BOWLING GREEN, Va., July 21 /PRNewswire-FirstCall/ -- Union Bankshares Corporation (the "Company") reports net income for the three months ended June 30, 2006 of $6.7 million, up 1.5% from $6.6 million for the three months ended June 30, 2005. Earnings per share, on a diluted basis, remained the same for both quarters in each year at $.75. Return on average equity for the three months ended June 30, 2006 was 14.02%, while return on average assets was 1.33%, compared to 15.85% and 1.54%, respectively, for the same period in 2005.
The acquisition of Prosperity Bank & Trust Company ("Prosperity") has been reflected in the financial statements as of April 1, 2006 and represented net income of $337 thousand for the three months ended June 30, 2006. Current period expenses related to Prosperity include interest costs incurred in connection with the issuance of a Trust Preferred Capital Note to fund the acquisition, as well as merger-related costs incurred to date. The interest expense and merger-related costs were $377 thousand and $82 thousand, respectively, net of the income tax benefit. Excluding the Prosperity acquisition, the Company's net income represented an increase of 3.4%, or $223 thousand, as well as a $.01 increase in earnings per share to $.76.
For the three months ended June 30, 2006 compared to the three months ended March 31, 2006 ("linked quarter basis") net income increased 6.4%, or $405 thousand, from $6.3 million to $6.7 million. This represents an increase in earnings per share, on a diluted basis, of 5.6%, or $.04, over the prior quarter. The prior quarter's net income included non-recurring gains from the sale of real estate of approximately $556 thousand, net of income taxes. Excluding the aforementioned gains and the Prosperity acquisition, net income increased by approximately 18.8% or $1.1 million.
For the six months ended June 30, 2006 compared to the six months ended June 30, 2005, net income increased 7.9%, or $956 thousand, from $12.1 million to $13.0 million. This represents an increase in earnings per share, on a diluted basis, of 6.6%, or $.09, from $1.37 to $1.46. Excluding the aforementioned gains and the Prosperity acquisition, net income increased 4.3% or $522 thousand over the six month period. Return on average equity for the six months ended June 30, 2006 was 14.03%, while return on average assets was 1.36%, compared to 14.61% and 1.43%, respectively, for the same period in 2005.
As a supplement to U.S. generally accepted accounting principles ("GAAP"), the Company also uses certain alternate financial measures to review its operating performance. Earnings per share, on a cash basis for the three months ended June 30, 2006 was $.79 compared to $.77 for the same period in 2005 and $.73 for the three months ended March 31, 2006. Additionally, cash basis return on average tangible equity for the three months ended June 30, 2006 was 21.84% compared to 21.54% for the same period in 2005 and 18.52% for the three months ended March 31, 2006.
"It is a pleasure to report 2006 year-to-date results of $1.46 per share, which represents an increase of 6.6% or $.09 per share over the same period in 2005," said G. William Beale, Union Bankshares Corporation's President and Chief Executive Officer. "We are excited to have Prosperity Bank & Trust Company as part of the Union Bankshares Corporation family and anticipate full conversion of back-office operations during the third quarter of this year. The completion of the back-office conversion will result in cost savings benefits being reflected in the fourth quarter of 2006.
We're keeping a watchful eye on the economy and regularly monitor national and market specific economic indicators. Our top line revenue continues to benefit from the increase in short-term interest rates. These increases in short-term rates will impact our funding costs in future quarters. The increase in short-term interest rates and housing sales declining to levels not seen since 2001 has adversely impacted our mortgage segment."
