Union Bankshares Reports Third Quarter Results

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Oct 22, 2014, 07:30 ET

RICHMOND, Va., Oct. 22, 2014 /PRNewswire/ -- Union Bankshares Corporation (the "Company" or "Union") (NASDAQ: UBSH) today reported net income of $14.9 million and earnings per share of $0.33 for its third quarter ended September 30, 2014. Excluding after-tax acquisition-related expenses of $1.1 million, operating earnings⁽¹⁾ for the quarter were $16.0 million and operating earnings per share⁽¹⁾ was $0.35. The quarterly results represent a decrease of $1.8 million, or 10.1%, in operating earnings from the prior quarter. Operating earnings per share of $0.35 for the current quarter decreased $0.03, or 7.9%, from the quarter ended June 30, 2014. Net income for the nine months ended September 30, 2014 was $37.5 million and earnings per share was $0.81. For the nine months ended September 30, 2014, operating earnings were $50.7 million and operating earnings per share was $1.09.

"Union delivered solid earnings in the third quarter despite the impact of OREO valuation adjustments recorded during the period," said G. William Beale, president and chief executive officer of Union Bankshares Corporation. "During the quarter we evaluated our OREO portfolio to determine the best disposition strategy to minimize property carrying costs and losses which resulted in property write downs, primarily in inactive, rural real estate markets. Excluding this item, operating earnings would have been $20.0 million or $0.44 per share.

Union has a long history of delivering consistently strong earnings by staying focused on building long term shareholder value and we continue to manage the company in that way. We remain committed to achieving top tier financial performance and providing our shareholders with above average returns on their investment."

Select highlights for the third quarter include:

Operating earnings⁽¹⁾for the community bank segment, which excludes after-tax acquisition-related expenses of $1.1 million, were $16.7 million, or $0.36 per share, for the third quarter compared to $18.4 million, or $0.40 per share for the second quarter.
The mortgage segment reported a net loss of $628,000, or $0.01 per share, for the third quarter compared to a net loss of $602,000, or $0.01 per share, for the second quarter.
Third quarter net income and operating earnings include after-tax valuation adjustments on other real estate owned ("OREO") totaling $4.0 million, or $0.09 per share, resulting from updated property valuations that reflect a shift in the Company's OREO disposition strategy.
Operating Return on Average Tangible Common Equity⁽¹⁾ ("ROTCE") was 9.82% for the quarter ended September 30, 2014 compared to operating ROTCE⁽¹⁾ of 11.10% for the second quarter. The operating ROTCE⁽¹⁾ of the community bank segment was 10.26% for the third quarter. Excluding the OREO valuation adjustment, the operating ROTCE for the current quarter would have been 12.26% and 12.72% for the Company and community bank segment, respectively.
Operating Return on Average Assets⁽¹⁾ ("ROA") was 0.88% for the quarter ended September 30, 2014 compared to operating ROA⁽¹⁾ of 0.98% for the second quarter. The operating ROA⁽¹⁾ of the community bank segment was 0.91% for the third quarter. Excluding the OREO valuation adjustment, the operating ROA for the current quarter would have been 1.10% and 1.13% for the Company and community bank segment, respectively.
Operating efficiency ratio⁽¹⁾increased to 69.9% for the current quarter from 66.4% in the prior quarter. The operating efficiency ratio for the community bank segment was 67.7% for the third quarter. Excluding the OREO valuation adjustment, the operating efficiency ratio for the current quarter would have been 62.6% and 60.1% for the Company and community bank segment, respectively.
On January 31, 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 is authorized through December 31, 2015. As of October 17, 2014, approximately 1.8 million common shares had been repurchased and approximately $20.1 million remained available under the repurchase program.

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

NET INTEREST INCOME

Tax-equivalent net interest income was $66.5 million, an increase of $721,000 from the second quarter of 2014. The third quarter tax-equivalent net interest margin increased 2 bps to 4.11% from 4.09% in the previous quarter. Core tax-equivalent net interest margin (which excludes the 19 bps impact of acquisition accounting accretion) decreased by 2 bps from 3.94% in the previous quarter to 3.92%. The decrease in the core tax-equivalent net interest margin was principally due to a decrease in earning asset yields (-3 bps), outpacing the decline in cost of funds (+1 bps). The decline in earning asset yields was primarily driven by reinvestment of excess cash flows at lower rates during the quarter.

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

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments. The second and third quarters 2014 and remaining estimated discount/premium and net accretion impact are reflected in the following table (dollars in thousands):


	Loan Accretion		Certificates of Deposit		Borrowings		Total

For the quarter ended June 30, 2014	$	(219)		2,460		75	$	2,316
For the quarter ended September 30, 2014		846		1,998		262		3,106
For the remaining three months of 2014		106		1,536		75		1,717
For the years ending:
2015		1,701		1,843		175		3,719
2016		2,619		-		271		2,890
2017		3,057		-		170		3,227
2018		2,695		-		(143)		2,552
2019		2,152		-		(286)		1,866
Thereafter		13,178		-		(5,923)		7,255

ASSET QUALITY/LOAN LOSS PROVISION

Overview

During the third quarter, the Company experienced declines in both nonaccrual loan and OREO balances from the prior quarter. The decline in OREO balances was mostly attributable to valuation adjustments of $6.2 million during the quarter, offset by closed bank premises related to the StellarOne acquisition moving to OREO. Net charge-offs during the third quarter were consistent with net charge-offs during the second quarter, while year-to-date net charge-offs remained lower than for the same period in the prior year. Both the allowance for loan losses to total loans ratio and allowance for loan losses to total loans, adjusted for acquisition accounting, ratio remained consistent with the prior quarter and were down from the prior year. The magnitude of any change in the real estate market and its impact on the Company is still largely dependent upon continued recovery of residential housing and commercial real estate and the pace at which the local economies in the Company's operating markets improve. All metrics discussed below exclude loans acquired with deteriorated credit quality ("PCI") aggregating $113.7 million (net of fair value mark).

