan yields continued to be negatively affected by the low rate environment as new and renewed loans were originated and repriced at lower rates.  Yields on investment securities were primarily impacted by lower reinvestment rates during the quarter, offset by a shift in mix from taxable securities to higher yielding tax-exempt securities.  The cost of interest-bearing liabilities declined during the quarter largely driven by lower time deposit account balances.

For the three months ended June 30, 2013, tax-equivalent net interest income decreased $427,000, or 1.1%, when compared to the same period last year.  The tax-equivalent net interest margin decreased by 18 basis points to 4.18% from 4.36% in the prior year.  The decline in net interest margin was principally due to the continued decline in accretion on the acquired net earning assets (7 bps) and declines in earning asset yields exceeding the reduction in interest-bearing liabilities rates paid (11 bps).  Lower earning asset interest income was principally due to lower yields on loans as new and renewed loans were originated and repriced at lower rates, faster prepayments on mortgage-backed securities, and cash flows from securities investments reinvested at lower yields.  The decline in the cost of interest-bearing liabilities from the prior year's first quarter was driven by a shift in mix from time deposits to low cost deposits, reductions in deposit rates and lower wholesale borrowing costs.

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

 










Year-over-year results



For the Six Months Ended



Dollars in thousands



06/30/13

06/30/12


Change










Average interest-earning assets

$

3,724,597

$

3,597,115

$

127,482


Interest income (FTE)

$

88,524

$

93,259

$

(4,735)


Yield on interest-earning assets


4.79%


5.21%


(42)

 bps

Average interest-bearing liabilities

$

2,931,758

$

2,909,904

$

21,854


Interest expense

$

10,816

$

14,744

$

(3,928)


Cost of interest-bearing liabilities


0.74%


1.02%


(28)

 bps

Cost of funds


0.59%


0.82%


(23)

 bps

Net Interest Income (FTE)

$

77,708

$

78,515

$

(807)


Net Interest Margin (FTE)


4.21%


4.39%


(18)

 bps

Core Net Interest Margin (FTE) (1)


4.16%


4.26%


(10)

 bps









(1)  Core net interest margin (FTE) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.


 

For the six months ended June 30, 2013, tax-equivalent net interest income was $77.7 million, a decrease of $807,000, or 1.0%, when compared to the same period last year.  The tax-equivalent net interest margin decreased by 18 basis points to 4.21% from 4.39% 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 the yield on interest-earning assets that outpaced the reduction in the cost of interest-bearing liabilities (10 bps).  Lower interest-earning asset income was principally due to lower yields on loans as new loans and renewed loans were originated and repriced at lower rates and declining investment securities yields driven by faster prepayments on mortgage-backed securities and cash flows from securities investments reinvested at lower yields.

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  The 2013 and remaining estimated discount/premium and net accretion impact are reflected in the following table (dollars in thousands):

 




















Loan

Accretion


Certificates of

Deposit


Borrowings


Total
















For the quarter ended June 30, 2013

$

534


$

2


$

(122)


$

414

For the remaining six months of 2013


932



3



(245)



690

For the years ending:













2014




1,459



4



(489)



974


2015




1,002



-



(489)



513


2016




557



-



(163)



394


2017




172



-



-



172


2018




19



-



-



19

Thereafter




101



-



-



101

 

ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the second quarter, the Company continued to reduce the levels of impaired loans and troubled debt restructurings. Nonperforming assets and past due loans also declined from the same quarter last year. Net charge-offs, the related ratio of net charge-offs to total loans, and the loan loss provision decreased materially from the prior quarter and from the same quarter of the previous year.  The allowance to nonperforming loans coverage ratio remained at consistently high levels.  The magnitude of any change in the real estate market and its impact on the Company is still largely dependent upon continued recovery of residential housing and commercial real estate and the pace at which the local economies in the Company's operating markets improve.

Nonperforming Assets ("NPAs")
At June 30, 2013, nonperforming assets totaled $62.2 million, a decline of $12.8 million, or 17.1%, from a year ago and an increase of $3.3 million, or 5.6%, from the first quarter.  In addition, NPAs as a percentage of total outstanding loans declined 53 basis points from 2.60% a year earlier and increased 9 basis points from 1.98% last quarter to 2.07% in the current quarter.

Nonperforming assets at June 30, 2013 included $27.0 million in nonaccrual loans (excluding purchased impaired loans), a net decrease of $12.2 million, or 31.1%, from June 30, 2012 and an increase of $4.0 million, or 17.4%, from the prior quarter.  The current quarter increase relates to one loan relationship, totaling $5.5 million, being placed on nonaccrual status during the second quarter.  The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands): 

 


















June 30,


March 31,


December 31,


September 30,


June 30,



2013


2013


2012


2012


2012


Beginning Balance

$

23,033


$

26,206


$

32,159


$

39,171


$

42,391


Net customer payments


(3,196)



(1,715)



(1,898)



(5,774)



(3,174)


Additions


7,934



2,694



2,306



2,586



2,568


Charge-offs


(476)



(2,262)



(3,388)



(3,012)



(561)


Loans returning to accruing status


-



(632)



(840)



(812)



(1,803)


Transfers to OREO


(273)



(1,258)



(2,133)



-



(250)


Ending Balance

$

27,022


$

23,033


$

26,206


$

32,159


$

39,171


















 

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,


March 31,


December 31,


September 30,


June 30,



2013


2013


2012


2012


2012


Raw Land and Lots

$

4,573


$

6,353


$

8,760


$

10,995


$

12,139


Commercial Construction


5,103



4,547



5,781



7,846



9,763


Commercial Real Estate


2,716



2,988



3,018



2,752



5,711


Single Family Investment Real Estate


2,859



2,117



3,420



4,081



3,476


Commercial and Industrial


7,291



2,261



2,036



2,678



4,715


Other Commercial


471



190



193



195



231


Consumer


4,009



4,577



2,998



3,612



3,136


Total

$

27,022


$

23,033


$

26,206


$

32,159


$

39,171


















Coverage Ratio


127.06%



149.42%



133.24%



124.05%



104.63%


















 

Nonperforming assets at June 30, 2013 also included $35.2 million in OREO, a decrease of $649,000, or 1.8%, from the prior year and down $725,000, or 2.0%, from the prior quarter.  The following table shows the activity in OREO for the quarter ended (dollars in thousands):

 


















June 30,


March 31,


December 31,


September 30,


June 30,



2013


2013


2012


2012


2012


Beginning Balance

$

35,878


$

32,834


$

34,440


$

35,802


$

37,663


Additions


1,768



3,607



2,866



929



3,887


Capitalized Improvements


164



30



22



16



23


Valuation Adjustments


-



-



(301)



-



-


Proceeds from sales


(2,515)



(877)



(4,004)



(2,071)



(5,592)


Gains (losses) from sales


(142)



284



(189)



(236)



(179)


Ending Balance

$

35,153


$

35,878


$

32,834


$

34,440


$

35,802


















 

The additions to OREO were principally related to raw land and residential real estate; sales from OREO were principally related to residential real estate and former branch property.