SEGMENT INFORMATION
Community Bank Segment
For the three months ended June 30, 2006 compared to the same period in 2005, net income for the community banking segment increased 7.1%, or $439 thousand, from $6.2 million to $6.6 million. Excluding the aforementioned gains and Prosperity acquisition, net income for the three months ended June 30, 2006 increased 9.1% or $561 thousand. This increase was mainly driven by a margin expansion increase of 13.8% or $2.3 million. The provision for loan losses increased $118 thousand, mainly attributed to loan growth, which is a $88 thousand decrease when compared to the $206 thousand increase from the three months ended March 31, 2006 compared to the same period in 2005. Noninterest income increased 8.5%, or $289 thousand, primarily driven by increases in other service charges, commissions and fees and bank owned life insurance ("BOLI") income. Noninterest expense increased 15.0%, or $1.7 million, mainly due to increases in salaries and benefits and other infrastructure costs such as, data processing, professional fees and advertising, which aid the Company in maintaining its strategy to expand its footprint. Additionally, merger-related costs of $126 thousand have been incurred for the three months ended June 30, 2006.
On a linked quarter basis, the community bank segment's net income increased 5.7%, or $359 thousand, from $6.2 million to $6.6 million. Excluding the aforementioned gains and Prosperity purchase, net income for the three months ended June 30, 2006 increased 18.2%, or $1.0 million, mainly driven by continued margin expansion of $1.1 million, a decrease in the provision for loan losses of $285 thousand, and increased noninterest income of $286 thousand offset by increased noninterest expense of $156 thousand.
For the six months ended June 30, 2006 compared to the same period in 2005, net income for the community banking segment increased 11.7%, or approximately $1.3 million, from $11.5 million to $12.9 million. Excluding the aforementioned gains and Prosperity purchase, net income for the six months ended June 30, 2006 increased 7.9%, or $907 thousand, primarily driven by margin expansion of $4.2 million and increased noninterest income of $875 thousand, offset by increased noninterest expense of $3.7 million. The provision for loan losses increased $324 thousand over the six month period.
Mortgage Segment
For the three months ended June 30, 2006 compared to the same period in 2005, net income for the mortgage segment decreased 75.8%, or $338 thousand, from $446 thousand to $108 thousand. Net interest income fell 82.6%, or $214 thousand, over the same period due to increasingly narrow interest margins. Loan originations decreased 7.6%, or $11.6 million, from $153.9 million to $142.3 million due largely to softening markets. Within the last twelve months, interest rates on selected mortgage products have risen over 1.0% and have delayed buyers from entering the housing market. In the Washington metropolitan area, housing inventory has soared while housing demand has softened, negatively impacting mortgage loan production.
On a linked quarter basis, net income increased 74.2%, or $46 thousand, from $62 thousand to $108 thousand. Net interest income fell 55.9%, or $57 thousand, due to the flattening yield curve and tightening margins. Loan originations increased 22.6%, or $26.2 million, from $116.1 million to $142.3 million, which in turn increased revenue from the sale of loans by $370 thousand and commission expense by $172 thousand. Additionally, increased originations in the government (FHA/VA) loans led to improved loan profitability for the three months ended June 30, 2006. Government loan origination comprised 14.0% of all volume during the period compared to 7.0% for the same period last year.
For the six months ended June 30, 2006 compared to the same period in 2005, net income decreased 69.4%, or $385 thousand, from $555 thousand to $170 thousand. Loan originations decreased 4.1%, or $11.2 million, from $269.6 million to $258.4 million.
NET INTEREST INCOME
For the three months ended June 30, 2006 compared to the same period in 2005, net interest margin, on a tax-equivalent basis, increased 1.8%, or eight basis points, from 4.44% to 4.52%. This eight basis point increase was reflective of strong loan volume and repricing in response to Federal Funds interest rate increases. Average interest-earning assets for the three months ended June 30, 2006 increased approximately 15.3%, or $242.0 million, over the same period in 2005. This growth was driven primarily by (i) the Prosperity acquisition of interest-earning assets, including loans of $76.5 million and securities of $33.6 million, and (ii) organic loan growth, primarily within the commercial real estate and construction loan portfolios. Yields on interest-earning assets increased 12.6%, or 81 basis points, from 6.43% to 7.24%. Average interest-bearing liabilities for the three months ended June 30, 2006 increased approximately 17.0%, or $220.7 million, over the same period in 2005 with growth concentrated within certificates of deposit. The Prosperity acquisition increased interest-bearing liabilities $63.7 million. The cost of interest-bearing liabilities increased 34.6%, or 84 basis points, from 2.43% to 3.27%. Contributing to the increase in net interest margin were noninterest-bearing liabilities, which consist of average demand deposits that grew 26.2%, or $63.5 million, from $242.2 million to $305.7 million. This increase of average demand deposits was mainly connected to the Prosperity acquisition, which totaled $52.4 million of demand deposits.
