Union Bankshares Reports Fourth Quarter And Full Year Results

RICHMOND, Va., Jan. 20, 2016 /PRNewswire/ -- Union Bankshares Corporation (the "Company" or "Union") (NASDAQ: UBSH) today reported net income of $17.8 million and earnings per share of $0.40 for its fourth quarter ended December 31, 2015.  For the year ended December 31, 2015, net income was $67.1 million and earnings per share was $1.49.

"Union delivered solid earnings in the fourth quarter despite the impact of OREO valuation adjustments related to two long held properties recorded during the period," said G. William Beale, president and chief executive officer for Union Bankshares Corporation. "During the fourth quarter and throughout 2015, we made measurable progress towards our strategic growth objectives that will enable Union to consistently generate profitable growth for our shareholders through the combination of net loan, core deposit and household growth and our efforts to improve efficiency.  During the quarter, loans grew by 9.2% while deposits grew by 10% on an annualized basis as our commercial, retail, wealth management and mortgage teams continue to work together to attract new customers while deepening our relationships with existing customers.  

Looking forward to 2016, 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.  We are also working to enhance and upgrade our infrastructure to support initiatives that will result in an increased rate of organic growth while improving operating efficiency across the Company."

Select highlights for the fourth quarter include:

• Net income for the community bank segment was $17.9 million, or $0.40 per share, for the fourth quarter, compared to $18.2 million, or $0.40 per share, for the third quarter. Operating earnings⁽¹⁾ for the community bank segment for the year ended December 31, 2015 was $67.3 million, or $1.49 per share, compared to operating earnings⁽¹⁾ of $69.4 million, or $1.50 per share, for the year ended December 31, 2014.
• The mortgage segment reported a net loss of $90,000 for the fourth quarter, a decline from net income of $59,000 for the third quarter. The mortgage segment reported a net loss of $202,000 for the year ended December 31, 2015 compared to a net loss of $3.5 million for the year ended December 31, 2014.
• Fourth quarter net income includes after-tax valuation adjustments on other real estate owned ("OREO") totaling $2.7 million, or $0.06 per share, related to updated appraisals on two large OREO properties.
• As previously announced, the Company sold its credit card portfolio in the fourth quarter, resulting in an after-tax benefit of $805,000.
• Period end loans held for investment grew $127.8 million, or 9.2% (annualized), from September 30, 2015, while average loans increased $87.2 million, or 6.3% (annualized), during the quarter. Adjusted for the sale of the credit card portfolio, loan balances increased $349.7 million, or 6.6%, from December 31, 2014.
• Period-end deposits increased $145.1 million, or 10.0% (annualized), from September 30, 2015 and increased $325.2 million, or 5.8%, from December 31, 2014. Average deposits increased $91.3 million, or 6.3% (annualized), during the quarter.

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

NET INTEREST INCOME

Tax-equivalent net interest income was $64.9 million, a decrease of $788,000 from the third quarter, primarily driven by lower earning asset yields and reduced levels of net accretion related to acquisition accounting.  The fourth quarter tax-equivalent net interest margin decreased 10 basis points to 3.76% from 3.86% in the previous quarter.  Core tax-equivalent net interest margin (which excludes the 7 basis point impact of acquisition accounting accretion) declined by 8 basis points to 3.69% from 3.77% in the previous quarter.  The decrease in the core tax-equivalent net interest margin was principally due to the 9 basis point decline in interest-earning asset yields outpacing the 1 basis point reduction in cost of funds.  Of the 9 basis point decline in interest-earning asset yields, 4 basis points related to the sale of the credit card portfolio in the fourth quarter. The remainder of the decline in interest-earning asset yields was primarily driven by lower loan yields on new and renewed loans and lower levels of loan fees recorded in the current quarter.

The Company continues to believe that core net interest margin will decline modestly over the next several quarters as decreases in interest-earning asset yields are projected to outpace any further declines in interest-bearing liabilities rates.

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  During the fourth quarter, net accretion related to acquisition accounting declined by $243,000, or 2 basis points within tax-equivalent net interest margin, from the prior quarter to $1.4 million for the quarter ended December 31, 2015.  The third and fourth quarters of 2015, the full year 2015, and remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the fourth quarter, the Company experienced declines in nonaccrual loan levels and other real estate owned balances from the prior quarter and the prior year end.  Excluding the $4.2 million in valuation adjustments recorded in the current quarter related to updated appraisals on two large OREO properties, the OREO balance declined $2.6 million, or 11.6%, from the prior quarter.   The loan loss provision of $2.0 million was consistent with the prior quarter and decreased $2.5 million from the prior year's fourth quarter due to lower levels of net charge-offs and continued improvements in asset quality.  The allowance for loan losses increased $778,000 from the prior quarter due to loan growth. 