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

 


















June 30,


March 31,


December 31,


September 30,


June 30,



2013


2013


2012


2012


2012


Land

$

10,310


$

9,861


$

8,657


$

6,953


$

6,953


Land Development


10,894



11,023



10,886



11,034



11,313


Residential Real Estate


7,274



7,467



7,939



9,729



10,431


Commercial Real Estate


6,542



6,749



5,352



5,640



6,085


Former Bank Premises (1)


133



778



-



1,084



1,020


Total

$

35,153


$

35,878


$

32,834


$

34,440


$

35,802


















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


















 

Included in land development is $9.4 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 balances are evaluated at least quarterly by the Bank's Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment. 

Past Due Loans
At June 30, 2013, total accruing past due loans were $29.7 million, or 0.99% of total loans, a decrease from $33.2 million, or 1.15% of total loans, a year ago and an increase from $24.7 million, or 0.83% of total loans, at March 31, 2013. 

Charge-offs
For the quarter ended June 30, 2013, net charge-offs of loans were $1.1 million, or 0.14% on an annualized basis, compared to $2.2 million, or 0.31%, for the same quarter last year and $2.6 million, or 0.35%, for the first quarter of 2013.  Nearly all net charge-offs in the current quarter were related to consumer loans. 

Provision
The provision for loan losses for the current quarter was $1.0 million, a decrease of $2.0 million from the same quarter a year ago and a decrease of $1.1 million from the previous quarter.  The decline in provision for loan losses in the current quarter compared to the prior periods is driven by improving asset quality and the impact of lower historical charge-off factors.  The provision to loans ratio for the quarter ended June 30, 2013 was 0.13% on an annualized basis compared to 0.42% for the same quarter a year ago and to 0.28% last quarter.

Allowance for Loan Losses
The allowance for loan losses ("ALL") as a percentage of the total loan portfolio, adjusted for acquired loans (non-GAAP), was 1.33% at June 30, 2013, a decrease from 1.74% at June 30, 2012 and 1.36% from the prior quarter.  In acquisition accounting, there is no carryover of previously established allowance for loan losses.  The allowance for loan losses as a percentage of the total loan portfolio was 1.14% at June 30, 2013, 1.42% at June 30, 2012, and 1.16% at March 31, 2013.  The decrease in the allowance and related ratios was primarily attributable to the reduced levels of provision and improving credit quality metrics.  The following table shows the loans and related allowance for loans individually and collectively evaluated for impairment for the quarter ended (dollars in thousands):

 


















June 30,


March 31,


December 31,


September 30,


June 30,



2013


2013


2012


2012


2012


Loans individually evaluated for impairment

$

112,484


$

133,861


$

142,415


$

161,196


$

189,399


Related allowance


6,109



5,712



6,921



11,438



11,500


ALL to loans individually evaluated for impairment


5.43%



4.27%



4.86%



7.10%



6.07%


















Loans collectively evaluated for impairment

$

2,888,371


$

2,839,686


$

2,824,432


$

2,747,314


$

2,698,391


Related allowance


28,224



28,703



27,995



28,456



29,485


ALL to loans collectively evaluated for impairment


0.98%



1.01%



0.99%



1.04%



1.09%


















Total loans

$

3,000,855


$

2,973,547


$

2,966,847


$

2,908,510


$

2,887,790


Related allowance


34,333



34,415



34,916



39,894



40,985


ALL to total loans


1.14%



1.16%



1.18%



1.37%



1.42%


















 

Impaired loans (individually and collectively evaluated for impairment) have declined from $201.3 million at June 30, 2012 and from $145.7 million at March 31, 2013 to $133.8 million at June 30, 2013.  The nonaccrual loan coverage ratio remained strong at 127.1% at June 30, 2013, an increase from 104.6% the same quarter last year but a decrease from 149.4% at March 31, 2013.  The current level of the allowance for loan losses reflects specific reserves related to nonperforming loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses. 

Troubled Debt Restructurings ("TDRs")
Loans classified as TDRs as of June 30, 2013 totaled $53.0 million, a decline of $27.2 million, or 33.9%, from $80.2 million at June 30, 2012 and a decrease of $1.7 million, or 3.1%, from $54.7 million at March 31, 2013.  Of the $53.0 million of TDRs at June 30, 2013, $39.8 million, or 75.1%, were considered performing while the remaining $13.2 million were considered nonperforming.  The decline in the TDR balance from the prior quarter is attributable to $4.7 million being removed from TDR status and $2.9 million in net payments, partially offset by additions of $5.9 million.  Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring, which were performing in accordance with their modified terms for a consecutive twelve month period and that were no longer considered impaired. 

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

 


















June 30,


March 31,


December 31,


September 30,


June 30,



2013


2013


2012


2012


2012


Performing
















Modified to interest only, at a market rate

$

1,883


$

2,071


$

1,877


$

1,437


$

2,191


Term modification, at a market rate


27,829



30,380



38,974



39,195



53,905


Term modification, below market rate


7,724



7,803



8,227



8,911



9,004


Interest rate modification, below market rate


2,390



2,390



2,390



2,390



2,390


Total performing

$

39,826


$

42,644


$

51,468


$

51,933


$

67,490


















Nonperforming
















Modified to interest only, at a market rate

$

1,191


$

1,275


$

672


$

920


$

642


Term modification, at a market rate


4,225



2,940



3,653



3,288



3,451


Term modification, below market rate


7,794



7,797



7,666



7,672



8,587


Total nonperforming

$

13,210


$

12,012


$

11,991


$

11,880


$

12,680


















Total performing & nonperforming

$

53,036


$

54,656


$

63,459


$

63,813


$

80,170


















 

NONINTEREST INCOME















For the Three Months Ended


Dollars in thousands



06/30/13


03/31/13


$

%


06/30/12


$

%

Noninterest income:













Service charges on deposit accounts

$

2,346

$

2,272

$

74

3.3%

$

2,291

$

55

2.4%

Other service charges, commissions and fees


3,222


2,807


415

14.8%


2,774


448

16.1%

Losses (gains) on securities transactions, net


53


(11)


64

NM


10


43

430.0%

Gains on sales of mortgage loans, net of commissions


4,668


3,852


816

21.2%


3,832


836

21.8%

Gains (losses) on bank premises, net


(34)


(296)


262

NM


373


(407)

NM

Other operating income


1,044


1,211


(167)

-13.8%


973


71

7.3%

Total noninterest income

$

11,299

$

9,835

$

1,464

14.9%

$

10,253

$

1,046

10.2%














Mortgage segment operations

$

(4,668)

$

(3,856)

$

(812)

21.1%

$

(3,833)

$

(835)

21.8%

Intercompany eliminations


167


167


-

0.0%


117


50

42.7%

Community Bank segment

$

6,798

$

6,146

$

652

10.6%

$

6,537

$

261

4.0%














NM - Not Meaningful













 

On a linked quarter basis, noninterest income increased $1.5 million, or 14.9%, to $11.3 million from $9.8 million in the first quarter.  Other services charges, commissions and fees, increased $415,000 primarily due to increased revenue on retail investment products and higher net interchange fees.  Gains on sales of mortgage loans, net of commissions, increased $816,000, or 21.2%, as mortgage loan originations increased by $30.0 million, or 11.2%, in the current quarter to $298.2 million from $268.2 million in the first quarter.  Losses on bank premises decreased $262,000 largely due to the write down of a former branch location in the first quarter.  Other operating income decreased $167,000 primarily due to elevated insurance related revenue during the first quarter.  Excluding mortgage segment operations, noninterest income increased $652,000, or 10.6%.

