Union Bankshares Corporation Reports Earnings

Jan 27, 2010, 17:01 ET from Union Bankshares Corporation

BOWLING GREEN, Va., Jan. 27 /PRNewswire-FirstCall/ -- Union Bankshares Corporation (the “Company”) (Nasdaq: UBSH) reports net income of $2.8 million for the quarter ended December 31, 2009, representing an increase of $575 thousand from $2.3 million for the quarter ended December 31, 2008.  This increase was principally related to lower costs of funds and increased revenue from the mortgage segment, partially offset by increased credit costs and costs associated with the pending acquisition of First Market Bank.   Net income available to common shareholders, which deducts from net income the dividends and discount accretion on preferred stock, was $406 thousand for the current quarter compared to $2.3 million from the same quarter last year.  This represents a decrease in earnings per share, on a diluted basis, of $0.15, to $0.02 from $0.17.  This reduction was largely attributable to acceleration of the discount accretion associated with the redemption of the Treasury’s investment in the Company.  

The Company reported net income of $8.4 million for the year ended December 31, 2009, representing a decline of $6.1 million from the prior year.  Drivers of the decline included increased credit costs, lower yields on earning assets, increased Federal Deposit Insurance Corporation (“FDIC”) assessments and costs associated with the pending acquisition of First Market Bank.  These were partially offset by favorable cost of funds experience and increased revenue from the mortgage segment.

Select highlights:

  • Net interest income improved $3.9 million over the same quarter a year ago and $1.8 million over the most recent quarter with the net interest margin increasing to 3.97% from 3.52% a year ago and 3.69% in the most recent quarter, due largely to reductions in the cost of funds and lower wholesale borrowings.
  • Credit costs continued to impact earnings, resulting in provisions of $5.7 million for the quarter and $18.2 million year-to-date.  The allowance for loan losses at year end represented 1.63% of total loans.
  • Fourth quarter mortgage segment net income of $492 thousand increased compared to the most recent quarter and totaled $2.4 million for the year, reflecting increased origination volume during a historically low interest rate environment.
  • The Company redeemed preferred stock issued to the U. S. Treasury under the Capital Purchase Program and recorded a charge of $2.4 million related to the accelerated discount accretion on the preferred stock, or $0.14, per share.
  • Costs related to the pending acquisition of First Market Bank amounted to $554 thousand for the quarter and $1.5 million for the year.
  • Return on average common equity for the three months ended December 31, 2009 was 3.61%, while return on average assets was 0.44%, compared to 4.08% and 0.37%, respectively, for the same period in 2008.  

"In a year filled with economic bad news and significant challenges, we are very pleased to closeout 2009 with another quarter of improved performance, generating momentum for 2010." said G. William Beale, President and Chief Executive Officer of Union Bankshares Corporation. "The net interest margin improved further in the fourth quarter driving earnings improvement and offsetting continued credit costs and acquisition-related costs.  We also redeemed the U.S. Treasury’s investment in our preferred stock and redeemed the related stock warrant during the fourth quarter.  Nonperforming assets continue to be a central focus for our organization, but we are also focused on economic recovery and growth……we are poised and ready to lend to credit-worthy borrowers.  

We are excited about the prospects for 2010 as we expect to close the First Market Bank deal and move forward as one of Virginia’s premiere banking organizations."

The Company reported net income of $2.8 million in each of the three month periods ended December 31, 2009 and September 30, 2009.  Net income remained unchanged principally as a result of favorable cost of funds experience and mortgage segment revenue offset by increased credit costs and costs related to the pending acquisition of First Market Bank.

The Company continues to incur costs related to the pending acquisition of First Market Bank.  Such costs include legal and accounting fees, lease and contract termination expenses, and employee severances, which will be expensed as incurred.  Current quarter and year-to-date costs were $554 thousand and $1.5 million, respectively.  Total acquisition costs were initially estimated to be approximately $10.8 million, but will likely be less than $8.0 million with remaining costs to be expensed as incurred over the next two quarters.  

As a supplement to U. S. generally accepted accounting principles (“GAAP”), the Company also uses certain alternate financial measures to review its operating performance.  Diluted earnings per share on a cash basis for the quarter ended December 31, 2009 were $0.17 as compared to $0.19 for the same quarter a year ago and $0.21 for the quarter ended September 30, 2009.  Additionally, cash basis return on average tangible common equity for the quarter ended December 31, 2009 was 5.71% as compared to 6.98% in the prior year’s same quarter and 7.47% for the quarter ended September 30, 2009.  

NET INTEREST INCOME

During 2009, the Federal Open Market Committee (“FOMC”) maintained the target range for the Federal funds rate at 0% to 0.25% and reiterated its intent to hold the Federal funds rate exceptionally low for an extended period.  Additionally, the FOMC used liquidity and asset-purchase programs to support the financial markets and to stimulate the economy throughout 2009 but anticipates that, in light of recent ongoing improvements in the functioning of the financial markets, these programs will end as planned in 2010.

The decline in the target Federal funds rate throughout the last two years had placed downward pressure on the Company’s earning asset yields and related net interest income.  During the third and fourth quarters of 2009, however, repricing of money market accounts and certificates of deposit provided significant relief from this trend.  The Company also expects net interest margin to be relatively stable over the next several quarters based on the current yield curve.

On a linked quarter basis, tax-equivalent net interest income increased $1.8 million, or 8.2%, to $23.5 million.  The tax-equivalent net interest margin increased 28 basis points to 3.97% from 3.69% in the prior quarter.  The net interest margin increase was principally attributable to a decline in costs of interest-bearing liabilities.  Costs of interest-bearing liabilities declined 29 basis points to 2.08% while yields on interest-earning assets increased 1 basis point to 5.69%.  Improvements in the cost of funds were principally a result of declining costs on certificates of deposit (higher rate certificates of deposit matured and repriced at lower rates) as well as lower costs related to Federal Home Loan Bank of Atlanta (“FHLB”) borrowings.  

Average money market deposits increased $191 million from the same time last year, principally related to the Company’s money market promotion.  The money market promotion provided customers who opened these accounts during the last half of 2008 a 3% yield through June 30, 2009.  Following expiration of the offer, yields for these money market deposits adjusted to the Company’s regular money market rates, which at the time were 1.60% or lower.  Liquidity generated by this promotion allowed the Company to reduce reliance on other borrowings and not to reissue any brokered certificates of deposit.  The repricing of the promotional money market accounts positively impacted the net interest margin in the second half of 2009 by adding approximately 19 basis points to net interest margin.