On a linked quarter basis, tax-equivalent net interest margin, on a tax- equivalent basis, remained relatively flat decreasing two basis points from 4.54% to 4.52%. Net interest income, on a tax-equivalent basis, increased 10.4%, or $1.9 million, with average interest-bearing assets growth of $161.5 million, mainly within the loan and securities portfolios, out pacing the average interest-bearing liabilities growth of $133.9 million. Also, average demand deposits increased 26.9% or $64.7 million. The net interest spread, which is the difference between the yield on average interest-bearing assets less the rate on average interest-bearing liabilities, remained stable near 4.00% for both quarters.
For the six months ended June 30, 2006 compared to the same period in 2005, net interest margin, on a tax-equivalent basis, increased 2.3%, or ten basis points, from 4.43% to 4.53%. This margin expansion was mainly related to strong loan growth and the Prosperity acquisition. Average interest-earning assets increased $181.9 million (Prosperity added approximately $117.0 million at acquisition), primarily within the commercial, construction and consumer loan portfolios, and average interest-bearing liabilities increased $166.8 million (Prosperity added approximately $65.5 million at acquisition), primarily within the certificates of deposit product. The yields on interest- earning assets and costs of interest-bearing liabilities both increased 78 basis points to 7.14% and 3.14%, respectively, maintaining an interest rate spread of 4.0%.
Management continues to monitor interest rate risk in light of the anticipated end of the current Federal Funds tightening cycle. Management anticipates continued pressure on the net interest margin as the interest rate yield curve flattens or inverts in selected yields to maturities.
PROVISION FOR LOAN LOSSES / ASSET QUALITY
For the six months ended June 30, 2006 compared to the same period in 2005, provision for loan losses increased $344 thousand from $467 thousand to $811 thousand, of which $20 thousand was contributed by Prosperity in the second quarter of 2006. Excluding acquired loans of $76.5 million from Prosperity, this increase was largely attributable to core loan growth of approximately 9.2% or $120.9 million. This compares to allowance for loan loss growth of 12.1% over the same time period. On a linked quarter basis, the provision for loan losses decreased $265 thousand. Excluding the Prosperity acquisition, this decrease was primarily driven by slower loan growth of $23.7 million for the three months ended June 30, 2006 as opposed to $48.7 million for the three month ended March 31, 2006.
Net charge-offs were $27 thousand and $50 thousand for the three and six months ended June 30, 2006 compared to net charge-offs of $52 thousand and $197 thousand in the same periods for 2005. For three months ended March 31, 2006, net charge-offs were $23 thousand.
The Company's asset quality remains good. Management maintains a list of loans that have potential weaknesses that may need special attention. This list is used to monitor such loans and is used in the determination of the adequacy of the Company's allowance for loan losses. At June 30, 2006, nonperforming assets totaled $11.3 million, including a single credit relationship totaling $10.7 million in loans. The loans to this relationship are secured by real estate (two assisted living facilities and other real estate). Based on the information currently available, management has allocated $1.3 million in specific reserves to this relationship. The Company entered into a workout agreement with the borrower in March 2004. Under the terms of the agreement, the Company extended further credit secured by additional property with significant equity. The Company continues to have constructive dialogue with the borrower towards resolution of the affiliated loans; however, bankruptcy filings in 2005 by some affiliates of the borrower delayed the accomplishment of targeted actions. The Company continues to anticipate that this workout will ultimately result in a reduction of the Company's overall exposure to the borrower. During the first quarter of 2006, a comprehensive Loan Modification Agreement was signed and the Company's collateral position improved after achieving cross collateralization on two additional parcels of real estate. The Company remains cautiously optimistic, but has not yet reduced allocated reserves due to uncertainty about the borrower's ability to meet agreed upon progress targets throughout 2006. As such targets are met and uncertainty reduced, it is anticipated that reserve levels will be reduced accordingly.