For the quarter ended June 30, 2013, noninterest income increased $1.0 million, or 10.2%, to $11.3 million from $10.3 million in the prior year's second quarter.  Other service charges, commissions and fees increased $448,000 primarily due to increased revenue on retail investment products and letter of credit related fees.  Gains on sales of mortgage loans, net of commissions, increased $836,000, or 21.8%, due to higher origination volumes, primarily a result of additional loan originators hired in 2012.  Gains on bank premises declined due to branch sales gains recognized during the second quarter of 2012.  Excluding mortgage segment operations, noninterest income increased $261,000, or 4.0%, from the same period a year ago.

 










For the Six Months Ended


Dollars in thousands


06/30/13

06/30/12

$

%

Noninterest income:








Service charges on deposit accounts

$

4,618

$

4,421

$

197

4.5%

Other service charges, commissions and fees


6,029


5,346


683

12.8%

Gains on securities transactions


42


5


37

NM

Gains on sales of mortgage loans, net of commissions


8,520


6,597


1,923

29.1%

Gains (losses) on bank premises


(330)


343


(673)

NM

Other operating income


2,254


2,017


237

11.8%

Total noninterest income

$

21,133

$

18,729

$

2,404

12.8%









Mortgage segment operations

$

(8,522)

$

(6,600)

$

(1,922)

29.1%

Intercompany eliminations


334


234


100

42.7%

Community Bank segment

$

12,945

$

12,363

$

582

4.7%









NM - Not Meaningful








 

For the six months ending June 30, 2013, noninterest income increased $2.4 million, or 12.8%, to $21.1 million, from $18.7 million a year ago.  Service charges on deposit accounts increased $197,000 primarily related to higher overdraft and returned check fees.  Other account service charges and fees increased $683,000 due to higher net interchange fee income, revenue on retail investment products, and fees on letters of credit. Gains on sales of mortgage loans, net of commissions, increased $1.9 million driven by an increase in loan origination volume, a result of additional loan originators hired in 2012 and historically low interest rates.  Conversely, gains on bank premises decreased $673,000 as the Company recorded a loss in the current year on the closure of bank premises coupled with gains in the prior year related to sale of bank premises.  Other operating income increased $237,000 primarily related to increased income on bank owned life insurance and insurance related revenues.  Excluding mortgage segment operations, noninterest income increased $582,000, or 4.7%, from the same period a year ago.

NONINTEREST EXPENSE  















For the Three Months Ended


Dollars in thousands



06/30/13


03/31/13


$

%


06/30/12


$

%

Noninterest expense:













Salaries and benefits

$

17,912

$

17,966

$

(54)

-0.3%

$

16,935

$

977

5.8%

Occupancy expenses


2,764


2,855


(91)

-3.2%


3,092


(328)

-10.6%

Furniture and equipment expenses


1,741


1,845


(104)

-5.6%


1,868


(127)

-6.8%

OREO and credit-related expenses (1)


984


574


410

71.4%


1,310


(326)

-24.9%

Acquisition-related expenses


919


-


919

NM


-


919

NM

Other operating expenses


9,963


10,261


(298)

-2.9%


10,402


(439)

-4.2%

  Total noninterest expense

$

34,283

$

33,501

$

782

2.3%

$

33,607

$

676

2.0%














Mortgage segment operations

$

(4,657)

$

(4,124)

$

(533)

12.9%

$

(3,338)

$

(1,319)

39.5%

Intercompany eliminations


167


167


-

0.0%


117


50

42.7%

  Community Bank segment

$

29,793

$

29,544

$

249

0.8%

$

30,386

$

(593)

-2.0%

  NM - Not Meaningful













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


 

On a linked quarter basis, noninterest expense increased $782,000, or 2.3%, to $34.3 million from $33.5 million when compared to the first quarter.  Excluding acquisition-related expenses of $919,000 incurred in the second quarter, noninterest expense decreased $137,000, or 0.4%, from the prior quarter. OREO and credit-related costs increased $410,000 as the Company incurred a loss on the sale of OREO in the current quarter while generating a gain during the prior quarter.  Other operating expense decreased $298,000 primarily due to declining core deposit intangible amortization expense.  Excluding mortgage segment operations and acquisition related costs, noninterest expense decreased $670,000, or 2.3%, compared to the first quarter.

For the quarter ended June 30, 2013, noninterest expense increased $676,000, or 2.0%, to $34.3 million from $33.6 million for the second quarter of 2012.  Excluding of acquisition-related expenses of $919,000, noninterest expense decreased $243,000, or 0.7%, from the prior year.  Salaries and benefits expenses increased $997,000 primarily related to the costs associated with the addition of mortgage loan originators and support personnel in 2012 and management incentive payments related to higher earnings.  Occupancy expenses decreased $328,000 primarily due to branch closures in 2012.  OREO and credit-related costs decreased $326,000 from the prior year's second quarter primarily due to declines in problem loan related legal fees and foreclosure related costs as asset quality continues to improve.  Other operating expenses were lower by $439,000 primarily related to declining core deposit intangible amortization expense.  Excluding mortgage segment operations and acquisition related costs, noninterest expense decreased $1.5 million, or 5.0%, compared to the second quarter of 2012.

 












For the Six Months Ended




Dollars in thousands




06/30/13

06/30/12


$

%



Noninterest expense:










Salaries and benefits

$

35,878

$

33,911

$

1,967

5.8%



Occupancy expenses


5,619


5,739


(120)

-2.1%



Furniture and equipment expenses


3,585


3,631


(46)

-1.3%



OREO and credit-related expenses (1)


1,558


2,238


(680)

-30.4%



Acquisition-related expenses


919


-


919

NM



Other operating expenses


20,224


20,355


(131)

-0.6%



Total noninterest expense

$

67,783

$

65,874

$

1,909

2.9%













Mortgage segment operations

$

(8,779)

$

(6,039)

$

(2,740)

45.4%



Intercompany eliminations


334


234


100

42.7%



Community Bank segment

$

59,338

$

60,069

$

(731)

-1.2%













  NM - Not Meaningful










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

















 

For the six months ending June 30, 2013, noninterest expense increased $1.9 million, or 2.9% to $67.8 million, from $65.9 million a year ago. Excluding acquisition-related expenses of $919,000, noninterest expense increased $990,000, or 1.5%, from the prior year period.  Salaries and benefits expense increased $2.0 million due to the addition of mortgage loan originators and support personnel hired in 2012, group insurance cost increases, and severance expense recorded in the current quarter related to the relocation of Union Mortgage Group's headquarters to Richmond.  OREO and related costs decreased $680,000, or 30.4%, due to gains on sales of OREO and declines in problem loan legal fees and foreclosure related costs as asset quality continues to improve.  Excluding mortgage segment operations and acquisition related costs, noninterest expense declined $1.7 million, or 2.7%, compared to the same period in 2012.