For the three months ended December 31, 2009, net interest income, on a tax-equivalent basis, increased $3.9 million, or 20.1%, to $23.5 million compared to the same period last year.  This increase was attributable to lower deposit costs and lower wholesale funding volumes as compared to the decline in earning asset yields.  The net interest margin increased 45 basis points, from 3.52% for the three months ended December 31, 2008, to 3.97% for the same period in 2009.  Costs of interest-bearing liabilities declined 82 basis points over the same time, principally as a result of lower costs on certificates of deposit and lower costs and volume of FHLB advances.  Yields on interest-earning assets declined 39 basis points over the past year, driven primarily by lower loan and investment security yields.  

For the year ended December 31, 2009, tax-equivalent net interest income increased $2.2 million, or 2.8%, to $83.5 million.  The tax-equivalent net interest margin decreased 24 basis points to 3.55% from 3.79% compared to the same period a year ago.  The net interest margin decrease was partially attributable to a steeper decline in yields on interest-earning assets as compared to the costs of interest-bearing liabilities.  Yields on interest-earning assets declined 84 basis points to 5.62% while the costs of interest-bearing liabilities declined only 60 basis points to 2.46% for the year.  The decline in interest-earning asset yields was attributable to loan and investment balances repricing at lower rates, and to a lesser extent, an increase in nonaccrual loans.  The decline in the cost of interest-bearing liabilities was attributable to declines in the cost of certificates of deposit and lower volumes and costs of FHLB advances, partially offset by increased volumes in promotional money market accounts.

On September 29, 2008, because of significant disruption and uncertainty in the financial markets, the Company borrowed $50 million under a FHLB advance at a rate of 3.52% with a maturity of September 28, 2009.  At that time, the Company considered the FHLB advance to be a contingency plan against unforeseen and unprecedented market movements.  The earnings spread between the advance and the corresponding short-term investment yield was negative and consequently had an unfavorable impact on the Company’s net interest margin.  The repayment of this advance during the third quarter, net of a prepayment penalty, favorably impacted the net interest margin over the last half of 2009.

ASSET QUALITY/LOAN LOSS PROVISION

Industry concerns regarding asset quality and softness in commercial real estate continued during the fourth quarter.  These issues are impacting the markets in which the Company operates, mainly by slowing real estate activity and adding to the general economic uncertainty.  The risk and performance of the Company’s loan portfolio are reflective of the relatively stable markets in which it operates.  While these markets have experienced slow economic activity, they remain in much better condition than the well-publicized markets in Arizona, Florida, California and other states where the Company does not lend and does not have loan loss exposure.  The Company’s loan portfolio also does not include exposure to subprime mortgage loans.

During the current quarter the Company continued to experience deterioration in asset quality.  While all economic indicators suggest the recession has technically ended, there could be additional softening in asset quality in the near-term, with the magnitude depending upon the potential lagging impact on commercial real estate, unemployment and the pace at which the local economy recovers.  The Company sees indications that the housing markets and unemployment in Virginia are improving; however, the commercial real estate market may weaken further as continued job losses negatively affect both consumer spending and occupancy needs by employers.

The Company’s loan portfolio has a significant concentration in real estate loans.  Residential acquisition and development lending and builder/construction lending have been scaled back as housing activity across the Company’s markets has declined.  While this softening negatively impacts delinquency and nonperforming asset levels, the collateralized nature of real estate loans serves to better protect the Company from loss.

Necessary resources continue to be devoted to the ongoing review of the loan portfolio and the workouts of problem assets to minimize any losses to the Company.  Management will continue to monitor delinquencies, risk rating changes, charge-offs, market trends and other indicators of risk in the Company’s portfolio, particularly those tied to residential and commercial real estate, and adjust the allowance for loan losses accordingly.    

Year-to-date net charge-offs were $13.3 million, or 0.71%, of total loans.  For the quarter ended December 31, 2009, net charge-offs were $8.2 million, or 1.73% of loans on an annualized basis, compared to $1.2 million, or 0.26%, for the quarter ended September 30, 2009 and $2 million, or 0.42%, in the same quarter last year.  Net charge-offs in the fourth quarter included construction loans of $3.7 million, commercial loans of $3.2 million and consumer loans of $1.0 million.  At December 31, 2009, total past due loans were $29.2 million, or 1.56% of total loans, nearly flat from 1.57% a year ago, and up from 1.53% at September 30, 2009.  

At December 31, 2009, nonperforming assets totaled $44.9 million, a marginal increase compared to $43.4 million at September 30, 2009 and an increase of $23.3 million from a year ago.  The overall increases in the trailing 12 months relate principally to loans in the real estate development and housing sectors.  The net decline from the second quarter of 2009 of $8.9 million was primarily related to a successful workout and return to accruing status of a nonaccrual commercial real estate loan relating to a single credit relationship ($6.2 million) and the sale of land from other real estate owned ($2.9 million).  

At December 30, 2009 the coverage ratio of allowance for loan losses to nonperforming loans was 136.4%, an increase from 111.1% at September 30, 2009, but down from 176.9% a year earlier.  Similarly, the coverage ratio of allowance for loan losses to nonperforming assets (including other real estate owned) was 68.0%, a decline from 75.8% at September 30, 2009 and 118.3% a year earlier.

Nonperforming assets at December 31, 2009 include $22.3 million in nonperforming loans.  This total includes residential real estate loans of $9.6 million, commercial and industrial loans of $5.8 million, commercial real estate loans of $2.2 million, land loans of $2.1 million, land development loans of $1.3 million and other loans totaling $1.3 million.  Historically, and particularly in the current economic environment, the Company seeks to work with its customers on loan collection matters while taking appropriate actions to improve the Company’s position and minimize any losses.  These loans are closely monitored and evaluated for collection with appropriate loss reserves established whenever necessary.  

Additionally, nonperforming assets also include $22.5 million in other real estate owned.  This total includes land development of $10.3 million, land of $7.0 million, residential real estate of $2.6 million, commercial real estate of $1.6 million and land held for development of bank branch sites of $1.0 million.  Included in land development is $8.7 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 have been adjusted to their fair values at the time of foreclosure and any losses have been taken as loan charge-offs against the allowance for loan losses.  Other real estate owned asset valuations are also evaluated at least quarterly and any necessary write down to fair value is recorded as impairment.  