NONINTEREST INCOME
For the three months ended June 30, 2006 compared to the same period in 2005, noninterest income remained relatively flat decreasing 1.6%, or $110 thousand, from $7.0 million to $6.9 million. This decrease is principally driven by reduced gains on loan sales within the mortgage segment of $513 thousand, offset to a lesser extent by increases in both other service charges, commissions and fees (debit card income, ATM charges and brokerage commissions) of $351 thousand and BOLI income of $125 thousand. The Prosperity noninterest income was $131 thousand for the three months ended June 30, 2006.
On a linked quarter basis, noninterest income remained relatively flat decreasing 1.0%, or $68 thousand, from $7.0 million to $6.9 million. However, for the three months ended March 31, 2006 noninterest income included pretax gains on the sale of real estate of $856 thousand. The sale included two parcels, one at the Company's largest subsidiary, Union Bank & Trust Company and the other at Rappahannock National Bank. Excluding the aforementioned gains and Prosperity noninterest income of $131 thousand, noninterest income for the three months ended June 30, 2006 increased 10.7%, or $657 thousand, principally driven by increased gains on loan sales within the mortgage segment of $370 thousand, other service charges, commissions and fees of $143 thousand and service charges on deposit accounts of $95 thousand.
For the six months ended June 30, 2006 compared to the same period in 2005, noninterest income increased 12.3%, or $1.5 million, from $12.4 million to $13.9 million. Excluding the aforementioned gains and Prosperity noninterest income, noninterest income for the six months ended June 30, 2006 increased 4.3%, or $531 thousand, principally driven by increases in other service charges, commissions and fees of $580 thousand and BOLI income of $242 thousand. Reduced gains on loan sales within the mortgage segment of $307 thousand offset the abovementioned increases.
NONINTEREST EXPENSE
For the three months ended June 30, 2006 compared to the same period in 2005, noninterest expenses increased 18.7%, or $2.7 million, from $14.5 million to $17.2 million. This increase was driven primarily by increases in salaries and benefits of 15.6%, or $1.3 million, and other operating expenses of 24.7% or $1.0 million. The increase in salaries and benefits was mainly attributable to new hires and normal increases in compensation adjustments. Other contributing factors were the addition of Prosperity ($515 thousand) and higher incentive compensation, profit sharing and stock compensation expenses, which were partially offset by lower commissions paid in the mortgage segment. The increase in other operating expenses was related to the operation of additional branches (from 45 to 49) and required infrastructure costs to support the Company's growth strategy. These increases are primarily related to professional fees, data processing fees, amortization of core deposit premiums, marketing expenses and merger-related costs. Additionally, occupancy expenses increased $237 thousand while furniture and equipment expenses increased $142 thousand. These increases are principally related to facilities costs associated with the Company's growth.
On a linked quarter basis, noninterest expense increased 10.2%, or $1.6 million, from $15.6 million to $17.2 million. Increases in salaries and benefits of 6.8%, or $617 thousand, were principally related to the addition of the Prosperity ($515 thousand) and new hires. Operating expenses increased 18.1%, or $800 thousand, principally driven by increases in professional fees, advertising, amortization of core premium deposits and merger-related costs.