BALANCE SHEET

At June 30, 2013, total assets were $4.1 billion, an increase of $5.4 million from March 31, 2013, and an increase of $74.3 million from June 30, 2012.  Total cash and cash equivalents were $71.5 million at June 30, 2013, a decrease of $837,000 from the same period last year, and a decrease of $5.3 million from March 31, 2013.  Investment in securities declined $45.2 million, or 7.2%, from $627.5 million at June 30, 2012 to $582.3 million at June 30, 2013, and decreased $905,000 from March 31, 2013.  Mortgage loans held for sale were $109.4 million, an increase of $9.3 million from June 30, 2012, but a decline of $17.7 million from March 31, 2013.

At June 30, 2013, loans (net of unearned income) were $3.0 billion, an increase of $113.1 million, or 3.9% from June 30, 2012, and an increase of $27.3 million, or 0.9%, from March 31, 2013. 

As of June 30, 2013, total deposits were $3.3 billion, an increase of $47.0 million, or 1.5%, when compared to June 30, 2012, and a decrease of $45.8 million from March 31, 2013.  Year over year deposit growth was driven by increases in low cost deposit levels, which grew $76.5 million, while the drop in linked quarter deposits was driven by lower time deposit balances of $39.7 million.

Net short term borrowings declined as a result of lower mortgage loans held for sale funding requirements during the quarter.  During the third quarter of 2012, the Company modified its fixed rate convertible Federal Home Loan Bank of Atlanta ("FHLB") advances to floating rate advances, which resulted in reducing the Company's FHLB borrowing costs.  In connection with this modification, the Company incurred a prepayment penalty of $19.6 million which is being amortized, as a component of interest expense on borrowing, over the life of the advances.  The prepayment amount is reported as a component of long-term borrowings in the Company's consolidated balance sheet. 

The Company's capital ratios continued to be considered "well capitalized" for regulatory purposes.  The Company's ratio of total capital to risk-weighted assets was 14.37% and 14.55% on June 30, 2013 and 2012, respectively.  The Company's ratio of Tier 1 capital to risk-weighted assets was 13.08% and 12.99% at June 30, 2013 and 2012, respectively.  The Company's common equity to asset ratios at June 30, 2013 and 2012 were 10.56% and 10.88%, respectively, while its tangible common equity to tangible assets ratio was 8.92% and 9.11% at June 30, 2013 and 2012.  During the first quarter, the Company entered into an agreement to purchase 500,000 shares of its common stock from Markel Corporation, the Company's largest shareholder, for an aggregate purchase price of $9,500,000, or $19.00 per share.  The repurchase was funded with cash on hand and the shares were retired.  The Company is authorized to repurchase an additional 250,000 shares under its current repurchase program authorization, which expires December 31, 2013.  Also, the Company paid a dividend of $0.13 per share during the current quarter, no change from the prior quarter and $0.05 per share, or 62.5%, from the same quarter a year ago.

MORTGAGE SEGMENT INFORMATION

On a linked quarter basis, the mortgage segment's net income of $294,000 for the second quarter represents an increase of $117,000, or 66.1%, from $177,000 in the first quarter.   Current quarter results include severance expenses of $186,000 related to the recently announced plan to relocate Union Mortgage Group's headquarters to Richmond, Virginia.  The linked quarter net income increase was primarily due to increased mortgage loan origination volumes of $30.0 million, driven by higher seasonal demand during the second quarter.  As a result of the higher volumes and stronger gain on sale margins, gains on the sale of loans, net of commission expenses, increased $816,000 or 21.2%, to $4.7 million.  Refinanced loans represented 38.4% of the mortgage loan originations during the second quarter compared to 52.7% during the first quarter.

For the three months ended June 30, 2013, net income of $294,000 for the mortgage segment declined by $176,000 or 37.4% from net income of $470,000 in the same period last year.  Excluding the severance expense impact noted above, net income would have decreased $57,000 or 12.1% over the same period last year. Mortgage loan originations increased by $40.8 million, or 15.9%, to $298.2 million from $257.4 million in the prior year driven by additions in production personnel in 2012 and lower mortgage interest rates.  In early 2012, the Company significantly increased its mortgage loan production capacity by hiring additional loan originators and support personnel.  During the current quarter, the Company recorded gains on the sale of mortgage loans, net of commission expenses that were $836,000, or 21.8%, higher than the same period last year primarily due to higher loan origination volumes.  Excluding severance expenses, year over year expenses increased $1.1 million driven by the personnel additions in 2012 as well as investments made in the current quarter to enhance the mortgage segment's operating capabilities and improve profitability.  Refinanced loans represented 38.4% of mortgage loan originations during the second quarter of 2013 compared to 45.1% during the same period last year.

For the six months ended June 30, 2013, the mortgage segment net income decreased $231,000, or 32.8%, from $704,000 during the same period last year to $473,000.  Net income for the current year includes the impact of the severance accrual described above.  Mortgage loan originations increased by $125.0 million, or 28.3%, to $566.3 million from $441.3 million during the same period last year due to the addition of mortgage loan originators in 2012 noted above and the low interest rate environment.   Gains on sales of loans, net of commission expenses, increased $1.9 million, or 29.1%,  a result of the increased mortgage loan origination volumes.  Excluding severance expenses, year over year expenses increased by $2.5 million, or 45.3%, due to higher salary and benefit expenses of $2.1 million related to the addition of mortgage loan originators and support personnel in early 2012 as well as investments made in the current year to enhance the mortgage segment's operating capabilities.  Refinanced loans represented 45.2% of mortgage loan originations during the year compared to 49.8% during 2012. 

                                                                     * * * * * * *

ABOUT UNION FIRST MARKET BANKSHARES CORPORATION

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

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

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise and are not statements of historical fact.  Such statements are often characterized by the use of qualified words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate," "intend," "will," or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events.  Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements.  Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic and bank industry conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, accounting standards or interpretations of existing standards, mergers and acquisitions, technology, and consumer spending and savings habits.  More information is available on the Company's website, http://investors.bankatunion.com and on the Securities and Exchange Commission's website, www.sec.gov.  The information on the Company's website is not a part of this press release.  The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company. 

 
















UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

KEY FINANCIAL RESULTS















(in thousands, except share data)































Three Months Ended


Six Months Ended


06/30/13


03/31/13


06/30/12


06/30/13


06/30/12

Results of Operations















Interest and dividend income

$

42,686


$

43,285


$

45,302


$

85,973


$

91,178

Interest expense


5,283



5,532



7,215



10,816



14,744

Net interest income


37,403



37,753



38,087



75,157



76,434

Provision for loan losses


1,000



2,050



3,000



3,050



6,500

Net interest income after provision for loan losses


36,403



35,703



35,087



72,107



69,934

Noninterest income


11,299



9,835



10,253



21,133



18,729

Noninterest expenses


34,283



33,501



33,607



67,783



65,874

Income before income taxes


13,419



12,037



11,733



25,457



22,789

Income tax expense


3,956



3,054



3,313



7,011



6,446

Net income

$

9,463


$

8,983


$

8,420


$

18,446


$

16,343
















Interest earned on loans (FTE)

$

38,876


$

39,413


$

40,371


$

78,288


$

81,061

Interest earned on securities (FTE)


5,099



5,125



5,937



10,224



12,143

Interest earned on earning assets (FTE)


43,981



44,543



46,340



88,524



93,259

Net interest income (FTE)


