Union Bankshares Reports First Quarter Results

RICHMOND, Va., April 20, 2016 /PRNewswire/ -- Union Bankshares Corporation (the "Company" or "Union") (NASDAQ: UBSH) today reported net income of $17.0 million and earnings per share of $0.38 for its first quarter ended March 31, 2016.  The quarterly results represent an increase of $1.3 million, or 8.0%, in net income from the first quarter of 2015 and a decrease of $853,000, or 4.8%, in net income from the prior quarter.  Earnings per share of $0.38 for the current quarter represent an increase of $0.03, or 8.6%, in earnings per share from the first quarter of 2015 and a decrease of $0.02, or 5.0%, in earnings per share from the fourth quarter of 2015.

"Union's first quarter results continued to demonstrate steady progress toward achievement of our strategic objectives that will enable Union to consistently generate profitable growth for our shareholders," said G. William Beale, president and chief executive officer for Union Bankshares Corporation.  "Commercial loans grew at a 7.7% annualized rate during the quarter as our lending teams continued the robust loan production momentum they generated in 2015.  Asset quality continued to be strong and we are pleased to note that the net interest margin expanded during the quarter as a result of increased short term market interest rates.  As part of our continuing effort to improve efficiency, we recently consolidated three in-store branches in Winchester into a new stand-alone branch in the market and closed a branch in Middleburg. 

In addition, we were pleased to recently announce that we agreed to acquire Old Dominion Capital Management, Inc., a Charlottesville Virginia based registered investment advisor with nearly $300 million in assets under management.  Acquisitions such as this are an important part of our Company's strategic plan to grow our wealth management business by expanding the reach and capabilities of our wealth management team by adding assets under management, new investment strategies and advisor talent.

Going forward, we remain focused on leveraging Union's unique franchise for sustainable growth and to deliver top-tier financial performance for our shareholders over the long term."

Select highlights for the first quarter include:

• Net income for the community bank segment was $16.9 million, or $0.38 per share, for the first quarter of 2016, compared to $16.0 million, or $0.36 per share, for the first quarter of 2015 and $17.9 million, or $0.40 per share, for the fourth quarter of 2015.
• The mortgage segment reported net income of $54,000 for the first quarter of 2016, an improvement from a net loss of $267,000 in the first quarter of 2015 and a net loss of $90,000 in the fourth quarter of 2015. 
• First quarter net income includes after-tax branch closure costs of approximately $195,000 related to the previously announced 2016 branch closures.
• Loans held for investment grew $109.0 million, or 7.7% (annualized), from December 31, 2015 and increased $417.4 million, or 7.8%, from March 31, 2015, adjusting for the sale of the credit card portfolio in the third quarter of 2015.  Average loans increased $97.6 million, or 7.0% (annualized), from the prior quarter and increased $373.8 million, or 7.0%, from the same quarter in the prior year.
• Period-end deposits decreased $18.0 million, or 1.2% (annualized), from December 31, 2015 and increased $275.8 million, or 4.9%, from March 31, 2015.  Average deposits decreased $6.0 million, or 0.4% (annualized), from the prior quarter and increased $259.5 million, or 4.6%, from the prior year.

NET INTEREST INCOME

Tax-equivalent net interest income was $66.2 million, an increase of $1.3 million from the fourth quarter of 2015, primarily driven by higher earning asset balances and yields.  The first quarter tax-equivalent net interest margin increased 6 basis points to 3.82% from 3.76% in the previous quarter.  Core tax-equivalent net interest margin (which excludes the 6 and 7 basis point impact of acquisition accounting accretion in the current and prior quarter, respectively) increased 7 basis points to 3.76% from 3.69% in the previous quarter.  The increase in the core tax-equivalent net interest margin was principally due to the 8 basis point increase in interest-earning asset yields partially offset by the 1 basis point increase in cost of funds.  The increase in interest-earning asset yields was primarily driven by higher loan yields and higher investment yields in the current quarter, resulting from the impact of re-pricing variable-rate earning assets due to increased short term market interest rates.

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  During the first quarter, net accretion related to acquisition accounting declined by $216,000, or 15.9%, from the prior quarter to $1.1 million for the quarter ended March 31, 2016.  The fourth quarter of 2015, first quarter of 2016, and remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the first quarter, the Company experienced declines in past due and nonaccrual loan levels and other real estate owned ("OREO") balances from the prior year.  Past due loans decreased from the prior quarter while nonaccrual loans increased from the prior quarter, as loans were moved from past due status to nonaccrual status during the current quarter.  The combined past due and nonaccrual loan balances decreased $6.7 million, or 12.3%, from the previous quarter.  The loan loss provision and allowance for loan loss increased from the prior quarter due to loan growth in the current quarter. 

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired loans ("PCI") totaling $70.1 million (net of fair value mark of $16.2 million).