Nonperforming Assets ("NPAs")

At September 30, 2014, nonperforming assets totaled $58.0 million, an increase of $2.4 million, or 4.3%, from a year ago and a decline of $3.6 million, or 5.8%, from June 30, 2014. In addition, NPAs as a percentage of total outstanding loans declined 73 basis points from 1.85% a year earlier and 6 basis points from 1.18% last quarter to 1.12% in the current quarter. The following table shows a summary of asset quality balances at the quarter ended (dollars in thousands):


	September 30,		June 30,		March 31,		December 31,		September 30,
	2014		2014		2014		2013		2013
Nonaccrual loans, excluding PCI loans	$	20,279	$	23,099	$	14,722	$	15,035	$	19,941
Foreclosed properties		28,783		33,739		35,487		34,116		35,576
Real estate investment		8,971		4,755		-		-		133
Total nonperforming assets	$	58,033	$	61,593	$	50,209	$	49,151	$	55,650

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


	September 30,		June 30,		March 31,		December 31,		September 30,
	2014		2014		2014		2013		2013
Beginning Balance	$	23,099	$	14,722	$	15,035	$	19,941	$	27,022
Net customer payments		(1,654)		(1,088)		(959)		(1,908)		(5,574)
Additions		1,099		11,087		1,362		3,077		3,020
Charge-offs		(604)		(137)		(152)		(4,336)		(1,669)
Loans returning to accruing status		(723)		(523)		-		(1,018)		(1,068)
Transfers to OREO		(938)		(962)		(564)		(721)		(1,790)
Ending Balance	$	20,279	$	23,099	$	14,722	$	15,035	$	19,941

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


	September 30,		June 30,		March 31,		December 31,		September 30,
	2014		2014		2014		2013		2013
Beginning Balance	$	38,494	$	35,487	$	34,116	$	35,709	$	35,153
Additions of foreclosed property		2,553		1,619		5,404		1,326		2,841
Additions of former bank premises		4,814		6,052		-		-		-
Capitalized Improvements		203		59		-		101		266
Valuation Adjustments		(6,192)		(817)		(256)		(300)		(491)
Proceeds from sales		(2,216)		(3,913)		(3,800)		(2,483)		(1,773)
Gains (losses) from sales		98		7		23		(237)		(287)
Ending Balance	$	37,754	$	38,494	$	35,487	$	34,116	$	35,709

Of the $7.4 million in additions to OREO in the current quarter, $4.8 million related to acquired bank premises no longer used in operations. OREO valuation adjustments of $6.2 million were recorded in the current quarter based on recent appraisals and a shift in the Company's OREO property disposition strategy. During the quarter, the Company reevaluated its OREO sales strategies in light of limited progress in selling properties in inactive, rural real estate markets that have been held for extended periods of time. These valuation adjustments will allow the Company to be more aggressive in disposing of long-held OREO properties and reducing the ongoing expenses associated with managing these properties.

Past Due Loans

At September 30, 2014, loans past due 90 days or more and accruing interest totaled $16.1 million, or 0.31% of total loans, compared to $7.3 million, or 0.24%, a year ago and $6.9 million, or 0.13%, at June 30, 2014. The current quarter increase is primarily comprised of two commercial loan relationships.

Charge-offs

For the quarter ended September 30, 2014, net charge-offs were $1.1 million, or 0.08% on an annualized basis, compared to $2.3 million, or 0.30%, for the same quarter last year and $1.0 million, or 0.08%, for the second quarter of 2014. For the nine months ended September 30, 2014, net charge-offs were $1.3 million, or 0.03% on an annualized basis, compared to $5.9 million, or 0.26%, for the same period in the prior year.

Provision

The provision for loan losses for the current quarter was $1.8 million, consistent with the same quarter a year ago and an increase of $300,000 from the previous quarter. The increase in provision for loan losses in the current quarter compared to the prior quarter was driven by increases in specific reserves on impaired loans.

Allowance for Loan Losses

The allowance for loan losses ("ALL") increased $730,000 from June 30, 2014 to $32.1 million at September 30, 2014. The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 1.12% at September 30, 2014, a slight increase form 1.11% from the prior quarter and a decrease from 1.25% at September 30, 2013. The allowance for loan losses as a percentage of the total loan portfolio was 0.62% at September 30, 2014, 0.60% at June 30, 2014, and 1.13% at September 30, 2013. In acquisition accounting, there is no carryover of previously established allowance for loan losses.

The nonaccrual loan coverage ratio was 158.3% at September 30, 2014, compared to 135.8% at June 30, 2014 and 169.9% from the same quarter last year. 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 remained consistent with the prior quarter at $16.7 million. Customer-related noninterest income decreased $667,000, primarily due to decreases in service charges on deposit accounts, debit card interchange income, letter of credit fees, and income from wealth management services. Gains on sales of securities of $995,000 increased $569,000 from the prior quarter. Other income increased $577,000 from prior quarter primarily due to interest received on previously charged-off loans and previously deferred incentives from contracts that were renegotiated in the current period. Gains on sales of mortgage loans, net of commissions, decreased $433,000, or 14.3%, from the prior quarter, driven by decreased mortgage loan originations. Mortgage loan originations declined by $17.1 million, or 8.8%, in the current quarter to $178.0 million from $195.1 million in the second quarter. Of the loan originations in the current quarter, 28.6% were refinances, which was an increase from 24.4% in the prior quarter.

NONINTEREST EXPENSE

Noninterest expense increased $446,000, or 0.8%, to $59.9 million from $59.5 million when compared to the prior quarter. Excluding acquisition-related costs, which were $1.7 million and $4.7 million in the current and previous quarters, respectively, noninterest expense increased $3.4 million, or 6.2%, from the prior quarter. Increases in OREO and credit-related expenses of $4.3 million were partially offset by decreases in salary and benefit expenses of $2.0 million. The increase in OREO and credit-related costs is related to valuation adjustments required in the current quarter based on recent valuations of OREO related to a shift in disposition strategy as discussed above. The Company's operating efficiency ratio increased to 69.9% from 66.4% in the second quarter. Excluding the OREO valuation adjustments, the operating efficiency ratio improved to 62.6% from 65.4% in the prior quarter.