38,698



39,011



39,125



77,708



78,515

Interest expense on certificates of deposit


2,863



3,058



3,851



5,921



7,880

Interest expense on interest-bearing deposits


3,701



3,962



5,023



7,663



10,358

Core deposit intangible amortization


921



1,036



1,225



1,957



2,535
















Net income - community bank segment

$

9,169


$

8,806


$

7,950


$

17,973


$

15,639

Net income - mortgage segment


294



177



470



473



704
















Key Ratios















Return on average assets (ROA)


0.94%



0.90%



0.86%



0.92%



0.84%

Return on average equity (ROE)


8.73%



8.32%



7.84%



8.53%



7.68%

Efficiency ratio (FTE)


68.57%



68.58%



68.07%



68.58%



67.74%

Efficiency ratio - community bank segment (FTE)


66.13%



66.26%



66.98%



66.19%



66.54%

Efficiency ratio - mortgage bank segment (FTE)


91.11%



93.25%



80.87%



92.10%



83.83%
















Net interest margin (FTE)


4.18%



4.23%



4.36%



4.21%



4.39%

Net interest margin, core (FTE) (1)


4.14%



4.18%



4.25%



4.16%



4.26%

Yields on earning assets (FTE)


4.75%



4.84%



5.15%



4.79%



5.21%

Cost of interest-bearing liabilities (FTE)


0.73%



0.76%



1.00%



0.74%



1.02%

Cost of funds


0.57%



0.60%



0.79%



0.59%



0.82%

Noninterest expense less noninterest income / average assets


2.28%



2.37%



2.38%



2.32%



2.42%
















Capital Ratios















Tier 1 risk-based capital ratio


13.08%



13.02%



12.99%



13.08%



12.99%

Total risk-based capital ratio


14.37%



14.44%



14.55%



14.37%



14.55%

Leverage ratio (Tier 1 capital to average assets)


10.45%



10.21%



10.44%



10.45%



10.44%

Common equity to total assets


10.56%



10.63%



10.88%



10.56%



10.88%

Tangible common equity to tangible assets


8.92%



8.97%



9.11%



8.92%



9.11%

 

















Three Months Ended


Six Months Ended


06/30/13


03/31/13


06/30/12


06/30/13


06/30/12
















Per Share Data















Earnings per common share, basic

$

0.38


$

0.36


$

0.32


$

0.74


$

0.63

Earnings per common share, diluted


0.38



0.36



0.32



0.74



0.63

Cash dividends paid per common share


0.13



0.13



0.08



0.26



0.15

Market value per share


20.59



19.56



14.45



20.59



14.45

Book value per common share


17.32



17.43



16.75



17.32



16.75

Tangible book value per common share


14.36



14.43



13.74



14.36



13.74

Price to earnings ratio, diluted


13.51



13.40



11.23



13.80



11.41

Price to book value per common share ratio


1.19



1.12



0.86



1.19



0.86

Price to tangible common share ratio


1.43



1.36



1.05



1.43



1.05

Weighted average common shares outstanding, basic


24,721,771



25,063,426



25,868,174



24,891,655



25,899,648

Weighted average common shares outstanding, diluted


24,802,231



25,138,003



25,888,151



24,961,431



25,923,505

Common shares outstanding at end of period


24,880,403



24,859,729



25,952,035



24,880,403



25,952,035
















Financial Condition















Assets

$

4,056,557


$

4,051,135


$

3,982,288


$

4,056,557


$

3,982,288

Loans, net of unearned income


3,000,855



2,973,547



2,887,790



3,000,855



2,887,790

Earning Assets


3,722,199



3,726,703



3,649,829



3,722,199



3,649,829

Goodwill


59,400



59,400



59,400



59,400



59,400

Core deposit intangibles, net


13,821



14,742



18,178



13,821



18,178

Deposits


3,265,963



3,311,749



3,218,986



3,265,963



3,218,986

Stockholders' equity


428,429



430,773



433,436



428,429



433,436

Tangible common equity


355,209



356,631



355,625



355,209



355,625
















Averages















Assets

$

4,037,696


$

4,057,156


$

3,942,727


$

4,047,372


$

3,923,243

Loans, net of unearned income


2,975,200



2,965,918



2,847,087



2,970,584



2,838,484

Loans held for sale


117,467



156,766



73,518



137,008



70,712

Securities


609,592



600,262



649,121



604,953



645,736

Earning assets


3,713,392



3,735,926



3,615,718



3,724,597



3,597,115

Deposits


3,265,128



3,284,435



3,200,016



3,274,728



3,183,834

Certificates of deposit


979,011



1,041,903



1,112,964



1,010,283



1,125,532

Interest-bearing deposits


2,608,408



2,654,918



2,636,390



2,631,535



2,634,724

Borrowings


299,115



301,343



274,597



300,223



275,180

Interest-bearing liabilities


2,907,523



2,956,261



2,910,987



2,931,758



2,909,904

Stockholders' equity


434,640



437,981



431,915



436,301



428,102

Tangible common equity


360,974



363,355



353,473



362,157



348,985

 


















Three Months Ended


Six Months Ended


06/30/13


03/31/13


06/30/12


06/30/13


06/30/12

Asset Quality















Allowance for Loan Losses (ALL)















Beginning balance

$

34,415


$

34,916


$

40,204


$

34,916


$

39,470

Add: Recoveries


721



834



350



1,555



691

Less: Charge-offs


1,803



3,385



2,569



5,188



5,676

Add: Provision for loan losses


1,000



2,050



3,000



3,050



6,500

Ending balance

$

34,333


$

34,415


$

40,985


$

34,333


$

40,985
















Components of ALL:















ALL for Loans individually evaluated for impairment

$

6,109


$

5,712


$

11,500


$

6,109


$

11,500

ALL for Loans collectively evaluated for impairment


28,224



28,703



29,485



28,224



29,485


$

34,333


$

34,415


$

40,985


$

34,333


$

40,985
















ALL / total outstanding loans


1.14%



1.16%



1.42%



1.14%



1.42%

ALL / total outstanding loans, adjusted for acquired (2)


1.33%



1.36%



1.74%



1.33%



1.74%

Net charge-offs / total outstanding loans


0.14%



0.35%



0.31%



0.24%



0.35%

Provision / total outstanding loans


0.13%



0.28%



0.42%



0.21%



0.45%

Nonperforming Assets















   Commercial

$

23,013


$

18,456


$

36,035


$

23,013


$

36,035

   Consumer


4,009



4,577



3,136



4,009



3,136

Nonaccrual loans


27,022



23,033



39,171



27,022



39,171
















Other real estate owned


35,153



35,878



35,802



35,153



35,802

Total nonperforming assets (NPAs)