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired loans ("PCI") totaling $73.7 million (net of fair value mark).

Nonperforming Assets ("NPAs")
At December 31, 2015, nonperforming assets totaled $27.2 million, a decrease of $20.1 million, or 42.5%, from December 31, 2014 and a decline of $7.8 million, or 22.3%, from September 30, 2015.  In addition, NPAs as a percentage of total outstanding loans declined 41 basis points from 0.89% a year earlier and decreased 15 basis points from 0.63% last quarter to 0.48% 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 fourth quarter, the additions to nonaccrual loans were comprised of several smaller credit relationships.

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

During the fourth quarter, the majority of additions to OREO were related to former bank premises, which were subsequently sold in the fourth quarter.  Additional sales of OREO were primarily related to residential real estate.

Past Due Loans
Past due loans still accruing interest totaled $42.9 million, or 0.76% of total loans, at December 31, 2015 compared to $48.1 million, or 0.90%, a year ago and $27.5 million, or 0.50%, at September 30, 2015.  At December 31, 2015, loans past due 90 days or more and accruing interest totaled $5.8 million, or 0.10% of total loans, compared to $10.0 million, or 0.19%, a year ago and $5.2 million, or 0.09%, at September 30, 2015. 

Net Charge-offs
For the fourth quarter, net charge-offs were $1.2 million, or 0.09% on an annualized basis, compared to $4.2 million, or 0.31%, for the same quarter last year and $1.0 million, or 0.07%, for the third quarter of 2015.  For the year ended December 31, 2015, net charge-offs were $7.6 million, or 0.13%, compared to $5.6 million, or 0.10%, in the prior year.

Provision
The provision for loan losses for the current quarter was $2.0 million, a decrease of $2.5 million compared to the same quarter a year ago and consistent with the previous quarter.  The decrease in provision for loan losses in the current quarter compared to the prior year was driven by reduced levels of net charge-offs during the current quarter and continued improvements in asset quality.

Allowance for Loan Losses
The allowance for loan losses ("ALL") increased $778,000 from September 30, 2015 to $34.0 million at December 31, 2015 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 December 31, 2015, 0.60% at September 30, 2015, and 0.61% at December 31, 2014.  The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 0.98% at December 31, 2015, a decrease from 1.01% from the prior quarter and a decrease from 1.08% from the quarter ended December 31, 2014.  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 285.3% at December 31, 2015, compared to 256.6% at September 30, 2015 and 168.2% at December 31, 2014.  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 increased $291,000, or 1.7%, to $17.0 million for the quarter ended December 31, 2015 from $16.7 million in the prior quarter. Customer-related fee income increased $113,000, primarily driven by higher overdraft fees.  Other improvements in the current quarter included increased gains on sales of securities of $738,000 from the prior quarter as well as a $300,000 other-than-temporary impairment charge recognized in the prior quarter on a municipal security in the available-for-sale portfolio.  Mortgage banking income declined $445,000, or 16.9%, from the prior quarter, related to decreased mortgage loan originations.  Mortgage loan originations decreased by $35.1 million, or 23.7%, in the current quarter to $113.0 million from $148.1 million in the third quarter.  Of the loan originations in the current quarter, 36.2% were refinances, which was an increase from 32.3% in the prior quarter.

NONINTEREST EXPENSE

Noninterest expense increased $1.2 million, or 2.2%, to $54.5 million for the quarter ended December 31, 2015 from $53.3 million in the prior quarter.  OREO and credit-related costs increased $3.2 million due to $4.2 million in valuation adjustments recorded in the current quarter related to updated appraisals on two large OREO properties.  Excluding the $4.2 million in OREO valuation adjustments, noninterest expense decreased $3.1 million, or 5.8%, compared to the prior quarter.  This net decrease in noninterest expense is primarily attributable to reduced professional fees of $689,000; declines in salary and benefit expenses of $566,000 primarily related to lower group insurance costs; lower OREO and credit-related expenses of $523,000 due to reductions in OREO, foreclosure, and credit-related legal expenses as well as higher gains on sales of OREO property; declines in other loan-related expenses of $422,000; and reductions in marketing expenses of $406,000 related to the timing of advertising campaigns.