BALANCE SHEET

At September 30, 2014, total assets were $7.2 billion, an increase of $3.0 billion from December 31, 2013, reflecting the impact of the StellarOne acquisition, and a decrease of $112.7 million, or 1.54%, from June 30, 2014.

At September 30, 2014, loans net of unearned income were $5.2 billion, a decrease of $62.1 million from June 30, 2014, while average loans declined $50.6 million, or 3.9% (annualized). On a proforma basis, including StellarOne loan balances, period end loan balances declined $50.9 million, or 1.0%, when compared to September 30, 2013.

At September 30, 2014, total deposits were $5.6 billion, a decrease of $100.5 million from June 30, 2014, while average deposits increased $8.7 million, or 0.6% (annualized). On a proforma basis, including StellarOne deposit balances, period end deposit balances declined $46.2 million, or 0.8%, when compared to September 30, 2013.

The Company's capital ratios continued to be considered "well capitalized" for regulatory purposes. The Company's estimated ratios of total capital to risk-weighted assets and Tier 1 capital to risk-weighted assets as of September 30, 2014 were 13.71% and 13.07%, respectively. As of December 31, 2013, the Company's ratio of total capital to risk-weighted assets and Tier 1 capital to risk-weighted assets were 14.17% and 13.05%, respectively, and were 13.57% and 12.94%, respectively, as of June 30, 2014. The Company's common equity to asset ratios at September 30, 2014, June 30, 2014 and December 31, 2013 were 13.59%, 13.37%, and 10.49%, respectively, while its tangible common equity to tangible assets ratio was 9.42%, 9.23%, and 8.94% at September 30, 2014, June 30, 2014 and December 31, 2013, respectively.

COMMUNITY BANK SEGMENT INFORMATION

The community bank segment reported net income of $15.6 million for the third quarter, an increase of $170,000, or 1.1%, from $15.4 million in the second quarter. Excluding after-tax acquisition-related expenses of $1.1 million and $3.0 million in the current and prior quarters, respectively, operating earnings decreased $1.8 million from the prior quarter to $16.7 million. As previously discussed, the provision for loan losses increased $300,000 from the prior quarter due to increases in specific reserves on impaired loans. Net interest income was $64.2 million, an increase of $761,000 from the second quarter.

Noninterest income increased $462,000 from $13.8 million in the prior quarter to $14.3 million. Customer-related noninterest income decreased $667,000, primarily due to decreases in service charges on deposit accounts, debit card interchange income, letter of credit fees, and income from wealth management services. Gains on sales of securities increased $569,000 from the prior quarter. Other income increased $582,000 from prior quarter related to interest received on previously charged-off loans and previously deferred incentives from contracts that were renegotiated in the current period.

Noninterest expense increased $839,000 from $55.3 million to $56.2 million. Excluding acquisition-related costs, which were $1.7 million and $4.7 million in the current quarter and previous quarter, respectively, noninterest expense increased $3.8 million, or 7.5%, compared to the prior quarter. Increases in OREO and credit-related expenses of $4.3 million were partially offset by decreases in salary and benefit expenses of $1.8 million. The increase in OREO and credit-related costs is related to valuation adjustments required in the current quarter based on recent valuations of OREO related to a shift in disposition strategy. The community banking segment's operating efficiency ratio increased to 67.7% in the second quarter from 63.9% in the prior quarter. Excluding the OREO valuation adjustments, the operating efficiency ratio improved to 60.1% from 62.8% in the prior quarter.

MORTGAGE SEGMENT INFORMATION

The mortgage segment reported a net loss of $628,000 for the third quarter, an increased loss of $26,000, or 4.3%, from a net loss of $602,000 in the second quarter. Gains on sales of mortgage loans, net of commissions, decreased $433,000, or 14.3%, primarily related to lower mortgage loan originations. Mortgage loan originations decreased by $17.1 million, or 8.8%, in the current quarter to $178.0 million from $195.1 million in the second quarter. Of the loan originations in the current quarter, 28.6% were refinances, which was an increase from 24.4% in the prior quarter. Noninterest expenses decreased $393,000, or 9.2%, from $4.3 million in the prior quarter to $3.9 million, primarily related to declines in salaries and occupancy expense, as a result of management's continued efforts to streamline the mortgage segment's processes and cost structure to align with the overall lower mortgage origination levels it has been experiencing over the last several quarters.

ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ: UBSH) is the holding company for Union First Market Bank, which has 131 banking offices and more than 200 ATMs located throughout Virginia. Non-bank affiliates of the holding company include: Union Investment Services, Inc., which provides full brokerage services; Union Mortgage Group, Inc., which provides a full line of mortgage products; and Union Insurance Group, LLC, which offers various lines of insurance products.

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

Union Bankshares Corporation will hold a conference call on Wednesday, October 22nd, 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 18463473.