Nonperforming Assets ("NPAs")

At March 31, 2016, NPAs totaled $27.3 million, a decrease of $15.5 million, or 36.2%, from March 31, 2015 and an increase of $103,000, or 0.4%, from December 31, 2015.  In addition, NPAs as a percentage of total outstanding loans declined 32 basis points from 0.79% a year earlier and decreased 1 basis point from 0.48% last quarter to 0.47% in the current quarter.  The following table shows a summary of asset quality balances at the quarter ended (dollars in thousands):

The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands):

During the first quarter, the additions to nonaccrual loans were comprised of several smaller credit relationships, the majority of which were secured by residential 1-4 family property.

The following table shows the activity in OREO for the quarter ended (dollars in thousands):

During the first quarter, the majority of sales of OREO were related to land and residential real estate.

Past Due Loans
Past due loans still accruing interest totaled $35.1 million, or 0.61% of total loans, at March 31, 2016 compared to $42.7 million, or 0.79%, a year ago and $42.9 million, or 0.76%, at December 31, 2015.  At March 31, 2016, loans past due 90 days or more and accruing interest totaled $5.7 million, or 0.10% of total loans, compared to $7.9 million, or 0.15%, a year ago and $5.8 million, or 0.10%, at December 31, 2015. 

Net Charge-offs
For the first quarter, net charge-offs were $2.2 million, or 0.15% on an annualized basis, compared to $3.2 million, or 0.24%, for the same quarter last year and $1.2 million, or 0.09%, for the fourth quarter of 2015. 

Provision
The provision for loan losses for the current quarter was $2.5 million, an increase of $754,000 compared to the same quarter a year ago and an increase of $494,000 compared to the previous quarter.  The increase in provision for loan losses in the current quarter compared to the prior periods was primarily driven by higher loan balances.  Additionally, a $100,000 provision was recognized during the current quarter for unfunded loan commitments, resulting in a total of $2.6 million in provision for credit losses for the quarter.

Allowance for Loan Losses
The allowance for loan losses ("ALL") increased $352,000 from December 31, 2015 to $34.4 million at March 31, 2016 primarily due to loan growth during the quarter.  The allowance for loan losses as a percentage of the total loan portfolio was 0.60% at March 31, 2016, 0.60% at December 31, 2015, and 0.57% at March 31, 2015.  The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 0.95% at March 31, 2016, a decrease from 0.98% from the prior quarter and a decrease from 1.03% from the quarter ended March 31, 2015.  In acquisition accounting, there is no carryover of previously established allowance for loan losses, as acquired loans are recorded at fair value.

The nonaccrual loan coverage ratio was 262.8% at March 31, 2016, compared to 285.3% at December 31, 2015 and 178.2% at March 31, 2015.  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 important in assessing the adequacy of the allowance for loan losses. 

NONINTEREST INCOME

Noninterest income decreased $1.1 million, or 6.5%, to $15.9 million for the quarter ended March 31, 2016 from $17.0 million in the prior quarter, primarily driven by lower gains on the sales of securities and the net benefit from the sale of the credit card portfolio recorded in the fourth quarter of 2015.  Excluding these items, noninterest income increased $505,000, or 3.3%, from the prior quarter.  Loan-related interest rate swap fees were $662,000 higher and income from bank owned life insurance was $209,000 higher than the prior quarter.  Customer-related fee income decreased $339,000, primarily driven by lower overdraft fees and lower wealth management income, partially offset by higher safe deposit box rent income.  Gains on the sale of securities decreased $670,000 from $813,000 in the prior quarter to $143,000 in the first quarter of 2016. 

Mortgage banking income remained relatively flat, experiencing a modest decline of $39,000, or 1.8%, from the prior quarter to $2.2 million in the first quarter of 2016.  Included in mortgage banking income were unrealized gains on mortgage banking derivatives of $175,000 in the current quarter compared to unrealized gains of $2,000 in the prior quarter.  Mortgage loan originations decreased by $14.8 million, or 13.1%, in the current quarter to $98.2 million from $113.0 million in the fourth quarter of 2015.  Of the mortgage loan originations in the current quarter, 38.0% were refinances, which was an increase from 36.2% in the prior quarter.

NONINTEREST EXPENSE

Noninterest expense decreased $204,000, or 0.4%, to $54.3 million for the quarter ended March 31, 2016 from $54.5 million in the prior quarter.  OREO and credit-related costs decreased $3.9 million related to lower valuation adjustments, as the Company recorded $4.2 million in valuation adjustments in the prior quarter related to updated appraisals on two large OREO properties.  This decrease was offset by increased salary and benefit expenses of $2.8 million primarily related to seasonal increases in payroll taxes and annual merit adjustments as well as increased group insurance and incentive compensation costs.  Professional fees increased $687,000 due to higher audit and project-related consulting expenses, and marketing expenses increased $563,000 primarily related to the timing of advertising campaigns and higher public relations expenses.  Noninterest expense in the first quarter included branch closure costs of approximately $300,000 related to previously announced 2016 branch closures.