62,175



58,911



74,973



62,175



74,973
















   Commercial


1,353



2,105



2,324



1,353



2,324

   Consumer


4,938



4,082



8,444



4,938



8,444

Loans greater than or equal to 90 days and still accruing


6,291



6,187



10,768



6,291



10,768
















Total nonperforming assets and loans 90 days

$

68,466


$

65,098


$

85,741


$

68,466


$

85,741

NPAs / total outstanding loans


2.07%



1.98%



2.60%



2.07%



2.60%

NPAs / total assets


1.53%



1.45%



1.88%



1.53%



1.88%

ALL / nonperforming loans


127.06%



149.42%



104.63%



127.06%



104.63%

ALL / nonperforming assets


55.22%



58.42%



54.67%



55.22%



54.67%
















Past Due Detail















   Commercial

$

1,093


$

1,844


$

3,022


$

1,093


$

3,022

   Consumer


3,729



2,650



3,602



3,729



3,602

Loans 60-89 days past due

$

4,822


$

4,494


$

6,624


$

4,822


$

6,624

   Commercial

$

7,392


$

4,173


$

5,674


$

7,392


$

5,674

   Consumer


11,215



9,890



10,147



11,215



10,147

Loans 30-59 days past due

$

18,607


$

14,063


$

15,821


$

18,607


$

15,821

   Commercial

$

3,039


$

3,078


$

5,741


$

3,039


$

5,741

   Consumer


934



941



1,034



934



1,034

Purchased impaired

$

3,973


$

4,019


$

6,775


$

3,973


$

6,775
















Mortgage Origination Volume















Total Mortgage loan originations

$

298,180


$

268,161


$

257,354


$

566,341


$

441,329

% of originations that are refinances


38.40%



52.70%



45.10%



45.20%



49.80%
















Other Data















End of period full-time employees


1,044



1,028



1,084



1,044



1,084

Number of full-service branches


90



90



94



90



94

Number of full automatic transaction machines (ATMs)


155



156



158



155



158
















 

















Three Months Ended


Six Months Ended


06/30/13


03/31/13


06/30/12


06/30/13


06/30/12

Alternative Performance Measures (non-GAAP)















Operating Earnings (non-GAAP) (3)















Net Income (GAAP)

$

9,463


$

8,983


$

8,420


$

18,446


$

16,343

Plus: Merger and conversion related expense


919



-



-



919



-

Net operating earnings (loss) (non-GAAP)

$

10,382


$

8,983


$

8,420


$

19,365


$

16,343
















Operating earnings per share - Basic

$

0.42


$

0.36


$

0.32


$

0.78


$

0.63

Operating earnings per share - Diluted


0.42



0.36



0.32



0.78



0.63
















Operating earnings - ROA


1.03%



0.90%



0.86%



0.96%



0.84%

Operating earnings - ROE


9.58%



8.32%



7.84%



8.95%



7.68%
















Operating Efficiency Ratio FTE (non-GAAP) (3)















Net Interest Income (GAAP)

$

37,403


$

37,753


$

38,087


$

75,157


$

76,434

FTE adjustment


1,295



1,258



1,038



2,552



2,081

Net Interest Income (FTE)

$

38,698



39,011



39,125



77,709



78,515

Noninterest Income (GAAP)


11,299



9,835



10,253



21,133



18,729

Noninterest Expense (GAAP)

$

34,283


$

33,501


$

33,607


$

67,783


$

65,874

Merger and conversion related expense


919



-



-



919



-

Noninterest Expense (Non-GAAP)

$

33,364


$

33,501


$

33,607


$

66,864


$

65,874
















Operating Efficiency Ratio FTE (non-GAAP)


66.73%



68.58%



68.07%



67.65%



67.74%
















Cash basis earnings (non-GAAP) (4)















Net income

$

9,463


$

8,983


$

8,420


$

18,446


$

16,343

Plus: Core deposit intangible amortization, net of tax


599



673



796



1,272



1,648

Plus: Trademark intangible amortization, net of tax


-



22



65



22



130

Cash basis earnings

$

10,062


$

9,678


$

9,281


$

19,740


$

18,121
















Average assets

$

4,037,696


$

4,057,156


$

3,942,727


$

4,047,372


$

3,923,243

Less: Average trademark intangible


-



5



281



3



331

Less: Average goodwill


59,400



59,400



59,400



59,400



59,400

Less: Average core deposit intangibles


14,266



15,221



18,761



14,741



19,386

Average tangible assets

$

3,964,030


$

3,982,530


$

3,864,285


$

3,973,228


$

3,844,126
















Average equity

$

434,640


$

437,981


$

431,915


$

436,301


$

428,102

Less: Average trademark intangible


-



5



281



3



331

Less: Average goodwill


59,400



59,400



59,400



59,400



59,400

Less: Average core deposit intangibles


14,266



15,221



18,761



14,741



19,386

Average tangible common equity

$

360,974


$

363,355


$

353,473


$

362,157


$

348,985
















Cash basis earnings per share, diluted

$

0.41


$

0.38


$

0.36


$

0.79


$

0.70

Cash basis return on average tangible assets


1.02%



0.99%



0.97%



1.00%



0.95%

Cash basis return on average tangible common equity


11.18%



10.80%



10.56%



10.99%



10.44%
















ALL to legacy loans (non-GAAP) (2)















Gross Loans

$

3,000,855


$

2,973,547


$

2,887,790


$

3,000,855


$

2,887,790

    Less:  Acquired loans without additional credit deterioration


(424,402)



(447,406)



(533,087)



(424,402)



(533,087)

Gross Loans, adjusted for acquired


2,576,453



2,526,141



2,354,703



2,576,453



2,354,703

Allowance for loan losses


34,333



34,415



40,985



34,333



40,985

ALL / gross loans, adjusted for acquired


1.33%



1.36%



1.74%



1.33%



1.74%
































 

(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.  Loans with credit deterioration subsequent to being acquired have been provided for in accordance with the Company's ALL methodology.  GAAP requires the acquired allowance for loan losses not be carried over in an acquisition or merger.  The Company believes the presentation of the allowance for loan losses, 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.

(3) The Company has provided supplemental performance measures which the Company believes may be useful to investors as they exclude non-operating adjustments resulting from acquisition and allow investors to see the combined economic results of the organization. These measures are a supplement to GAAP used to prepare the Company's financial statements and should not be viewed as a substitute for GAAP measures. In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies.

(4) 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. 

 











UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES







CONDENSED CONSOLIDATED BALANCE SHEETS









(Dollars in thousands, except share data)










June 30,


December 31,


June 30,


2013


2012


2012

ASSETS

(Unaudited)


(Audited)


(Unaudited)

Cash and cash equivalents:









Cash and due from banks

$

59,867


$

71,426


$

57,245

Interest-bearing deposits in other banks


11,526



11,320



14,975

Money market investments


1



1



1

Federal funds sold


153



155



163

   Total cash and cash equivalents


71,547



82,902



72,384










Securities available for sale, at fair value


582,312



585,382



627,543

Restricted stock, at cost


17,956



20,687



19,291










Loans held for sale


109,395



167,698



100,066










Loans, net of unearned income


3,000,855



2,966,847



2,887,790

Less allowance for loan losses


34,333



34,916



40,985

   Net loans


2,966,522



2,931,931



2,846,805










Bank premises and equipment, net


82,857



85,409



91,122

Other real estate owned, net of valuation allowance


35,153



32,834



35,802

Core deposit intangibles, net


13,821



15,778



18,178

Goodwill


59,400



59,400



59,400

Other assets


117,594



113,844



111,697

   Total assets

$

4,056,557


$

4,095,865


$

3,982,288










LIABILITIES









Noninterest-bearing demand deposits


668,303



645,901



591,757

Interest-bearing deposits:









NOW accounts


456,459



454,150



425,188

Money market accounts


953,978



957,130



905,739

Savings accounts


225,821



207,846



198,728

Time deposits of $100,000 and over


468,263



508,630



534,682

Other time deposits


493,139



524,110



562,892

   Total interest-bearing deposits


2,597,660



2,651,866



2,627,229

   Total deposits


3,265,963



3,297,767



3,218,986










Securities sold under agreements to repurchase


101,418



54,270



75,394

Other short-term borrowings


28,000



78,000



-

Trust preferred capital notes


60,310



60,310



60,310

Long-term borrowings


137,919



136,815



155,625

Other liabilities


34,518



32,840



38,537

   Total liabilities


3,628,128



3,660,002



3,548,852










Commitments and contingencies


















STOCKHOLDERS' EQUITY









Common stock, $1.33 par value, shares authorized 36,000,000; issued

and outstanding, 24,880,403 shares, 25,270,970 shares, and 25,952,035

shares, respectively.