BALANCE SHEET

At December 31, 2015, total assets were $7.7 billion, an increase of $99.0 million from September 30, 2015 and an increase of $334.6 million from December 31, 2014.  The increase in assets was mostly related to loan growth.

At December 31, 2015, loans held for investment were $5.7 billion, an increase of $127.8 million, or 9.2% (annualized), from September 30, 2015, while average loans increased $87.2 million, or 6.3% (annualized), from the prior quarter. Adjusted for the sale of the credit card portfolio, loans held for investment increased $349.7 million, or 6.6%, from December 31, 2014, while average loans increased $254.2 million, or 4.9%, from the prior year.

At December 31, 2015, total deposits were $6.0 billion, an increase of $145.1 million, or 10.0% (annualized), from September 30, 2015, while average deposits increased $91.3 million, or 6.3% (annualized), from the prior quarter.  Total deposits increased $325.2 million, or 5.8%, from December 31, 2014, while average deposits increased $92.7 million, or 1.6%, from the prior year.

At December 31 and September 30, 2015, respectively, the Company had a common equity Tier 1 capital ratio of 10.55% and 10.75%, a Tier 1 capital ratio of 11.94% and 12.16%, a total capital ratio of 12.46% and 12.69%, and a leverage ratio of 10.68% and 10.80%. 

The Company's common equity to asset ratio at December 31, 2015, September 30, 2015, and December 31, 2014 was 12.94%, 13.10%, and 13.28%, respectively, while its tangible common equity to tangible assets ratio was 9.20%, 9.29%, and 9.27% at December 31, 2015, September 30, 2015, and December 31, 2014, respectively. 

During the fourth quarter, the Company declared and paid cash dividends of $0.19 per common share, an increase of $0.02, or 11.8%, over the prior quarter's dividend per common share.

On January 30, 2014, the Company's Board of Directors authorized a share repurchase program to purchase up to $65.0 million worth of the Company's common stock on the open market or in privately negotiated transactions. The repurchase program was authorized through December 31, 2015.  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.  The repurchase program is authorized through December 31, 2016.  The new stock repurchase authorization was in addition to the existing stock repurchase program approved by the Board of Directors on January 30, 2014, which had approximately $2.5 million remaining for repurchase and continued to be utilized until such authorization was completed prior to the December 31, 2015 expiration date.  During the fourth quarter of 2015, the Company repurchased approximately 321,500 shares, totaling approximately $8.3 million.  All shares were repurchased under the program authorized on January 30, 2014 prior to repurchasing shares under the program authorized on October 29, 2015. At December 31, 2015, approximately $21.1 million remained available under the current repurchase 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 124 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. Effective January 1, 2016, Union Investment Services, Inc., formerly a non-bank affiliate of the holding company, became a department under the Wealth Management Division of Union Bank & Trust.

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

Union Bankshares Corporation will hold a conference call on Wednesday, January 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 20849711.

ADOPTION OF NEW ACCOUNTING STANDARDS

The Company adopted ASU 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects" as of January 1, 2015.  As permitted by the guidance, the Company adopted the proportional amortization method of accounting for Qualified Affordable Housing Projects.  The proportional amortization method amortizes the cost of the investment over the period in which the Company will receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income taxes attributable to continuing operations.  Historically, these investments were accounted for under the equity method of accounting and the passive losses related to the investments were recognized within noninterest expense.  The Company adopted this guidance in the first quarter of 2015 with retrospective application as required by the ASU.  Prior period 2014 results and related metrics have been restated to conform to this presentation.

NON-GAAP MEASURES

In reporting the results of the quarter ended December 31, 2015, the Company has provided supplemental performance measures on an operating or tangible basis.  Operating measures exclude acquisition costs unrelated to the Company's normal operations.  The Company believes these measures are useful to investors as they exclude non-operating adjustments resulting from acquisition activity and allow investors to see the combined economic results of the organization.  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, 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) The Company has provided supplemental performance measures which it believes may be useful to investors as they exclude non-operating adjustments resulting from acquisition activity 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.

(3) Beginning January 1, 2015, the Company calculates its regulatory capital under the Basel III Standardized Approach.  The Company calculated regulatory capital measures for periods prior to 2015 under previous regulatory requirements.  All ratios at December 31, 2015 are estimates and subject to change pending the Company's filing of its FR Y9-C. All other periods are presented as filed.

(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.

(5) 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.

SOURCE Union Bankshares Corporation

Related Links

http://www.ubsh.com