NON-GAAP MEASURES

In reporting the results of September 30, 2014, 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 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," "intend," "will," or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic and bank industry conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, the stock and bond markets, accounting standards or interpretations of existing standards, technology, consumer spending and savings habits, and mergers and acquisitions, including integration risk in connection with the Company's acquisition of StellarOne such as potential deposit attrition, higher than expected costs, customer loss and business disruption, including, without limitation, potential difficulties in maintaining relationships with key personnel, and other integration related-matters. More information is available on the Company's website, http://investors.bankatunion.com and on the SEC's website, www.sec.gov. The information on the Company's website is not a part of this press release. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
KEY FINANCIAL RESULTS
(in thousands, except share data)
	Three Months Ended						Nine Months Ended
	09/30/14		06/30/14		09/30/13		09/30/14		09/30/13
Results of Operations
Interest and dividend income	$	69,591	$	68,634	$	42,841	$	206,434	$	128,812
Interest expense		5,112		4,919		4,983		14,481		15,798
Net interest income		64,479		63,715		37,858		191,953		113,014
Provision for loan losses		1,800		1,500		1,800		3,300		4,850
Net interest income after provision for loan losses		62,679		62,215		36,058		188,653		108,164
Noninterest income		16,742		16,704		9,216		47,645		30,349
Noninterest expenses		59,921		59,475		34,132		187,177		101,915
Income before income taxes		19,500		19,444		11,142		49,121		36,598
Income tax expense		4,576		4,664		3,196		11,602		10,206
Net income	$	14,924	$	14,780	$	7,946	$	37,519	$	26,392

Interest earned on earning assets (FTE)		71,649		70,735		44,157		212,556		132,680
Net interest income (FTE)		66,537		65,816		39,174		198,075		116,882
Core deposit intangible amortization		2,391		2,455		921		7,462		2,878

Net income - community bank segment	$	15,552	$	15,382	$	9,181	$	40,128	$	27,153
Net income - mortgage segment		(628)		(602)		(1,235)		(2,609)		(761)

Key Ratios
Earnings per common share, diluted	$	0.33	$	0.32	$	0.32	$	0.81	$	1.06
Return on average assets (ROA)		0.82%		0.81%		0.78%		0.69%		0.87%
Return on average equity (ROE)		6.04%		6.06%		7.31%		5.09%		8.12%
Return on average tangible common equity (ROTCE)		9.14%		9.20%		8.79%		7.71%		9.78%
Efficiency ratio (FTE)		71.95%		72.07%		70.54%		76.17%		69.22%
Efficiency ratio - community bank segment (FTE)		69.78%		69.75%		64.86%		73.61%		65.74%
Efficiency ratio - mortgage bank segment (FTE)		133.59%		128.53%		179.05%		146.76%		109.91%
Net interest margin (FTE)		4.11%		4.09%		4.20%		4.11%		4.20%
Net interest margin, core (FTE)⁽¹⁾		3.92%		3.94%		4.16%		3.95%		4.16%
Yields on earning assets (FTE)		4.43%		4.39%		4.73%		4.41%		4.77%
Cost of interest-bearing liabilities (FTE)		0.40%		0.39%		0.68%		0.38%		0.72%
Cost of funds		0.32%		0.30%		0.53%		0.30%		0.57%

Key operating Ratios - excluding merger costs (non-GAAP) ⁽³⁾
*Consolidated*
Operating net income	$	16,026	$	17,823	$	8,417	$	50,680	$	27,783
Operating diluted earnings per share	$	0.35	$	0.38	$	0.34	$	1.09	$	1.11
Operating return on average assets		0.88%		0.98%		0.83%		0.93%		0.92%
Operating return on average equity		6.49%		7.30%		7.74%		6.88%		8.55%
Operating return on average tangible common equity		9.82%		11.10%		9.31%		10.41%		10.29%
Operating efficiency ratio (FTE)		69.92%		66.43%		69.56%		68.23%		68.28%

*Community Bank Segment*
Operating net income	$	16,654	$	18,425	$	9,652	$	53,289	$	28,544
Operating diluted earnings per share	$	0.36	$	0.40	$	0.39	$	1.15	$	1.14
Operating return on average assets		0.91%		1.02%		0.95%		0.98%		0.95%
Operating return on average equity		6.77%		7.60%		9.08%		7.29%		8.98%
Operating return on average tangible common equity		10.26%		11.59%		10.97%		11.10%		10.86%
Operating efficiency ratio (FTE)		67.67%		63.88%		63.84%		65.39%		64.72%


	Three Months Ended						Nine Months Ended
	09/30/14		06/30/14		09/30/13		09/30/14		09/30/13

Capital Ratios
Tier 1 risk-based capital ratio ⁽⁵⁾		13.07%		12.94%		13.13%		13.07%		13.13%
Total risk-based capital ratio⁽⁵⁾		13.71%		13.57%		14.40%		13.71%		14.40%
Leverage ratio (Tier 1 capital to average assets) ⁽⁵⁾		10.55%		10.48%		10.62%		10.55%		10.62%
Common equity to total assets		13.59%		13.37%		10.72%		13.59%		10.72%
Tangible common equity to tangible assets		9.42%		9.23%		9.09%		9.42%		9.09%

Financial Condition
Assets	$	7,194,334	$	7,307,080	$	4,047,108	$	7,194,334	$	4,047,108
Loans, net of unearned income		5,171,003		5,233,069		3,002,246		5,171,003		3,002,246
Earning Assets		6,382,463		6,460,753		3,678,772		6,382,463		3,678,772
Goodwill		296,876		296,876		59,400		296,876		59,400
Core deposit intangibles, net		34,089		36,479		12,900		34,089		12,900
Deposits		5,634,050		5,734,563		3,224,925		5,634,050		3,224,925
Stockholders' equity		977,673		976,969		433,671		977,673		433,671
Tangible common equity		646,708		643,614		361,371		646,708		361,371

Loans, net of unearned income
Raw land and lots	$	210,557	$	212,475	$	180,128	$	210,557	$	180,128
Commercial construction		303,576		295,503		219,154		303,576		219,154
Commercial real estate		2,279,708		2,326,111		1,230,188		2,279,708		1,230,188
Single family investment real estate		407,972		397,186		235,754		407,972		235,754
Commercial and industrial		380,613		390,682		205,103		380,613		205,103
Other commercial		79,356		80,337		54,490		79,356		54,490
Consumer		1,509,221		1,530,775		877,429		1,509,221		877,429
Total loans, net of unearned income	$	5,171,003	$	5,233,069	$	3,002,246	$	5,171,003	$	3,002,246