The provision for loan losses for the quarter ended December 31, 2009 was $5.7 million, an increase of $1.2 million from the most recent quarter and an increase of $2.7 million from the same quarter a year ago.  The net increase in the current quarter provision for loan losses principally related to specific reserves.  The increase in the provision for loan losses and the current levels of the allowance for loan losses reflect specific reserves related to nonperforming loans, changes in risk rating 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 loan portfolio was 1.63% at December 31, 2009, 1.75% at September 30, 2009, and 1.36% and 1.31% for the periods ending December 31, 2008 and September 30, 2008, respectively.  The reduction in the allowance from the most recent quarter as a percentage of loans related to prior quarters identification of specific reserves that were charged-off in the current quarter.

Approximately $643.4 million, or 34.3%, of the Company’s loan portfolio is comprised of amortizing commercial real estate loans, of which approximately 42% is owner-occupied real estate and which typically carries a lower risk of loss.  While there are industry concerns over possible softening in the commercial real estate sector, the Company’s portfolio is not highly speculative or concentrated in large credits.   In addition, $307.7 million of the loan portfolio is concentrated in real estate construction loans, including raw land, land development, residential lots, speculative and presold residential construction and commercial construction loans (both owner-occupied and non-owner occupied).  Of this amount, $153.9 million, or 50.0%, represents land and lot loans; $64.6 million, or 21.0%, represents land development loans; $44.9 million, or 14.6%, represents speculative and presold residential construction loans and $38.4 million, or 12.5%, is commercial construction.  The Company’s real estate lending is conducted within its operating footprint in markets it understands and monitors.

NONINTEREST INCOME

For the three months ended December 31, 2009, noninterest income increased $2.0 million, or 31.2%, to $8.4 million from $6.4 million in the same period in 2008.  Gains on sales of loans in the mortgage segment increased $2.1 million and related to higher origination volume driven by lower mortgage rates and the homebuyer’s tax credit.  Gains on sales of investment securities increased $133 thousand while gains on sales of bank property and other real estate owned increased $33 thousand.  Other operating income increased $71 thousand and related primarily to bank-owned life insurance.  Service charges on deposit accounts declined $264 thousand, driven by reduced overdraft and returned check charges.  Other service charges decreased $71 thousand, primarily related to lower brokerage commissions, letter of credit fees, ATM fees, partially offset by higher debit card income. Excluding the contribution of the mortgage segment, noninterest income decreased $102 thousand, or 2.3%.

On a linked quarter basis, noninterest income increased $534 thousand, or 6.8%, to $8.4 million from $7.9 million at September 30, 2009, primarily related to a $497 thousand increase in gains on sales of loans in the mortgage segment, $117 thousand related to gains on sales of investment securities and $74 thousand increase in fee income, primarily related to higher brokerage commissions, safe deposit box rent and debit card fees.  Partially offsetting these increases were decreases of $79 thousand in service charges, primarily overdraft fees, $43 thousand in net losses on the sales of bank property and other real estate owned, and $32 thousand in other operating income.  Excluding the contribution of the mortgage segment, noninterest income increased $35 thousand, or 0.8%.  

For the year ended December 31, 2009, noninterest income increased $2.4 million, or 7.9%, to $33.0 million from $30.6 million for the same period in 2008.  Of this increase, gains on sales of loans in the mortgage segment accounted for $5.5 million and related to higher origination volume and a surge in refinance activity, partially offset by declines in account service charges and other fee income of $902 thousand and $634 thousand, respectively as well as non-recurring gains on sales of bank property of $1.9 million during 2008.  The decline in service charges and other fee income was primarily the result of decreased overdraft fees and returned check charges of $984 thousand, annuity sales of $207 thousand and brokerage commissions of $341 thousand.  During the same period in 2008, the Company recorded gains of $1.9 million from the sale of bank property and $198 thousand relating to the mandatory redemption of certain classes of common stock to financial institution members of Visa U.S.A.  Excluding the contribution of the mortgage segment and prior period gain transactions, noninterest income declined $1.0 million, or 5.7%.

NONINTEREST EXPENSE

For the three months ended December 31, 2009, noninterest expense increased $2.3 million, or 12.0%, to $21.9 million from $19.6 million compared to the fourth quarter of 2008.  Other operating expenses increased $1.3 million, including increased FDIC insurance assessment premiums of $437 thousand related to higher regular assessment rates in 2009.  Costs associated with the pending acquisition of First Market Bank were $554 thousand during the quarter.  Other costs contributing to the increase included the acceleration of amounts due under a contract with a former employee upon his death totaling $420 thousand and legal fees of $172 thousand related to the Company’s problem loan workouts and collection efforts.  Costs associated with maintaining other real estate owned increased $351 thousand and marketing and advertising expenses declined $236 thousand primarily due to lower print advertising of $134 thousand and donations of $126 thousand.  These were partially offset by higher expenses relating to the Company’s Loyalty Banking(SM) and customer rewards campaigns of $161 thousand.  Salaries and benefits also increased $1.2 million primarily related to higher mortgage segment commissions of $1.2 million, profit sharing expense of $239 thousand, group insurance costs of $221 thousand, offset by lower wage expenses of $208 thousand due to fewer employees in 2009 as well as lower incentive compensation of $250 thousand.  Furniture and equipment expense decreased $127 thousand due to declining depreciation and amortization expense as useful lives were exhausted in certain asset classes.  Occupancy expenses increased $39 thousand.  Excluding mortgage segment operations, the accelerated contract payment and acquisition related expenses, noninterest expense increased approximately $139 thousand, or 0.8%.

On a linked quarter basis, noninterest expense increased $799 thousand, or 3.8%, to $21.9 million for the three months ended December 31, 2009.  Other operating expense increased $742 thousand.  Of this increase, $420 thousand related to the above accelerated contract payment and $118 thousand in additional legal fees related to continuing problem loan workouts.  Costs related to the pending acquisition of First Market Bank increased $247 thousand to $554 thousand in the fourth quarter compared to $307 thousand in the third quarter.  Other costs contributing to the increase were higher salaries and benefits expense of $56 thousand, primarily related to higher mortgage segment commissions, offset by lower wage expenses due to fewer employees and lower incentive compensation expenses.  Furniture and fixture expenses increased $42 thousand, primarily in repairs and other related services while occupancy expenses declined $41 thousand.  Excluding mortgage segment operations, the accelerated contract payment and acquisition related expenses, noninterest expense decreased $147 thousand, or 0.9%.