For the six months ended June 30, 2006 compared to the same period in 2005, noninterest expenses increased 17.4%, or approximately $4.9 million, from $28.0 million to $32.8 million. Increases in salaries and benefits of 15.5%, or $2.5 million, are mainly attributable to the addition of the Prosperity ($515 thousand), new hires, other normal compensation adjustments, as well as profit sharing, incentive compensation and stock option expenses, which were offset to a lesser extent by lower commissions paid in the mortgage segment. Operating expenses increased 21.5%, or $1.7 million, principally driven by the addition of Prosperity ($503 thousand) increases in communication costs, professional fees, data processing fees, marketing expenses, ATM processing, amortization of core premium deposits and merger- related costs.
BALANCE SHEET
Assets
As of June 30, 2006, total assets were $2.1 billion compared to $1.8 billion and $1.7 billion as of December 31, 2005 and June 30, 2005, respectively. Total assets acquired in the Prosperity acquisition were $128.2 million. Total cash and cash equivalents increased 21.5%, or $15.0 million, and 62.7%, or $32.6 million, to $84.5 million from December 31, 2005 and June 30, 2005, respectively. Gross loans increased 10.9%, or $149.0 million, and 15.0%, or $197.4 million, to $1.5 billion from December 31, 2005 and June 30, 2005, respectively. Loan growth was concentrated in the commercial real estate and construction portfolios coupled with $76.5 million (primarily commercial real estate) from Prosperity.
Liabilities
As of June 30, 2006, total deposits were $1.6 billion compared to $1.5 billion and $1.4 billion as of December 31, 2005 and June 30, 2005, respectively. The growth was principally attributed to competitive pricing and increased interest rates resulting in increases in certificates of deposit greater than $100 thousand. Total borrowings increased by $91.3 million and $90.4 million to $264.9 million from December 31, 2005 and June 30, 2005, respectively. This increase was mainly associated with the issuance of a Trust Preferred Capital Note in connection with the Prosperity acquisition ($37.1 million), other short-term borrowings and, to a lesser extent, securities sold under agreements to repurchase.
Stockholders' Equity
The Company's equity to asset ratio declined approximately 8.5%, or 84 basis points, as of June 30, 2006 to 8.99% from 9.83% and 9.83% as of December 31, 2005 and June 30, 2005, respectively. This was triggered by the Prosperity acquisition, which sequentially increased total assets, in particular, loans, securities, goodwill and intangible assets, at a faster pace than equity. Unrealized gains on securities decreased by $2.9 million and $5.2 million to $1.1 million of unrealized losses compared to December 31, 2005 and June 30, 2005, respectively.
INFORMATIONAL
In March of 2006, the Company changed the names of Bank of Williamsburg to Bay Community Bank and Mortgage Capital Investors, Inc. to Union Mortgage Group, Inc. While the employees, management teams and excellent service remain the same, the name changes will more accurately reflect the affiliation with the Company and no longer geographically restrict Bay Community Bank to the Williamsburg region, thereby allowing for additional expansion. This has been demonstrated in the opening of a Bay Community Bank branch located in Grafton, Virginia on March 6, 2006.
On April 3, 2006, the Company announced it had completed the acquisition of Prosperity Bank and Trust Company, effective April 1, 2006, in a transaction valued at approximately $36 million. Prosperity, with nearly $130 million in assets, operates three offices in Springfield, Virginia, located in affluent Fairfax County, a suburb of Washington, D.C. Prosperity will operate as an independent bank subsidiary of Union Bankshares Corporation.
During the second quarter of 2006, the Company hit a milestone - total assets exceeding $2.0 billion. The Company was formed on July 12, 1993 in connection with Northern Neck Bankshares Corporation and Union Bancorp, Inc. As of December 31, 1993 the Company reported $377.8 million in assets and as of June 30, 2006 the Company had $2.1 billion in assets, which equates to a compounded growth rate of approximately 14.0% per year.