Interest-Bearing Deposits
NOW accounts	$	1,260,267	$	1,276,710	$	463,556	$	1,260,267	$	463,556
Money market accounts		1,276,560		1,314,116		924,910		1,276,560		924,910
Savings accounts		552,309		556,389		231,947		552,309		231,947
Time deposits of $100,000 and over		565,934		588,459		438,476		565,934		438,476
Other time deposits		774,637		799,970		468,837		774,637		468,837
Total interest-bearing deposits	$	4,429,707	$	4,535,644	$	2,527,726	$	4,429,707	$	2,527,726
Demand deposits		1,204,343		1,198,919		697,199		1,204,343		697,199
Total deposits	$	5,634,050	$	5,734,563	$	3,224,925	$	5,634,050	$	3,224,925

Averages
Assets	$	7,241,824	$	7,274,730	$	4,037,930	$	7,255,404	$	4,044,190
Loans, net of unearned income		5,196,116		5,246,710		2,997,083		5,240,610		2,979,514
Loans held for sale		50,393		52,895		97,993		51,021		123,860
Securities		1,143,303		1,133,807		598,852		1,118,107		602,897
Earning assets		6,423,743		6,460,798		3,703,449		6,438,924		3,717,470
Deposits		5,701,752		5,693,096		3,240,983		5,680,474		3,263,356
Certificates of deposit		1,370,299		1,411,665		934,302		1,414,674		984,677
Interest-bearing deposits		4,507,247		4,543,661		2,567,160		4,536,532		2,609,841
Borrowings		507,882		550,514		325,797		535,866		308,841
Interest-bearing liabilities		5,015,129		5,094,175		2,892,957		5,072,398		2,918,682
Stockholders' equity		979,659		978,894		431,312		985,404		434,620
Tangible common equity		647,473		644,056		358,569		650,640		360,948


	Three Months Ended						Nine Months Ended
	09/30/14		06/30/14		09/30/13		09/30/14		09/30/13
Asset Quality
Allowance for Loan Losses (ALL)
Beginning balance	$	31,379	$	30,907	$	34,333	$	30,135	$	34,916
Add: Recoveries		695		512		337		2,866		1,892
Less: Charge-offs		1,765		1,540		2,593		4,192		7,781
Add: Provision for loan losses		1,800		1,500		1,800		3,300		4,850
Ending balance	$	32,109	$	31,379	$	33,877	$	32,109	$	33,877

ALL / total outstanding loans		0.62%		0.60%		1.13%		0.62%		1.13%
ALL / total outstanding loans, adjusted for acquisition accounting ⁽²⁾		1.12%		1.11%		1.25%		1.12%		1.25%
Net charge-offs / total outstanding loans		0.08%		0.08%		0.30%		0.03%		0.26%
Provision / total outstanding loans		0.14%		0.11%		0.24%		0.09%		0.22%
Nonperforming Assets
Commercial	$	14,836	$	17,489	$	17,439	$	14,836	$	17,439
Consumer		5,443		5,610		2,502		5,443		2,502
Nonaccrual loans		20,279		23,099		19,941		20,279		19,941
Other real estate owned		37,754		38,494		35,709		37,754		35,709
Total nonperforming assets (NPAs)		58,033		61,593		55,650		58,033		55,650
Commercial		9,096		649		3,107		9,096		3,107
Consumer		7,022		6,221		4,219		7,022		4,219
Loans ≥ 90 days and still accruing		16,118		6,870		7,326		16,118		7,326
Total nonperforming assets and loans > 90 days	$	74,151	$	68,463	$	62,976	$	74,151	$	62,976
NPAs / total outstanding loans		1.12%		1.18%		1.85%		1.12%		1.85%
NPAs / total assets		0.81%		0.84%		1.38%		0.81%		1.38%
ALL / nonperforming loans		158.33%		135.85%		169.89%		158.33%		169.89%
ALL / nonperforming assets		55.33%		50.95%		60.88%		55.33%		60.88%
Past Due Detail
Commercial	$	2,554	$	3,369	$	4,287	$	2,554	$	4,287
Consumer		6,726		4,861		2,896		6,726		2,896
Loans 60-89 days past due	$	9,280	$	8,230	$	7,183	$	9,280	$	7,183
Commercial	$	8,580	$	5,518	$	5,575	$	8,580	$	5,575
Consumer		24,430		22,623		10,424		24,430		10,424
Loans 30-59 days past due	$	33,010	$	28,141	$	15,999	$	33,010	$	15,999
Commercial	$	100,021	$	114,893	$	3,031	$	100,021	$	3,031
Consumer		13,722		16,214		920		13,722		920
Purchased impaired	$	113,743	$	131,107	$	3,951	$	113,743	$	3,951
Troubled Debt Restructurings
Performing	$	26,243	$	30,561	$	39,287	$	26,243	$	39,287
Nonperforming		2,728		3,610		8,613		2,728		8,613
Total troubled debt restructurings	$	28,971	$	34,171	$	47,900	$	28,971	$	47,900

Per Share Data
Earnings per common share, basic	$	0.33	$	0.32	$	0.32	$	0.81	$	1.06
Earnings per common share, diluted		0.33		0.32		0.32		0.81		1.06
Cash dividends paid per common share		0.15		0.14		0.14		0.43		0.40
Market value per share		23.10		25.65		23.37		23.10		23.37
Book value per common share		21.58		21.40		17.52		21.58		17.52
Tangible book value per common share		14.27		14.10		14.60		14.27		14.60
Price to earnings ratio, diluted		17.64		19.98		18.41		21.33		16.65
Price to book value per common share ratio		1.07		1.20		1.33		1.07		1.33
Price to tangible common share ratio		1.62		1.82		1.60		1.62		1.60
Weighted average common shares outstanding, basic		45,649,309		46,194,880		24,894,664		46,268,996		24,987,113
Weighted average common shares outstanding, diluted		45,738,554		46,296,870		24,962,976		46,367,156		25,031,492
Common shares outstanding at end of period		45,514,028		45,874,662		24,916,425		45,514,028		24,916,425