For the year ended December 31, 2009, noninterest expense increased $5.7 million, or 7.1 %, to $85.3 million compared to $79.6 million for the year ended December 31, 2008.  Other operating expenses increased $5.8 million.  Of this increase, FDIC insurance assessment premiums accounted for $3.4 million and were comprised of a special insurance assessment of $1.2 million during the second quarter and an increase in the regular insurance assessment of $2.2 million.  Costs associated with the pending acquisition of First Market Bank were $1.5 million in 2009.  Other costs contributing to the increase were higher professional fees of $1.1 million which included legal expenses of $665 thousand relating to the Company’s problem loan workouts and collection activities and as mentioned above, and accelerated contract payment of $420 thousand.  Costs related to other real estate owned and loan expenses increased to $1.6 million from $754 thousand last year.  Marketing and advertising costs increased $125 thousand primarily related to the Company’s Loyalty Banking(SM) and other campaigns.  Salary and benefits costs increased $189 thousand, related to higher mortgage segment commissions of $2.6 million, partially offset by lower salary expenses of $942 thousand, profit sharing expense of $809 thousand and incentive compensation of $959 thousand.  In addition, furniture and equipment expenses declined $415 thousand, or 8.3%, primarily related to declining depreciation and amortization expense and rental costs.  Occupancy expenses increased $91 thousand, or 1.3%.  Excluding mortgage segment operations, increased FDIC special insurance assessment, the accelerated contract payment discussed above, acquisition related expenses and prior year conversion costs, noninterest expense increased approximately $388 thousand, or 0.5 %.

During the first quarter of 2009, to replenish the FDIC’s deposit insurance fund, a final rule to impose a special insurance assessment of 5 basis points calculated on each bank’s total assets minus Tier 1 capital was approved.  The special insurance assessment was billed on June 30, payable on September 30 and recorded as a second quarter expense.  During the second quarter of 2009, the Company expensed $1.2 million related to the FDIC special insurance assessment.  The special insurance assessment was in addition to the regular quarterly risk-based assessment.  The assessment base for regular quarterly insurance assessments was not changed.  On September 29, 2009, the FDIC adopted a rule to require institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012.  The FDIC also adopted a uniform three-basis point increase in assessment rates effective January 1, 2011, and extended the restoration period from seven to eight years.  The Company made a prepayment of $12.6 million during the fourth quarter, of which $3.3 million is expected to be expensed over the next 12 months.

For the year ended December 31, 2009, acquisition costs associated with the pending acquisition of First Market Bank, were $1.5 million and are reported as a component of “Other operating expenses” within the Company’s “Condensed Consolidated Statements of Income.”  These costs were predominantly legal and due diligence costs.  The Company expects to incur additional acquisition costs both prior to and after the close date.  On October 26, 2009, the Company held a special meeting of its shareholders and received shareholder approvals for its acquisition of First Market Bank and for changing its corporate name to Union First Market Bankshares Corporation.  On January 14, 2010, the Company received regulatory approval from the Federal Reserve Bank of Richmond to move forward with its acquisition of First Market Bank and the transaction is expected to close on February 1, 2010.

BALANCE SHEET

At December 31, 2009, total assets increased slightly to $2.59 billion from $2.55 billion at December 31, 2008.  Net loans decreased $4.9 million, or 0.3%, compared to December 31, 2008.  On a linked quarter basis, net loans decreased $8.4 million from September 30, 2009. The Company’s mortgage segment increased loans held for sale by $12.2 million and $24.9 million, from September 30, 2009 and December 31, 2008, respectively, related to higher origination volume.  As of December 31, 2009, total cash and cash equivalents were $45.9 million, a decrease of $102.6 million from $148.5 million at December 31, 2008.  Total cash and equivalents at December 31, 2009, included proceeds of approximately $58.8 million from the Company’s third quarter follow-on equity raise, net of underwriting costs, legal and accounting fees.  During the fourth quarter 2009, the Company redeemed the Preferred Stock issued to the U. S. Treasury by repaying $59 million received in December 2008 under the Capital Purchase Program.  In addition, the Company also eliminated its brokered certificates of deposit, which totaled $66.7 million at December 31, 2008.  The decline in total cash and cash equivalents from December 31, 2008 resulted from redeploying cash into higher yielding investment securities.  Deposits decreased $10.6 million, or 0.6%, from a year ago primarily due to decreases in both regular and brokered certificates of deposit, partially offset by increases in money market accounts.  

Total borrowings, including repurchase agreements, increased $32.5 million to $366.1 million at December 31, 2009, from a year ago, principally as a result of a net increase in wholesale funding.  The Company’s equity to assets ratios were 10.90% and 10.73% at December 31, 2009 and 2008, respectively.  The Company’s tangible common equity to assets ratio was 8.64% and 6.10% at December 31, 2009 and 2008, respectively.

The Company completed a follow-on equity raise on September 16, 2009, which generated cash and capital of approximately $58.8 million, net of underwriting discounts, commissions and estimated offering expenses from the issuance of 4,725,000 shares of common stock at a price of $13.25 per share.  It is anticipated that the proceeds of this offering will be used for general corporate purposes, including organic and opportunistic acquisition-based growth.

In November 2009, the Company redeemed the Treasury’s investment of Fixed Rate Cumulative Perpetual Preferred Stock, Series A by repaying, with accumulated dividends, the $59 million it received in December 2008.  Additionally, in December 2009, the Company entered into a Warrant Repurchase Letter Agreement with the U. S. Treasury to repurchase a warrant to purchase 211,318 shares of the Company’s common stock that was issued to the connection with the Company’s sale to the Treasury of Fixed Rate Cumulative Perpetual Preferred Stock. As a result of the Warrant repurchase, the Company has no securities issued or outstanding to the Treasury and is no longer participating in the Treasury’s Capital Purchase Program.

Management remains focused on maintaining strong levels of liquidity and capital during this challenging environment and believes its sound risk management practices in underwriting and lending will enable the Company to weather successfully this period of economic uncertainty.

SEGMENT INFORMATION

Mortgage Segment

On a linked quarter basis, mortgage segment net income increased $196 thousand, or 66.2%, to $492 thousand from $296 thousand in the third quarter of 2009.  Originations increased $40.8 million from $144.3 million to $185.1 million, or 28.3%, from the most recent quarter, resulting in an increase in loan revenue of $503 thousand, or 13.4%.  Loan originations increased as a result of strong existing home sales influenced by the homebuyer tax credit and surging refinance volume attributed to historically low interest rates.  The addition of new branch offices also generated increased loan origination volume.  Other operating expenses decreased $26 thousand due to a reduction in loan related losses.  Salary and benefit expenses increased $303 thousand related to commission expenses on increased loan volume and included personnel related to the addition of new office locations, one in Towson, Maryland and one in Raleigh, North Carolina late in the third quarter of 2009.  Occupancy expenses decreased $8 thousand and furniture and equipment expenses increased $9 thousand.