BALANCE SHEET

At March 31, 2016, total assets were $7.8 billion, an increase of $139.3 million from December 31, 2015 and an increase of $444.1 million from March 31, 2015.  The increase in assets was mostly related to loan growth.

At March 31, 2016, loans held for investment were $5.8 billion, an increase of $109.0 million, or 7.7% (annualized), from December 31, 2015, while average loans increased $97.6 million, or 7.0% (annualized), from the prior quarter.  Adjusted for the sale of the credit card portfolio that occurred in the third quarter of 2015, loans held for investment increased $417.4 million, or 7.8%, from March 31, 2015, while average loans increased $373.8 million, or 7.0 %, from the prior year.

At March 31, 2016, total deposits were $5.9 billion, a decrease of $18.0 million, or 1.2% (annualized), from December 31, 2015, while average deposits decreased $6.0 million, or 0.4% (annualized), from December 31, 2015.  The net decrease in deposits from the prior quarter was primarily related to declines in noninterest-bearing deposits, NOW accounts, and time deposits, partially offset by increases in money markets and savings accounts.  Total deposits increased $275.8 million, or 4.9%, from March 31, 2015, while average deposits increased $259.5 million, or 4.6%, from the prior year.

At March 31, 2016, December 31, 2015, and March 31, 2015, respectively, the Company had a common equity Tier 1 capital ratio of 10.26%, 10.55%, and 10.86%; a Tier 1 capital ratio of 11.64%, 11.93%, and 12.32%; a total capital ratio of 12.17%, 12.46%, and 12.82%; and a leverage ratio of 10.25%, 10.68%, and 10.79%. 

The Company's common equity to asset ratios at March 31, 2016, December 31, 2015, and March 31, 2015 were 12.52%, 12.94%, and 13.36%, respectively, while its tangible common equity to tangible assets ratio was 8.86%, 9.20%, and 9.40%, respectively.  The decrease in capital ratios from prior periods is primarily due to share repurchases.

During the first quarter, the Company declared and paid cash dividends of $0.19 per common share, consistent with the dividend paid in the prior quarter and an increase of $0.04, or 26.7%, compared to the same quarter in the prior year.

On October 29, 2015, the Company's Board of Directors authorized a new share repurchase program to purchase up to $25.0 million worth of the Company's common stock on the open market or in privately negotiated transactions.  This share repurchase program was completed on February 19, 2016.  On February 29, 2016, the Company's Board of Directors authorized another share repurchase program to purchase up to $25.0 million worth of the Company's common stock on the open market or in privately negotiated transactions.  The Company repurchased approximately 1.0 million shares during the quarter ended March 31, 2016 and had approximately $22.4 million available for repurchase under the current program.

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ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ: UBSH) is the holding company for Union Bank & Trust, which has 121 banking offices and 201 ATMs located throughout Virginia. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products, and Union Insurance Group, LLC, which offers various lines of insurance products.

Additional information on the Company is available at http://investors.bankatunion.com.

Union Bankshares Corporation will hold a conference call on Wednesday, April 20^th, at 9:00 a.m. Eastern Time during which management will review earnings and performance trends.  Callers wishing to participate may call toll-free by dialing (877) 668-4908.  The conference ID number is 87041131.

NON-GAAP MEASURES

In reporting the results of the quarter ended March 31, 2016, the Company has provided supplemental performance measures on a tangible basis.  Tangible common equity is used in the calculation of certain capital and per share ratios. The Company believes tangible common equity and the related ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

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. 

FORWARD-LOOKING STATEMENTS

Certain statements in this press release 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," "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 projected 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, stock and bond markets, accounting standards or interpretations of existing standards, mergers and acquisitions, technology, information security, and consumer spending and saving habits.  More information is available on the Company's website, http://investors.bankatunion.com. 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.

(1)  The core metrics, FTE, exclude the impact of acquisition accounting accretion and amortization adjustments in net interest income.

(2) All ratios at March 31, 2016 are estimates and subject to change pending the Company's filing of its FR Y9-C. All other periods are presented as filed.

(3) Tangible common equity is used in the calculation of certain capital and per share ratios.  The Company believes tangible common equity and the related ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

(4) The allowance for loan losses ratio, adjusted for acquisition accounting (non-GAAP), includes an adjustment for the fair value mark on purchased performing loans. The purchased performing loans are reported net of the related fair value mark in loans, net of deferred fees, on the Company's Consolidated Balance Sheet; therefore, the fair value mark is added back to the balance to represent the total loan portfolio. The adjusted allowance for loan losses, including the fair value mark, represents the total reserve on the Company's loan portfolio. The PCI loans, net of the respective fair value mark, are removed from the loans, net of deferred fees, as these PCI loans are not covered by the allowance established by the Company unless changes in expected cash flows indicate that one of the PCI loan pools are impaired, at which time an allowance for PCI loans will be established. 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 ratio, adjusted for acquisition accounting, 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, and the fair value mark on the purchased performing loans represents the allowance associated with those purchased loans. The Company believes that this measure is a better reflection of the reserves on the Company's loan portfolio.

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