	Three Months Ended						Nine Months Ended
	09/30/14		06/30/14		09/30/13		09/30/14		09/30/13
Alternative Performance Measures (non-GAAP)
Operating Earnings ⁽³⁾
Net Income (GAAP)	$	14,924	$	14,780	$	7,946	$	37,519	$	26,392
Plus: Merger and conversion related expense, after tax		1,102		3,043		471		13,161		1,391
Net operating earnings (loss) (non-GAAP)	$	16,026	$	17,823	$	8,417	$	50,680	$	27,783

Operating earnings per share - Basic	$	0.35	$	0.38	$	0.34	$	1.09	$	1.11
Operating earnings per share - Diluted		0.35		0.38		0.34		1.09		1.11

Operating ROA		0.88%		0.98%		0.83%		0.93%		0.92%
Operating ROE		6.49%		7.30%		7.74%		6.88%		8.55%
Operating ROTCE		9.82%		11.10%		9.31%		10.41%		10.29%

Community Bank Segment Operating Earnings ⁽³⁾
Net Income (GAAP)	$	15,552	$	15,382	$	9,181	$	40,128	$	27,153
Plus: Merger and conversion related expense, after tax		1,102		3,043		471		13,161		1,391
Net operating earnings (loss) (non-GAAP)	$	16,654	$	18,425	$	9,652	$	53,289	$	28,544

Operating earnings per share - Basic	$	0.36	$	0.40	$	0.39	$	1.15	$	1.14
Operating earnings per share - Diluted		0.36		0.40		0.39		1.15		1.14

Operating ROA		0.91%		1.02%		0.95%		0.98%		0.95%
Operating ROE		6.77%		7.60%		9.08%		7.29%		8.98%
Operating ROTCE		10.26%		11.59%		10.97%		11.10%		10.86%

Operating Efficiency Ratio FTE ⁽³⁾
Net Interest Income (GAAP)	$	64,479	$	63,715	$	37,858	$	191,953	$	113,014
FTE adjustment		2,058		2,101		1,316		6,122		3,868
Net Interest Income (FTE)	$	66,537	$	65,816	$	39,174	$	198,075	$	116,882
Noninterest Income (GAAP)		16,742		16,704		9,216		47,645		30,349
Noninterest Expense (GAAP)	$	59,921	$	59,475	$	34,132	$	187,177	$	101,915
Merger and conversion related expense		1,695		4,661		473		19,524		1,393
Noninterest Expense (Non-GAAP)	$	58,226	$	54,814	$	33,659	$	167,653	$	100,522

Operating Efficiency Ratio FTE (non-GAAP)		69.92%		66.43%		69.56%		68.23%		68.28%

Community Bank Segment Operating Efficiency Ratio FTE ⁽³⁾
Net Interest Income (GAAP)	$	64,162	$	63,401	$	37,465	$	191,090	$	111,612
FTE adjustment		2,058		2,102		1,315		6,122		3,868
Net Interest Income (FTE)	$	66,220	$	65,503	$	38,780	$	197,212	$	115,480
Noninterest Income (GAAP)		14,308		13,846		7,322		40,224		20,266
Noninterest Expense (GAAP)	$	56,188	$	55,349	$	29,904	$	174,780	$	89,242
Merger and conversion related expense		1,695		4,661		473		19,524		1,393
Noninterest Expense (Non-GAAP)	$	54,493	$	50,688	$	29,431	$	155,256	$	87,849

Operating Efficiency Ratio FTE (non-GAAP)		67.67%		63.88%		63.84%		65.39%		64.72%

Tangible Common Equity ⁽⁴⁾
Ending equity	$	977,673	$	976,969	$	433,671	$	977,673	$	433,671
Less: Ending goodwill		296,876		296,876		59,400		296,876		59,400
Less: Ending core deposit intangibles		34,089		36,479		12,900		34,089		12,900
Ending tangible common equity	$	646,708	$	643,614	$	361,371	$	646,708	$	361,371

Average equity	$	979,659	$	978,894	$	431,312	$	985,404	$	434,620
Less: Average trademark intangible		-		-		-		-		2
Less: Average goodwill		296,876		296,876		59,400		296,876		59,400
Less: Average core deposit intangibles		35,310		37,962		13,343		37,888		14,270
Average tangible common equity	$	647,473	$	644,056	$	358,569	$	650,640	$	360,948



	Three Months Ended						Nine Months Ended
	09/30/14		06/30/14		09/30/13		09/30/14		09/30/13
ALL to loans, adjusted for acquisition accounting (non-GAAP)⁽²⁾
Allowance for loan losses	$	32,109	$	31,379	$	33,877	$	32,109	$	33,877
Remaining credit mark on purchased performing loans		25,064		25,632		3,780		25,064		3,780
Adjusted allowance for loan losses		57,173		57,011		37,657		57,173		37,657

Loans, net of unearned income		5,171,003		5,233,069		3,002,246		5,171,003		3,002,246
Remaining credit mark on purchased performing loans		25,064		25,632		3,780		25,064		3,780
Less: Purchased credit impaired loans, net of credit mark		113,743		131,107		3,951		113,743		3,951
Adjusted loans, net of unearned income	$	5,082,324	$	5,127,594	$	3,002,075	$	5,082,324	$	3,002,075

ALL / gross loans, adjusted for acquisition accounting		1.12%		1.11%		1.25%		1.12%		1.25%

Mortgage Origination Volume
Refinance Volume	$	50,959	$	47,640	$	62,625	$	143,922	$	318,375
Construction Volume		36,645		39,441		33,522		108,189		94,135
Purchase Volume		90,388		108,039		122,741		270,062		372,723
Total Mortgage loan originations	$	177,992	$	195,120	$	218,888	$	522,173	$	785,233
% of originations that are refinances		28.63%		24.42%		28.60%		27.56%		40.50%

Other Data
End of period full-time employees		1,483		1,511		1,015		1,483		1,015
Number of full-service branches		131		131		90		131		90
Number of full automatic transaction machines (ATMs)		201		200		154		201		154

(1) The core net interest margin, fully taxable equivalent ("FTE") excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.