For the three months ended December 31, 2009, the mortgage segment net income increased $586 thousand to $492 thousand from a loss of $94 thousand for the same quarter in 2008.  Originations increased $100.4 million to $185.1 million, or 118.6%, from the same period last year, resulting in an increase in loan revenue of $2.1 million, or 98.3%.  The addition of new offices also supplemented loan origination growth.  Total noninterest expenses increased $1.5 million.  Salaries and benefits increased $1.4 million primarily related to commission expenses on increased loan volume.  Other operating expenses increased $96 thousand principally due to increased underwriting fees related to loan origination volume, insurance and facility costs related to new offices and marketing costs.  Occupancy expenses declined $30 thousand principally due to the relocation and revision of lease terms for certain leased office locations.  Furniture and equipment expense increased $20 thousand, which included costs related to the addition of new office locations and employees.

For the year ended December 31, 2009, mortgage segment net income increased $2.4 million from $39 thousand to $2.4 million for the same period in 2008.  Originations increased $279 million to $703.7 million, or 65.7%, from the same period last year, resulting in an increase in loan revenue of $5.5 million, or 49.6%.  Salaries and benefits increased $2.8 million principally due to commission expenses related to increased loan originations.  Occupancy costs decreased $194 thousand and furniture and equipment costs decreased $66 thousand due to the nonrenewal of certain leased office locations and lower equipment rental expense, partially offset by the addition of two new office locations. Other operating expenses increased $168 million, principally due to increased underwriting fees related to loan volume and marketing costs.

ABOUT UNION BANKSHARES CORPORATION

Union Bankshares Corporation is one of the largest community banking organizations based in Virginia, providing full service banking to the Northern, Central, Rappahannock, Tidewater and Northern Neck regions of Virginia through its bank subsidiaries, Union Bank and Trust Company (41 locations in the counties of Albemarle, Caroline, Chesterfield, Fairfax, Fluvanna, Hanover, Henrico, King George, King William, Nelson, Spotsylvania, Stafford, Westmoreland, and the cities of Fredericksburg, Williamsburg, Newport News, Grafton and Charlottesville); Northern Neck State Bank (9 locations in the counties of Richmond, Westmoreland, Essex, Northumberland and Lancaster); and Rappahannock National Bank (6 locations in Washington, Front Royal, Middleburg, and Warrenton).  Union Bank and Trust Company’s loan production office in Manassas was open through the first quarter of 2009 but was closed in early April 2009.  Union Investment Services, Inc. provides full brokerage services; Union Mortgage Group, Inc. provides a full line of mortgage products; and Union Insurance Group, LLC offers various lines of insurance products.  Union Bank and Trust Company also owns a non-controlling interest in Johnson Mortgage Company, LLC.

On March 30, 2009, the Company and First Market Bank announced the signing of an agreement, as amended on June 19, 2009, pursuant to which First Market Bank will merge with the Company in an all stock transaction valued at approximately $105.4 million.  First Market Bank, a privately held federally chartered savings bank with over $1.3 billion in assets, operates 38 branches throughout central Virginia with 31 locations in the greater Richmond metropolitan area.  Upon completion of the transaction, expected to occur on February 1, 2010, the Company will become the largest Virginia based community banking organization with approximately 94 branch locations and total assets of approximately $4.0 billion.  On January 14, 2010, the Company announced that it received regulatory approval from the Federal Reserve Bank of Richmond to move forward with its acquisition of First Market Bank.

Additional information is available on the Company’s website at www.ubsh.com.  The shares of the Company 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 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” 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 conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, and consumer spending and savings habits.  The Company does not update any forward-looking statements that may be made from time to time by or on behalf of the Company.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

KEY FINANCIAL RESULTS

(in thousands, except share data)


Three Months Ended


Year Ended


12/31/09

12/31/08

09/30/09


12/31/09

12/31/08

Results of Operations







Interest and dividend income

$             32,744   

$             32,905   

$             32,502   


$           128,587   

$           135,095   

Interest expense

10,163   

14,239   

11,685   


48,771   

57,222   

Net interest income

22,581   

18,666   

20,817   


79,816   

77,873   

Provision for loan losses

5,744   

3,077   

4,517   


18,246   

10,020   

Net interest income after provision for loan losses

16,837   

15,589   

16,300   


61,570   

67,853   

Noninterest income

8,445   

6,438   

7,911   


32,967   

30,555   

Noninterest expenses

21,904   

19,560   

21,105   


85,287   

79,636   

Income before income taxes

3,378   

2,467   

3,106   


9,250   

18,772   

Income tax expense

529   

193   

301   


890   

4,258   

Net income

$               2,849   

$               2,274   

$               2,805   


$               8,360   

$             14,514   








Interest earned on loans (FTE)

$             28,855   

$             29,401   

$             28,484   


$           113,070   

$           121,284   

Interest earned on securities (FTE)

4,821   

4,325   

4,934   


19,112   

17,065   

Interest earned on earning assets (FTE)

33,688   

33,822   

33,427   


132,318   

138,520   

Net interest income (FTE)

23,525   

19,583   

21,742   


83,546   

81,298   

Interest expense on certificates of deposit

6,802   

8,860   

7,647   


30,849   

36,654   

Interest expense on interest-bearing deposits

8,229   

11,202   

9,331   


39,452   

44,298   

Core deposit intangible amortization

481   

481   

481   


1,924   

1,937   








Net income - community bank segment

$               2,358   

$               2,366   

$               2,509   


$               5,921   

$             14,474   

Net income (loss) - mortgage segment

492   

(94)  

296   


2,440   

39   








Key Ratios







Return on average assets (ROA)

0.44%

0.37%

0.43%


0.32%

0.61%

Return on average equity (ROE)

3.61%

4.08%

3.88%


2.90%

6.70%

Efficiency ratio

70.60%

77.92%

73.46%


75.62%

73.45%

Efficiency ratio - community bank segment

68.33%

75.05%

71.02%


75.00%

70.39%

Net interest margin (FTE)

3.97%

3.52%

3.69%


3.55%

3.79%

Yields on earning assets (FTE)

5.69%

6.08%

5.68%


5.62%

6.46%

Cost of interest-bearing liabilities (FTE)