On July 7, 2006, the Company was proud to announce its inclusion in the new NASDAQ Global Select Market. The NASDAQ Global Select Market has the highest initial listing standards of any exchange in the world based on financial and liquidity requirements. "Union Bankshares Corporation is an example of an industry leader that has achieved superior listing standards, which clearly defines the essence of the NASDAQ Global Select Market," said Bruce Aust, Executive Vice President, Corporate Client Group. "NASDAQ is focused on leading a race to the top in terms of listing qualifications. In recognizing these companies, we are highlighting their achievement in meeting the requirements to be included in the market with the highest listing standards in the world," added Mr. Aust.
ABOUT UNION BANKSHARES CORPORATION
Union Bankshares is one of the largest community banking organizations based in Virginia, providing full service banking to the Central, Rappahannock, Williamsburg, and Northern Neck regions of Virginia through its bank subsidiaries, Union Bank & Trust Company (32 locations in the counties of Albemarle, Caroline, Chesterfield, Fluvanna, Hanover, Henrico, King George, King William, Nelson, Spotsylvania, Stafford, Westmoreland and the Cities of Fredericksburg and Charlottesville), Northern Neck State Bank (9 locations in the counties of Richmond, Westmoreland, Essex, Northumberland and Lancaster), Rappahannock National Bank in Washington, Virginia, Bay Community Bank (formerly Bank of Williamsburg) ( 4 locations in Williamsburg, Newport News and Grafton) and Prosperity Bank & Trust Company (3 locations in the Washington D.C. metro area). Union Bank & Trust Company also operates a loan production office in Manassas. In addition to banking services, Union Investment Services, Inc. provides full brokerage services (5 offices) and Union Mortgage Group, Inc. provides a full line of mortgage products (9 offices). Bay Community Bank also owns a non-controlling interest in Johnson Mortgage Company, LLC.
Additional information is available on the Company's website at http://www.ubsh.com/. The shares of the Company are traded on the NASDAQ National Market under the symbol "UBSH".
FORWARD-LOOKING STATEMENTS
This press release may contain "forward-looking statements," within the meaning of federal securities laws that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: changes in interest rates; changes in accounting principles, policies, or guidelines; significant changes in economic conditions; the Company's ability to achieve acquisition cost savings/synergies; significant changes in regulatory requirements; and significant changes in securities markets. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company's most recent Form 10-K report and other documents filed with the Securities and Exchange Commission. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
Union Bankshares Corporation
For the Quarter Ended June 30, 2006
(in thousands, except share data)
Three Months Ended
06/30/06 06/30/05 03/31/06
Results of Operations
Interest and dividend income $32,347 $24,888 $28,290
Interest expense 12,378 7,866 10,242
Net interest income 19,969 17,022 18,048
Provision for loan losses 273 135 538
Net interest income after provision
for loan losses 19,696 16,887 17,510
Noninterest income 6,907 7,017 6,975
Noninterest expenses 17,209 14,494 15,620
Income before income taxes 9,394 9,410 8,865
Income tax expense 2,681 2,798 2,557
Net income $6,713 $6,612 $6,308
Interest earned on loans fully tax
equivalent (FTE) $28,452 $22,010 $25,167