32,901



33,510



34,415

Surplus


168,600



176,635



185,733

Retained earnings


227,563



215,634



202,278

Accumulated other comprehensive income


(635)



10,084



11,010

   Total stockholders' equity


428,429



435,863



433,436










      Total liabilities and stockholders' equity

$

4,056,557


$

4,095,865


$

3,982,288

 













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,


2013


2012


2013


2012


(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Interest and dividend income:












Interest and fees on loans

$

38,687


$

40,299


$

77,912


$

80,907

Interest on Federal funds sold


-



-



1



-

Interest on deposits in other banks


6



32



11



54

Interest and dividends on securities:












Taxable


1,939



3,184



4,008



6,640

Nontaxable


2,054



1,787



4,041



3,577

Total interest and dividend income


42,686



45,302



85,973



91,178













Interest expense:












Interest on deposits


3,701



5,023



7,663



10,358

Interest on federal funds purchased


21



1



36



1

Interest on short-term borrowings


54



47



108



91

Interest on long-term borrowings


1,507



2,144



3,009



4,294

Total interest expense


5,283



7,215



10,816



14,744













Net interest income


37,403



38,087



75,157



76,434

Provision for loan losses


1,000



3,000



3,050



6,500

Net interest income after provision for loan losses


36,403



35,087



72,107



69,934













Noninterest income:












Service charges on deposit accounts


2,346



2,291



4,618



4,421

Other service charges, commissions and fees


3,222



2,774



6,029



5,346

Losses on securities transactions, net


53



10



42



5

Gains on sales of mortgage loans, net of commissions


4,668



3,832



8,520



6,597

Losses on sales of bank premises


(34)



373



(330)



343

Other operating income


1,044



973



2,254



2,017

Total noninterest income


11,299



10,253



21,133



18,729













Noninterest expenses:












Salaries and benefits


17,912



16,935



35,878



33,911

Occupancy expenses


2,764



3,092



5,619



5,739

Furniture and equipment expenses


1,741



1,868



3,585



3,631

Other operating expenses


11,866



11,712



22,701



22,593

Total noninterest expenses


34,283



33,607



67,783



65,874













Income before income taxes


13,419



11,733



25,457



22,789

Income tax expense


3,956



3,313



7,011



6,446

Net income

$

9,463


$

8,420


$

18,446


$

16,343

Earnings per common share, basic

$

0.38


$

0.32


$

0.74


$

0.63

Earnings per common share, diluted

$

0.38


$

0.32


$

0.74


$

0.63

 














UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION












(Dollars in thousands)













Community Bank


Mortgage


Eliminations


Consolidated

Three Months Ended June 30,  2013












Net interest income

$

36,960


$

443


$

-


$

37,403

Provision for loan losses


1,000



-



-



1,000

Net interest income after provision for loan losses


35,960



443



-



36,403

Noninterest income


6,798



4,668



(167)



11,299

Noninterest expenses


29,793



4,657



(167)



34,283

Income before income taxes


12,965



454



-



13,419

Income tax expense


3,796



160



-



3,956

Net income

$

9,169


$

294


$

-


$

9,463

Total assets

$

4,045,163


$

121,392


$

(109,998)


$

4,056,557













Three Months Ended June 30,  2012












Net interest income

$

37,792


$

295


$

-


$

38,087

Provision for loan losses


3,000



-



-



3,000

Net interest income after provision for loan losses


34,792



295



-



35,087

Noninterest income


6,537



3,833



(117)



10,253

Noninterest expenses


30,386



3,338



(117)



33,607

Income before income taxes


10,943



790



-



11,733

Income tax expense


2,993



320



-



3,313

Net income

$

7,950


$

470


$

-


$

8,420

Total assets

$

3,967,690


$

110,374


$

(95,776)


$

3,982,288













Six Months Ended June 30,  2013












Net interest income

$

74,147


$

1,010


$

-


$

75,157

Provision for loan losses


3,050



-



-



3,050

Net interest income after provision for loan losses


71,097



1,010



-



72,107

Noninterest income


12,945



8,522



(334)



21,133

Noninterest expenses


59,338



8,779



(334)



67,783

Income before income taxes


24,704



753



-



25,457

Income tax expense


6,731



280



-



7,011

Net income

$

17,973


$

473


$

-


$

18,446

Total assets

$

4,045,163


$

121,392


$

(109,998)


$

4,056,557













Six Months Ended June 30,  2012












Net interest income

$

75,830


$

604


$

-


$

76,434

Provision for loan losses


6,500



-



-



6,500

Net interest income after provision for loan losses


69,330



604



-



69,934

Noninterest income


12,363



6,600



(234)



18,729

Noninterest expenses


60,069



6,039



(234)



65,874

Income before income taxes


21,624



1,165



-



22,789

Income tax (benefit) expense


5,985



461



-



6,446

Net income

$

15,639


$

704


$

-


$

16,343

Total assets

$

3,967,690


$

110,374


$

(95,776)


$

3,982,288













 

























AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)


























For the Three Months Ended June 30,


2013


2012


2011


Average

Balance


Interest

Income /

Expense


Yield /

Rate (1)


Average

Balance


Interest

Income /

Expense


Yield /

Rate (1)


Average

Balance


Interest

Income /

Expense


Yield /

Rate (1)



(Dollars in thousands)

Assets:
























Securities:
























Taxable

$

389,662


$

1,939


2.00%


$

473,158


$

3,185


2.71%


$

419,747


$

3,627


3.47%

Tax-exempt


219,930



3,160


5.76%



175,963



2,752


6.29%



166,660



2,722


6.55%

Total securities (2)


609,592



5,099


3.35%



649,121



5,937


3.68%



586,407



6,349


4.34%

Loans, net (3) (4)


2,975,200



37,928


5.11%



2,847,087



39,734


5.61%



2,823,186



42,004


5.97%

Loans held for sale


117,467



948


3.24%



73,518



637


3.48%



42,341



468


4.43%

Federal funds sold


446



0


0.23%



380



0


0.24%



165



(0)


0.22%

Money market investments


1



-


0.00%



10



-


0.00%



153



-


0.00%

Interest-bearing deposits in other banks


10,686



6


0.23%



45,602



32


0.28%



34,697



27


0.32%

Other interest-bearing deposits


-



-


0.00%



-



-


0.00%



-



-


0.00%

Total earning assets


3,713,392



43,981


4.75%



3,615,718



46,340


5.15%



3,486,949



48,848


5.62%

Allowance for loan losses


(34,874)