2.08%

2.90%

2.37%


2.46%

3.06%

Noninterest expense less noninterest income / average assets

2.08%

2.12%

2.04%


2.03%

2.06%








Per Share Data







Earnings per common share, basic

$                 0.02   

$                 0.17   

$                 0.13   


$                 0.22   

$                 1.08   

Earnings per common share, diluted

0.02   

0.17   

0.13   


0.22   

1.07   

Cash dividends paid per common share

0.060   

0.185   

0.060   


0.300   

0.740   

Market value per share

12.39   

24.80   

12.45   


12.39   

24.80   

Book value per tangible common share

15.34   

16.03   

15.47   


15.34   

16.03   

Tangible common book value per common share

11.85   

11.17   

11.95   


11.85   

11.17   

Price to earnings ratio, diluted

156.15   

36.67   

24.14   


56.32   

23.18   

Price to book value per common share ratio

0.81   

1.55   

0.80   


0.81   

1.55   

Price to tangible common share ratio

1.05   

2.22   

1.04   


1.05   

2.22   

Weighted average common shares outstanding, basic

18,327,987   

13,512,755   

15,123,935   


15,160,619   

13,477,760   

Weighted average common shares outstanding, diluted

18,369,746   

13,626,783   

15,165,105   


15,201,993   

13,542,948   

Common shares outstanding at end of period

18,419,567   

13,570,970   

18,335,266   


18,419,567   

13,570,970   








Financial Condition







Assets

$        2,587,272   

$        2,551,932   

$        2,583,284   


$        2,587,272   

$        2,551,932   

Loans, net of unearned income

1,874,224   

1,874,088   

1,885,075   


1,874,224   

1,874,088   

Earning Assets

2,336,281   

2,217,135   

2,360,752   


2,336,281   

2,217,135   

Goodwill

56,474   

56,474   

56,474   


56,474   

56,474   

Core deposit intangibles, net

7,690   

9,613   

8,171   


7,690   

9,613   

Deposits

1,916,364   

1,926,999   

1,965,568   


1,916,364   

1,926,999   

Stockholders' equity

282,088   

273,798   

340,231   


282,088   

273,798   

Tangible common equity

217,924   

151,577   

219,130   


217,924   

151,577   









Three Months Ended


Year Ended


12/31/09

12/31/08

09/30/09


12/31/09

12/31/08

Averages







Assets

$        2,568,743

$        2,468,198

$        2,566,838


$        2,578,808

$        2,379,403

Loans, net of unearned income

          1,880,505

          1,865,992

          1,872,906


          1,873,606

          1,817,755

Loans held for sale

               47,354

               18,134

               48,126


               46,454

               24,320

Securities

             402,033

             296,137

             398,991


             379,754

             289,248

Earning assets

          2,349,085

          2,212,479

          2,333,648


          2,353,854

          2,143,646

Deposits

          1,942,940

          1,858,847

          1,984,639


          1,969,534

          1,765,833

Certificates of deposit

             904,549

             972,888

             940,340


             948,830

             935,398

Interest-bearing deposits

          1,645,685

          1,585,641

          1,682,432


          1,679,765

          1,493,069

Borrowings

             292,984

             369,802

             275,542


             300,739

             377,601

Interest-bearing liabilities

          1,938,669

          1,955,443

          1,957,974


          1,980,504

          1,870,670

Stockholders' equity

             313,369

             221,737

             286,870


             288,243

             216,622

Tangible common equity

             219,511

             147,488

             165,594


             173,618

             147,587








Asset Quality







Allowance for Loan Losses







Beginning balance of allowance for loan losses

$             32,930   

$             24,420   

$             29,639   


$             25,496   

$             19,336   

Add: Allowance from acquired banks

-   

-   

-   


-   

-   

Add: Recoveries

126   

113   

750   


1,150   

340   

Less: Charge-offs

8,316   

2,114   

1,976   


14,408   

4,200   

Add: Provision for loan losses

5,744   

3,077   

4,517   


18,246   

10,020   

Ending balance of allowance for loan losses

$             30,484   

$             25,496   

$             32,930   


$             30,484   

$             25,496   

Allowance for loan losses / total outstanding loans

1.63%

1.36%

1.75%


1.63%

1.36%

Nonperforming Assets







Nonaccrual loans

$             22,348   

$             14,412   

$             29,653   


$             22,348   

$             14,412   

Other real estate and foreclosed properties

22,509   

7,140   

13,783   


22,509   

7,140   

Total nonperforming assets

44,857   

21,552   

43,436   


44,857   

21,552   

Loans > 90 days and still accruing

7,296   

3,082   

11,236   


7,296   

3,082   

Total nonperforming assets and loans > 90 days and still

accruing

$             52,153   

$             24,634   

$             54,672   


$             52,153   

$             24,634   

Nonperforming assets / total outstanding loans

2.39%

1.15%

2.30%


2.39%

1.15%

Allowance for loan losses / nonperforming loans

136.41%

176.91%

111.05%


136.41%

176.91%

Allowance for loan losses / nonperforming assets

67.96%

118.30%

75.81%


67.96%

118.30%








Other Data







Mortgage loan originations

$           185,088   

$             84,682   

$           144,258   


$           703,744   

$           424,601   

% of originations that are refinances

36.80%

35.64%

30.88%


49.50%

38.48%

End of period full-time employees

662   

670   

665   


662   

670   

Number of full-service branches

56   

59   

58   


56   

59   

Number of community banks (subsidiaries)

3   

3   

3   


3   

3   

Number of full automatic transaction machines (ATM's)

126   

152   

125   


126   

152   








Alternative Performance Measures







Cash basis earnings1







Net income

$               2,849

$               2,274

$               2,805


$               8,360

$             14,514

Plus: Core deposit intangible amortization, net of tax

                    313

                    313

                    313


                 1,251

                 1,259

Cash basis operating earnings

$               3,162

$               2,587

$               3,118


$               9,611

$             15,773








Average assets

$        2,568,743

$        2,468,198

$        2,566,838


$        2,578,808

$        2,379,403

Less: Average goodwill

               56,474

               56,474

               56,474


               56,474

               56,474

Less: Average core deposit intangibles

                 7,921

                 9,846

                 8,405


                 8,639

               10,568

Average tangible assets

$        2,504,349

$        2,401,878

$        2,501,959


$        2,513,695

$        2,312,361








Average equity

$           313,369

$           221,737

$           286,870


$           288,243

$           216,622

Less: Average goodwill

               56,474

               56,474

               56,474


               56,474

               56,474

Less: Average core deposit intangibles

                 7,921

                 9,846

                 8,405


                 8,639

               10,568

Less: Average preferred equity

               29,463

                 7,929

               56,397


               49,512

                 1,993

Average tangible common equity

$           219,511

$           147,488

$           165,594


$           173,618

$           147,587








Cash basis earnings per share, diluted

$                 0.17   

$                 0.19   

$                 0.21   


$                 0.63   

$                 1.16   

Cash basis return on average tangible assets

0.50%

0.43%

0.49%


0.38%

0.68%

Cash basis return on average tangible common equity

5.71%

6.98%

7.47%


5.54%

10.69%








1Cash basis earnings - as a supplement to accounting principles generally accepted in the United States ("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 stemming from the consolidation of our organization,  they allow investors to see clearly the combined economic results of our multi-bank company.


UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)



2009


2008

ASSETS




Cash and cash equivalents:




Cash and due from banks

$               38,725 


$          144,625 

Interest-bearing deposits in other banks

4,106 


903 

Money market investments

127 


122 

Other interest-bearing deposits

2,598 


2,598 

Federal funds sold

355 


289 

Total cash and cash equivalents

45,911 


148,537 





Securities available for sale, at fair value

400,591 


309,711 





Loans held for sale

54,280 


29,424 





Loans, net of unearned income

1,874,224 


1,874,088 

Less allowance for loan losses

30,484 


25,496 

Net loans

1,843,740 


1,848,592 





Bank premises and equipment, net

78,722 


77,425 

Other real estate owned

22,509 


7,140 

Core deposit intangibles, net

7,690 


9,613 

Goodwill

56,474 


56,474 

Other assets

77,355 


65,016 

Total assets

$          2,587,272 


$       2,551,932 





LIABILITIES




Noninterest-bearing demand deposits

$             294,222 


$          274,829 

Interest-bearing deposits:




NOW accounts

215,327 


201,317 

Money market accounts

446,980 


361,138 

Savings accounts

102,852 


93,559 

Time deposits of $100,000 and over

407,894 


452,297 

Brokered certificates of deposit


66,709 

Other time deposits

449,089 


477,150 

Total interest-bearing deposits

1,622,142 


1,652,170 

Total deposits

1,916,364 


1,926,999 





Securities sold under agreements to repurchase

50,550 


68,282 

Other short-term borrowings

115,201 


55,000 

Trust preferred capital notes

60,310 


60,310 

Long-term borrowings

140,000 


150,000 

Other liabilities

22,759 


17,543 

Total liabilities

2,305,184 


2,278,134 





Commitments and contingencies








STOCKHOLDERS' EQUITY




Preferred stock, $10.00 par value, $1,000 liquidation value, shares authorized 59,000; issued and outstanding, 59,000 shares at December 31, 2008 and none at December 31, 2009


590 

Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 18,419,567 shares and 13,570,970 shares, respectively

24,462 


18,055 

Surplus

98,136 


101,719 

Retained earnings

155,047 


155,140 

Warrant


2,808 

Discount on preferred stock


(2,790)

Accumulated other comprehensive (loss) income

4,443 


(1,724)

Total stockholders' equity

282,088 


273,798 





Total liabilities and stockholders' equity

$          2,587,272 


$       2,551,932 


UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)


Three Months Ended


Year Ended


December 31


December 31


2009


2008


2009


2008

Interest and dividend income:








Interest and fees on loans

$     28,636 


$    29,216 


$      112,316 


$      120,642 

Interest on Federal funds sold


64 



98 

Interest on deposits in other banks

12 


17 


135 


39 

Interest on money market investments




Interest on other interest-bearing deposits




49 

Interest and dividends on securities:








Taxable

2,746 


2,271 


10,606 


9,068 

Nontaxable

1,349 


1,335 


5,529 


5,198 

Total interest and dividend income

32,744 


32,905 


128,587 


135,095 









Interest expense:








Interest on deposits

8,229 


11,202 


39,451 


44,298 

Interest on Federal funds purchased

11 



27 


380 

Interest on short-term borrowings

278 


709 


2,261 


4,407 

Interest on long-term borrowings

1,645 


2,326 


7,032 


8,137 

Total interest expense

10,163 


14,239 


48,771 


57,222 









Net interest income

22,581 


18,666 


79,816 


77,873 

Provision for loan losses

5,744 


3,077 


18,246 


10,020 

Net interest income after provision for loan losses

16,837 


15,589 


61,570 


67,853 









Noninterest income:








Service charges on deposit accounts

2,036 


2,300 


8,252 


9,154 

Other service charges, commissions and fees

1,581 


1,652 


6,003 


6,637 

Gains on securities transactions, net

133 



163 


29 

Gains on sales of loans

4,258 


2,153 


16,654 


11,120 

Gains (losses) on sales of other real estate and bank premises, net

(13)


(46)


(37)


1,826 

Other operating income

450 


379 


1,932 


1,789 

Total noninterest income

8,445 


6,438 


32,967 


30,555 









Noninterest expenses:








Salaries and benefits

10,912 


9,741 


43,315 


43,126 

Occupancy expenses

1,739 


1,778 


7,051 


6,960 

Furniture and equipment expenses

1,122 


1,249 


4,573 


4,988 

Other operating expenses

8,131 


6,792 


30,348 


24,562 

Total noninterest expenses

21,904 


19,560 


85,287 


79,636 









Income before income taxes

3,378 


2,467 


9,250 


18,772 

Income tax expense

529 


193 


890 


4,258 

Net income

$       2,849 


$      2,274 


$          8,360 


$        14,514 

Dividends paid and accumulated on preferred stock

25 



2,237 


Accretion of discount on preferred stock

2,418 


18 


2,790 


18 

Net income available to common shareholders

$          406 


$      2,256 


$          3,333 


$        14,496 

Earnings per share, basic

$         0.02 


$        0.17 


$            0.22 


$            1.08 

Earnings per share, diluted

$         0.02 


$        0.17 


$            0.22 


$            1.07 


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


For The Three Months December 31,


2009


2008


2007


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

$         285,076   

$        2,746   

3.82%


$        181,308   

$      2,271   

4.98%


$        173,564   

$      2,210   

5.05%

Tax-exempt

116,957   

2,075   

7.04%


114,829   

2,054   

7.12%


105,636   

1,902   

7.14%

Total securities

402,033   

4,821   

4.76%


296,137   

4,325   

5.81%


279,200   

4,112   

5.84%

Loans, net (2)