(2) The allowance for loan losses, adjusted for acquisition accounting (non-GAAP) ratio includes an adjustment for the credit mark on purchased performing loans. The purchased performing loans are reported net of the related credit mark in loans, net of unearned income, on the Company's Consolidated Balance Sheet; therefore, the credit mark is added back to the balance to represent the total loan portfolio. The adjusted allowance for loan losses, including the credit mark, represents the total reserve on the Company's loan portfolio. The PCI loans, net of the respective credit mark, are removed from the loans, net of unearned income, as these 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, adjusted for acquisition accounting ratio is useful to investors because the acquired loans were purchased at a market discount with no allowance for loan losses carried over to the Company, and the credit 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.

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

(4) 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.

(5) September 30, 2014 ratios are estimates and subject to change pending the filing of the FR Y9-C. All other periods presented as filed.


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
	September 30,		December 31,
	2014		2013
ASSETS	(Unaudited)		(Audited)
Cash and cash equivalents:
Cash and due from banks	$	112,891	$	66,090
Interest-bearing deposits in other banks		35,489		6,781
Money market investments		1		1
Federal funds sold		311		151
Total cash and cash equivalents		148,692		73,023

Securities available for sale, at fair value		1,095,636		677,348
Restricted stock, at cost		48,554		26,036

Loans held for sale, net		31,469		53,185

Loans, net of unearned income		5,171,003		3,039,368
Less allowance for loan losses		32,109		30,135
Net loans		5,138,894		3,009,233

Bank premises and equipment, net		138,549		82,815
Other real estate owned, net of valuation allowance		37,754		34,116
Core deposit intangibles, net		34,089		11,980
Goodwill		296,876		59,400
Other assets		223,821		149,435
Total assets	$	7,194,334	$	4,176,571

LIABILITIES
Noninterest-bearing demand deposits		1,204,343		691,674
Interest-bearing deposits		4,429,707		2,545,168
Total deposits		5,634,050		3,236,842

Securities sold under agreements to repurchase		33,517		52,455
Other short-term borrowings		195,000		211,500
Long-term borrowings		299,162		199,359
Other liabilities		54,932		38,176
Total liabilities		6,216,661		3,738,332

Commitments and contingencies

STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000 and 36,000,000, respectively; issued and outstanding, 45,514,028 shares and 24,976,434 shares, respectively.		60,267		33,020
Surplus		651,178		170,770
Retained earnings		254,260		236,639
Accumulated other comprehensive income (loss)		11,968		(2,190)
Total stockholders' equity		977,673		438,239

Total liabilities and stockholders' equity	$	7,194,334	$	4,176,571


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2014		2013		2014		2013
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest and dividend income:
Interest and fees on loans	$	62,340	$	38,895	$	184,996	$	116,806
Interest on federal funds sold		-		-		1		1
Interest on deposits in other banks		21		3		41		14
Interest and dividends on securities:
Taxable		3,883		1,849		11,391		5,856
Nontaxable		3,347		2,094		10,005		6,135
Total interest and dividend income		69,591		42,841		206,434		128,812

Interest expense:
Interest on deposits		3,027		3,371		7,833		11,033
Interest on federal funds purchased		3		26		49		62
Interest on short-term borrowings		108		62		373		170
Interest on long-term borrowings		1,974		1,524		6,226		4,533
Total interest expense		5,112		4,983		14,481		15,798

Net interest income		64,479		37,858		191,953		113,014
Provision for loan losses		1,800		1,800		3,300		4,850
Net interest income after provision for loan losses		62,679		36,058		188,653		108,164

Noninterest income:
Service charges on deposit accounts		4,458		2,474		13,281		7,093
Other service charges, commissions and fees		5,055		3,185		15,138		9,214
Gains on securities transactions, net		995		5		1,449		47
Gains on sales of mortgage loans, net of commissions		2,598		2,061		7,925		10,581
Losses on sales of bank premises		(79)		(7)		(384)		(337)
Other operating income		3,715		1,498		10,236		3,751
Total noninterest income		16,742		9,216		47,645		30,349

Noninterest expenses:
Salaries and benefits		26,060		17,416		83,726		53,294
Occupancy expenses		4,902		2,820		15,184		8,439
Furniture and equipment expenses		3,050		1,665		8,555		5,250
Communications expense		1,291		698		3,740		2,070
Technology and data processing		3,280		2,013		9,145		5,778
Professional services		1,400		795		3,897		2,183
Marketing and advertising expense		2,064		1,017		4,821		3,177
FDIC assessment premiums and other insurance		1,577		759		4,563		2,305
OREO and credit-related expenses		6,559		1,601		10,254		3,159
Amortization of intangible assets		2,391		921		7,462		2,912
Acquisition and conversion costs		1,695		473		19,524		1,393
Other expenses		5,652		3,954		16,306		11,955
Total noninterest expenses		59,921		34,132		187,177		101,915

Income before income taxes		19,500		11,142		49,121		36,598
Income tax expense		4,576		3,196		11,602		10,206
Net income	$	14,924	$	7,946	$	37,519	$	26,392
Earnings per common share, basic	$	0.33	$	0.32	$	0.81	$	1.06
Earnings per common share, diluted	$	0.33	$	0.32	$	0.81	$	1.06