(40,635)








(39,999)






Total non-earning assets


359,178








367,644








383,836






Total assets

$

4,037,696







$

3,942,727







$

3,830,786






























Liabilities and Stockholders' Equity:














Interest-bearing deposits:
























Checking

$

454,652



79


0.07%


$

423,044



116


0.11%


$

386,107



157


0.16%

Money market savings


948,992



590


0.25%



903,682



881


0.39%



840,696



1,465


0.70%

Regular savings


225,753



169


0.30%



196,700



175


0.36%



175,869



192


0.44%

Time deposits: (5)
























$100,000 and over


479,274



1,527


1.28%



543,271



2,054


1.52%



569,587



2,217


1.56%

Under $100,000


499,737



1,336


1.07%



569,693



1,797


1.27%



600,754



2,135


1.43%

Total interest-bearing deposits


2,608,408



3,701


0.57%



2,636,390



5,023


0.77%



2,573,013



6,166


0.96%

Other borrowings (6)


299,115



1,582


2.12%



274,597



2,192


3.21%



288,554



1,967


2.73%

Total interest-bearing liabilities


2,907,523



5,283


0.73%



2,910,987



7,215


1.00%



2,861,567



8,133


1.14%

























Noninterest-bearing liabilities:
























Demand deposits


656,720








563,626








504,810






Other liabilities


38,813








36,199








24,050






Total liabilities


3,603,056








3,510,812








3,390,427






Stockholders' equity


434,640








431,915








440,359






Total liabilities and stockholders' equity

$

4,037,696







$

3,942,727







$

3,830,786






























Net interest income




$

38,698







$

39,125







$

40,715



























Interest rate spread (7)







4.02%








4.16%








4.48%

Interest expense as a percent of average earning assets


0.57%








0.79%








0.94%

Net interest margin (8)







4.18%








4.36%








4.68%

















































(1) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.

(2) Interest income on securities includes $0, $46 thousand, and $93 thousand for the three months ended June 30, 2013, 2012, and 2011 in

     accretion of the fair market value adjustments. 



(3) Nonaccrual loans are included in average loans outstanding.

(4) Interest income on loans includes $534 thousand, $915 thousand, and $1.6 million for the three months ended June 30, 2013, 2012, and 2011

      in accretion of the fair market value adjustments related to the acquisitions. 



(5) Interest expense on certificates of deposits includes $2 thousand, $111 thousand, and $216 thousand for the three months ended June 30, 2013, 2012,

     and 2011 in accretion of the fair market value adjustments related to the acquisitions. 



(6) Interest expense on borrowings includes $122 thousand for the three months ended June 30, 2013, 2012, and 2011.

(7) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.

(8) Core net interest margin excludes purchase accounting adjustments and was 4.14%, 4.25%, and 4.47% for the three months ended June 30, 2013, 2012, and 2011.

























 

























AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)


























For the Six Months Ended June 30,


2013


2012


2011


Average

Balance


Interest

Income /

Expense


Yield /

Rate (1)


Average

Balance


Interest

Income /

Expense


Yield /

Rate (1)


Average

Balance


Interest

Income /

Expense


Yield /

Rate (1)



(Dollars in thousands)

Assets:
























Securities:
























Taxable

$

389,986


$

4,008


2.07%


$

471,605


$

6,640


2.83%


$

416,150


$

7,257


3.52%

Tax-exempt


214,967



6,216


5.83%



174,131



5,503


6.36%



165,799



5,420


6.59%

Total securities (2)


604,953



10,224


3.41%



645,736



12,143


3.78%



581,949



12,677


4.39%

Loans, net (3) (4)


2,970,584



76,142


5.17%



2,838,484



79,825


5.66%



2,817,829



83,597


5.98%

Loans held for sale


137,008



2,146


3.16%



70,712



1,236


3.51%



48,214



1,032


4.32%

Federal funds sold


486



1


0.24%



397



1


0.24%



215



0


0.23%

Money market investments


1



-


0.00%



24



-


0.00%



157



-


0.00%

Interest-bearing deposits in other banks


11,565



11


0.19%



41,762



54


0.26%



25,103



33


0.26%

Other interest-bearing deposits


-



-


0.00%



-



-


0.00%



-



-


0.00%

Total earning assets


3,724,597



88,524


4.79%



3,597,115



93,259


5.21%



3,473,467



97,339


5.65%

Allowance for loan losses


(35,208)








(40,328)








(39,386)






Total non-earning assets


357,983








366,456








385,355






Total assets

$

4,047,372







$

3,923,243







$

3,819,436






























Liabilities and Stockholders' Equity:

Interest-bearing deposits:
























Checking

$

451,107



172


0.08%


$

416,557



247


0.12%


$

380,463



316


0.17%

Money market savings


949,035



1,244


0.26%



901,110



1,878


0.42%



825,717



2,970


0.73%

Regular savings


221,110



326


0.30%



191,525



353


0.37%



168,259



295


0.35%

Time deposits: (5)
























$100,000 and over


502,595



3,193


1.28%



549,157



4,164


1.52%



585,173



4,700


1.62%

Under $100,000


507,688



2,728


1.08%



576,375



3,716


1.30%



610,407



4,570


1.51%

Total interest-bearing deposits


2,631,535



7,663


0.59%



2,634,724



10,358


0.79%



2,570,019



12,851


1.01%

Other borrowings (6)


300,223



3,153


2.12%



275,180



4,386


3.21%



289,976



3,874


2.69%

Total interest-bearing liabilities


2,931,758



10,816


0.74%



2,909,904



14,744


1.02%



2,859,995



16,725


1.18%

























Noninterest-bearing liabilities:
























Demand deposits


643,193








549,109








495,886






Other liabilities


36,120








36,128








27,150






Total liabilities


3,611,071








3,495,141








3,383,031






Stockholders' equity


436,301








428,102








436,405






Total liabilities and stockholders' equity

$

4,047,372







$

3,923,243







$

3,819,436






























Net interest income




$

77,708







$

78,515







$

80,614



























Interest rate spread (7)







4.05%








4.19%








4.47%

Interest expense as a percent of average earning assets


0.59%








0.82%








0.97%

Net interest margin (8)







4.21%








4.39%








4.68%

























(1) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.

(2) Interest income on securities includes $15 thousand, $108 thousand, and $201 thousand for the six months ended June 30, 2013, 2012, and 2011 in

     accretion of the fair market value adjustments. 



(3) Nonaccrual loans are included in average loans outstanding.

(4) Interest income on loans includes $1.1 million, $2.2 million, and $3.2 million for the six months ended June 30, 2013, 2012, and 2011

      in accretion of the fair market value adjustments related to the acquisitions. 



(5) Interest expense on certificates of deposits includes $4 thousand, $228 thousand, and $474 thousand for the six months ended June 30, 2013, 2012,

     and 2011 in accretion of the fair market value adjustments related to the acquisitions. 



(6) Interest expense on borrowings includes $244 thousand for the six months ended June 30, 2013, 2012, and 2011.

(7) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.

(8) Core net interest margin excludes purchase accounting adjustments and was 4.16%, 4.26%, and 4.47% for the six months ended June 30, 2013, 2012, and 2011.

 

 

SOURCE Union First Market Bankshares Corporation



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