1,880,505   

28,365   

5.98%


1,865,992   

29,135   

6.21%


1,713,402   

32,276   

7.47%

Loans held for sale

47,354   

490   

4.11%


18,134   

266   

5.84%


22,635   

334   

5.86%

Federal funds sold

340   

-   

0.22%


27,878   

92   

1.31%


662   

8   

5.00%

Money market investments

191   

-   

0.00%


101   

-   

0.00%


241   

1   

1.71%

Interest-bearing deposits in other banks

16,064   

12   

0.30%


1,639   

2   

0.41%


967   

10   

4.07%

Other interest-bearing deposits

2,598   

-   

0.00%


2,598   

2   

0.26%


2,598   

31   

4.76%

Total earning assets

2,349,085   

33,688   

5.69%


2,212,479   

33,822   

6.08%


2,019,705   

36,772   

7.22%

Allowance for loan losses

(33,410)  




(24,799)  




(18,896)  



Total non-earning assets

253,068   




280,518   




254,490   



Total assets

$      2,568,743   




$     2,468,198   




$     2,255,299   















Liabilities and Stockholders' Equity:












Interest-bearing deposits:












Checking

$         205,565   

64   

0.12%


$        211,566   

276   

0.52%


$        210,929   

334   

0.63%

Money market savings

433,808   

1,275   

1.17%


304,910   

1,932   

2.52%


160,084   

971   

2.41%

Regular savings

101,763   

88   

0.34%


96,277   

134   

0.55%


103,102   

194   

0.75%

Certificates of deposit:












$100,000 and over

430,946   

3,333   

3.07%


434,549   

4,047   

3.70%


449,333   

5,545   

4.90%

Under $100,000

473,603   

3,469   

2.91%


538,339   

4,813   

3.56%


454,834   

5,212   

4.55%

Total interest-bearing deposits

1,645,685   

8,229   

1.98%


1,585,641   

11,202   

2.81%


1,378,282   

12,256   

3.53%

Other borrowings

292,984   

1,934   

2.61%


369,802   

3,037   

3.27%


356,236   

4,717   

5.25%

Total interest-bearing liabilities

1,938,669   

10,163   

2.08%


1,955,443   

14,239   

2.90%


1,734,518   

16,973   

3.88%













Noninterest-bearing liabilities:












Demand deposits

297,255   




273,206   




290,374   



Other liabilities

19,450   




17,812   




19,751   



Total liabilities

2,255,374   




2,246,461   




2,044,643   



Stockholders' equity

313,369   




221,737   




210,656   



Total liabilities and stockholders' equity

$      2,568,743   




$     2,468,198   




$     2,255,299   















Net interest income


$      23,525   




$    19,583   




$    19,799   














Interest rate spread (3)



3.61%




3.18%




3.34%

Interest expense as a percent of average earning assets



1.72%




2.56%




3.33%

Net interest margin



3.97%




3.52%




3.89%













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

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

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


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


For the year Ended December 31,


2009


2008


2007


Average Balance

Interest Income / Expense

Yield / Rate


Average Balance

Interest Income / Expense

Yield / Rate


Average Balance

Interest Income / Expense

Yield / Rate


(Dollars in thousands)

Assets:












Securities:












Taxable

$         261,078   

$    10,606   

4.06%


$        178,221   

$      9,068   

5.09%


$        173,942   

$      8,945   

5.14%

Tax-exempt

118,676   

8,506   

7.17%


111,027   

7,997   

7.20%


100,944   

7,272   

7.20%

Total securities

379,754   

19,112   

5.03%


289,248   

17,065   

5.90%


274,886   

16,217   

5.90%

Loans, net (1)

1,873,606   

111,139   

5.93%


1,817,755   

119,898   

6.60%


1,637,573   

125,628   

7.67%

Loans held for sale

46,454   

1,931   

4.16%


24,320   

1,370   

5.63%


21,991   

1,346   

6.12%

Federal funds sold

313   

1   

0.20%


8,217   

98   

1.19%


2,852   

614   

5.53%

Money market investments

135   

-   

0.00%


153   

1   

0.40%


217   

4   

1.94%

Interest-bearing deposits in other banks

50,994   

135   

0.26%


1,355   

39   

1.73%


1,116   

57   

5.12%

Other interest-bearing deposits

2,598   

-   

0.00%


2,598   

49   

1.87%


2,596   

135   

5.18%

Total earning assets

2,353,854   

132,318   

5.62%


2,143,646   

138,520   

6.46%


1,941,231   

144,001   

7.42%

Allowance for loan losses

(29,553)  




(21,830)  




(18,666)  



Total non-earning assets

254,507   




257,587   




244,558   



Total assets

$      2,578,808   




$     2,379,403   




$     2,167,123   















Liabilities and Stockholders' Equity:












Interest-bearing deposits:












Checking

$         201,520   

314   

0.16%


$        218,349   

$      1,352   

0.62%


$        206,748   

1,316   

0.64%

Money market savings

429,501   

7,905   

1.84%


238,540   

5,708   

2.39%


158,461   

3,708   

2.34%

Regular savings

99,914   

384   

0.38%


100,782   

584   

0.58%


104,507   

820   

0.78%

Certificates of deposit:












$100,000 and over

456,644   

15,063   

3.30%


435,807   

17,363   

3.98%


446,662   

22,024   

4.93%

Under $100,000

492,186   

15,786   

3.21%


499,591   

19,291   

3.86%


451,224   

20,366   

4.51%

Total interest-bearing deposits

1,679,765   

39,452   

2.35%


1,493,069   

44,298   

2.97%


1,367,602   

48,234   

3.53%

Other borrowings

300,739   

9,320   

3.10%


377,601   

12,924   

3.42%


291,742   

17,017   

5.83%

Total interest-bearing liabilities

1,980,504   

48,772   

2.46%


1,870,670   

57,222   

3.06%


1,659,344   

65,251   

3.93%













Noninterest-bearing liabilities:












Demand deposits

289,769   




272,764   




283,877   



Other liabilities

20,292   




19,347   




18,377   



Total liabilities

2,290,565   




2,162,781   




1,961,598   



Stockholders' equity

288,243   




216,622   




205,525   



Total liabilities and stockholders' equity

$      2,578,808   




$     2,379,403   




$     2,167,123   















Net interest income


$    83,546   




$    81,298   




$    78,750   














Interest rate spread (2)



3.16%




3.40%




3.49%

Interest expense as a percent of average earning assets



2.07%




2.67%




3.36%

Net interest margin



3.55%




3.79%




4.06%

























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

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


SOURCE Union Bankshares Corporation



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