Interest earned on securities (FTE) 4,158 3,332 3,624
Interest earned on earning assets
(FTE) 32,939 25,387 28,861
Net interest income (FTE) 20,562 17,521 18,618
Interest expense on certificates of
deposit 7,834 4,909 6,762
Interest expense on interest-bearing
deposits (FTE) 9,320 6,058 8,214
Core deposit intangible amortization 457 305 305
Net income - community bank segment $6,605 $6,166 $6,246
Net income - mortgage segment 108 446 62
Key Performance Ratios
Return on average assets (ROA) 1.33% 1.54% 1.41%
Return on average equity (ROE) 14.02% 15.85% 14.05%
Efficiency ratio 64.03% 60.29% 62.42%
Efficiency ratio - community bank
segment 60.04% 56.30% 58.11%
Net interest margin (FTE) 4.52% 4.44% 4.54%
Earning assets (FTE) 7.24% 6.43% 7.03%
Interest-bearing liabilities (FTE) 3.27% 2.43% 3.00%
Noninterest income less noninterest
expense / average assets 2.04% 1.74% 1.93%
Per Share Data
Earnings per share, basic $0.76 $0.76 $0.72
Earnings per share, diluted 0.75 0.75 0.71
Cash basis earnings per share, diluted 0.79 0.77 0.73
Cash dividends paid 0.23 0.37 0.22
Market value per share 43.14 38.62 45.71
Book value per share 21.14 19.52 20.84
Tangible book value per share 13.98 14.91 16.36
Price to earnings ratio, diluted 14.34 12.84 15.87
Price to book value ratio 2.04 1.98 2.19
Weighted average shares outstanding,
basic 8,815,664 8,761,611 8,797,285
Weighted average shares outstanding,
diluted 8,892,811 8,836,488 8,892,077
Shares outstanding at end of period 8,837,234 8,767,996 8,819,857
Financial Condition
Assets $2,077,522 $1,740,926 $1,885,682
Loans, net of unearned income 1,511,209 1,313,818 1,410,945
Earning Assets 1,862,133 1,596,988 1,709,974
Goodwill 50,026 31,297 31,297
Core deposit intangibles, net 13,255 9,112 8,199
Deposits 1,615,019 1,382,864 1,484,760
Stockholders' equity 186,802 171,106 183,765
Tangible equity 123,521 130,697 144,269
Averages
Assets $2,027,281 $1,719,346 $1,819,585
Loans, net of unearned income 1,493,093 1,309,827 1,389,579
Loans held for sale 29,513 38,400 23,752
Securities 284,825 226,014 245,358
Earning assets 1,825,454 1,583,454 1,663,915
Deposits 1,589,974 1,352,827 1,448,933
Certificates of deposit 768,222 606,276 716,555
Interest-bearing deposits 1,284,320 1,110,644 1,207,984
Borrowings 232,639 185,589 175,118
Interest-bearing liabilities 1,516,959 1,296,233 1,383,102
Stockholders' equity 192,012 167,350 182,110
Tangible equity 128,739 126,786 142,460
Asset Quality
Allowance for Loan Losses
Beginning balance of allowance for
loan losses $17,631 $16,571 $17,116
Add: Allowance from acquired banks 785 - -
Add: Recoveries 163 129 90
Less: Charge-offs 190 181 113
Add: Provision for loan losses 273 135 538
Ending balance of allowance for loan
losses $18,662 $16,654 $17,631
Allowance for loan losses / total
outstanding loans 1.23% 1.27% 1.25%
Nonperforming Assets
Nonaccrual loans $11,291 $11,290 $11,962
Other real estate and foreclosed
properties - - -
Total nonperforming assets 11,291 11,290 11,962
Loans > 90 days and still accruing 199 779 371
Total nonperforming assets and loans >
90 days and still accruing $11,490 $12,069 $12,333
Nonperforming assets / total
outstanding loans 0.75% 0.86% 0.85%
Nonperforming assets / allowance for
loan losses 60.50% 67.79% 67.85%
Other Data
Mortgage loan originations $142,289 $153,931 $116,105
% of originations that are refinances 30.69% 27.65% 37.07%
End of period full-time employees 645 568 575
Number of full-service branches 49 45 46
Number of community banks
(subsidiaries) 5 4 4
Number of full automatic transaction
machines (ATM's) 133 115 128
Alternative Performance Measures (1)