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Dollars in thousands)
	Community Bank		Mortgage		Eliminations		Consolidated
Three Months Ended September 30, 2014
Net interest income	$	64,162	$	317	$	-	$	64,479
Provision for loan losses		1,800		-		-		1,800
Net interest income after provision for loan losses		62,362		317		-		62,679
Noninterest income		14,308		2,604		(170)		16,742
Noninterest expenses		56,188		3,903		(170)		59,921
Income (loss) before income taxes		20,482		(982)		-		19,500
Income tax expense (benefit)		4,930		(354)		-		4,576
Net income (loss)	$	15,552	$	(628)	$	-	$	14,924
Plus: Merger and conversion related expense, after tax		1,102		-		-		1,102
Net operating earnings (loss) (non-GAAP)	$	16,654	$	(628)	$	-	$	16,026
Total assets	$	7,189,047	$	41,857	$	(36,570)	$	7,194,334

Three Months Ended September 30, 2013
Net interest income	$	37,465	$	393	$	-	$	37,858
Provision for loan losses		1,800		-		-		1,800
Net interest income after provision for loan losses		35,665		393		-		36,058
Noninterest income		7,322		2,062		(168)		9,216
Noninterest expenses		29,904		4,396		(168)		34,132
Income before income taxes		13,083		(1,941)		-		11,142
Income tax expense		3,902		(706)		-		3,196
Net income	$	9,181	$	(1,235)	$	-	$	7,946
Plus: Merger and conversion related expense, after tax		471		-		-		471
Net operating earnings (loss) (non-GAAP)	$	9,652	$	(1,235)	$	-	$	8,417
Total assets	$	4,041,661	$	69,010	$	(63,563)	$	4,047,108

Nine Months Ended September 30, 2014
Net interest income	$	191,090	$	863	$	-	$	191,953
Provision for loan losses		3,300		-		-		3,300
Net interest income after provision for loan losses		187,790		863		-		188,653
Noninterest income		40,224		7,932		(511)		47,645
Noninterest expenses		174,780		12,908		(511)		187,177
Income before income taxes		53,234		(4,113)		-		49,121
Income tax expense (benefit)		13,106		(1,504)		-		11,602
Net income (loss)	$	40,128	$	(2,609)	$	-	$	37,519
Plus: Merger and conversion related expense, after tax		13,161		-		-		13,161
Net operating earnings (loss) (non-GAAP)	$	53,289	$	(2,609)	$	-	$	50,680
Total assets	$	7,189,047	$	41,857	$	(36,570)	$	7,194,334

Nine Months Ended September 30, 2013
Net interest income	$	111,612	$	1,402	$	-	$	113,014
Provision for loan losses		4,850		-		-		4,850
Net interest income after provision for loan losses		106,762		1,402		-		108,164
Noninterest income		20,266		10,586		(503)		30,349
Noninterest expenses		89,242		13,176		(503)		101,915
Income before income taxes		37,786		(1,188)		-		36,598
Income tax expense		10,633		(427)		-		10,206
Net income	$	27,153	$	(761)	$	-	$	26,392
Plus: Merger and conversion related expense, after tax		1,391		-		-		1,391
Net operating earnings (loss) (non-GAAP)	$	28,544	$	(761)	$	-	$	27,783
Total assets	$	4,041,661	$	69,010	$	(63,563)	$	4,047,108


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

	For the quarter ended
	September 30, 2014					June 30, 2014
	Average Balance		Interest Income / Expense		Yield / Rate (1)	Average Balance		Interest Income / Expense		Yield / Rate (1)
		(Dollars in thousands)
Assets:
Securities:
Taxable	$	738,932	$	3,883	2.08%	$	727,829	$	3,860	2.13%
Tax-exempt		404,371		5,150	5.05%		405,978		5,198	5.14%
Total securities		1,143,303		9,033	3.13%		1,133,807		9,058	3.20%
Loans, net (2) (3)		5,196,116		62,082	4.74%		5,246,710		61,125	4.67%
Loans held for sale		50,393		513	4.04%		52,895		543	4.12%
Federal funds sold		684		-	0.18%		522		-	0.17%
Money market investments		1		-	0.00%		1		-	0.00%
Interest-bearing deposits in other banks		33,246		21	0.24%		26,863		9	0.13%
Total earning assets		6,423,743		71,649	4.43%		6,460,798		70,735	4.39%
Allowance for loan losses		(31,631)					(30,822)
Total non-earning assets		849,712					844,754
Total assets	$	7,241,824				$	7,274,730

Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	2,582,746		1,247	0.19%	$	2,574,630		1,150	0.18%
Regular savings		554,202		275	0.20%		557,366		264	0.19%
Time deposits (4)		1,370,299		1,505	0.44%		1,411,665		1,136	0.32%
Total interest-bearing deposits		4,507,247		3,027	0.27%		4,543,661		2,550	0.23%
Other borrowings (5)		507,882		2,085	1.63%		550,514		2,369	1.73%
Total interest-bearing liabilities		5,015,129		5,112	0.40%		5,094,175		4,919	0.39%

Noninterest-bearing liabilities:
Demand deposits		1,194,505					1,149,435
Other liabilities		52,531					52,226
Total liabilities		6,262,165					6,295,836
Stockholders' equity		979,659					978,894
Total liabilities and stockholders' equity	$	7,241,824				$	7,274,730

Net interest income			$	66,537				$	65,816

Interest rate spread (6)					4.03%					4.00%
Interest expense as a percent of average earning assets					0.32%					0.30%
Net interest margin (7)					4.11%					4.09%

(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) Interest income on loans includes $846 thousand and $219 thousand for the three month periods ended September 30, 2014 and June 30, 2014 in accretion of the fair market value adjustments related to the acquisitions.
(4) Interest expense on certificates of deposits includes $2.0 million and $2.5 million for the three month periods ended September 30, 2014 and June 30, 2014, respectively, in accretion of the fair market value adjustments related to the acquisitions.
(5) Interest expense on borrowings includes $262 thousand and $75 thousand for the three month periods ended September 30, 2014 and June 30, 2014, respectively, in amortization of the fair market value adjustments related to acquisitions.
(6) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.
(7) Core net interest margin excludes purchase accounting adjustments and was 3.92% and 3.94% for the three months ended September 30, 2014 and June 30, 2014.