Net income $6,713 $6,612 $6,308
Plus: Core deposit intangible
amortization, net of tax 297 198 198
Cash basis operating earnings $7,010 $6,810 $6,506
Average assets $2,027,281 $1,719,346 $1,819,585
Less: Average goodwill 49,812 31,297 31,297
Less: Average core deposit intangibles 13,461 9,267 8,353
Average tangible assets $1,964,008 $1,678,782 $1,779,935
Average equity $192,012 $167,350 $182,110
Less: Average goodwill 49,812 31,297 31,297
Less: Average core deposit intangibles 13,461 9,267 8,353
Average tangible equity $128,739 $126,786 $142,460
Cash basis earnings per share, diluted $0.79 $0.77 $0.73
Cash basis return on average tangible
assets 1.43% 1.63% 1.48%
Cash basis return on average tangible
equity 21.84% 21.54% 18.52%
Six Months Ended
06/30/06 06/30/05
Results of Operations
Interest and dividend income $60,637 $48,320
Interest expense 22,620 15,008
Net interest income 38,017 33,312
Provision for loan losses 811 467
Net interest income after provision
for loan losses 37,206 32,845
Noninterest income 13,882 12,364
Noninterest expenses 32,829 27,964
Income before income taxes 18,259 17,245
Income tax expense 5,238 5,180
Net income $13,021 $12,065
Interest earned on loans fully tax
equivalent (FTE) $53,620 $42,558
Interest earned on securities (FTE) 7,782 6,682
Interest earned on earning assets
(FTE) 61,799 49,318
Net interest income (FTE) 39,180 34,310
Interest expense on certificates of
deposit 14,596 9,365
Interest expense on interest-bearing
deposits (FTE) 17,533 11,518
Core deposit intangible amortization 762 610
Net income - community bank segment $12,851 $11,510
Net income - mortgage segment 170 555
Key Performance Ratios
Return on average assets (ROA) 1.36% 1.43%
Return on average equity (ROE) 14.03% 14.61%
Efficiency ratio 63.26% 61.22%
Efficiency ratio - community bank
segment 59.11% 56.97%
Net interest margin (FTE) 4.53% 4.43%
Earning assets (FTE) 7.14% 6.36%
Interest-bearing liabilities (FTE) 3.14% 2.36%
Noninterest income less noninterest
expense / average assets 1.99% 1.83%
Per Share Data
Earnings per share, basic $1.48 $1.38
Earnings per share, diluted 1.46 1.37
Cash basis earnings per share,
diluted 1.52 1.41
Cash dividends paid 0.45 0.37
Market value per share 43.14 38.62
Book value per share 21.14 19.52
Tangible book value per share 13.98 14.91
Price to earnings ratio, diluted 14.65 13.98
Price to book value ratio 2.04 1.98
Weighted average shares outstanding,
basic 8,806,487 8,754,461
Weighted average shares outstanding,
diluted 8,893,743 8,826,875
Shares outstanding at end of period 8,837,234 8,767,996
Financial Condition
Assets $2,077,522 $1,740,926
Loans, net of unearned income 1,511,209 1,313,818
Earning Assets 1,862,133 1,596,988
Goodwill 50,026 31,297
Core deposit intangibles, net 13,255 9,112
Deposits 1,615,019 1,382,864
Stockholders' equity 186,802 171,106
Tangible equity 123,521 130,697
Averages
Assets $1,924,007 $1,696,340
Loans, net of unearned income 1,441,622 1,292,630
Loans held for sale 26,649 35,054
Securities 265,200 227,766
Earning assets 1,745,132 1,563,184
Deposits 1,519,843 1,332,581
Certificates of deposit 742,531 594,424
Interest-bearing deposits 1,246,363 1,099,272
Borrowings 204,037 184,235
Interest-bearing liabilities 1,450,400 1,283,507
Stockholders' equity 187,089 166,576
Tangible equity 135,742 126,002
Asset Quality
Allowance for Loan Losses
Beginning balance of allowance for
loan losses $17,116 $16,384
Add: Allowance from acquired banks 785 -
Add: Recoveries 253 249
Less: Charge-offs 303 446
Add: Provision for loan losses 811 467
Ending balance of allowance for loan
losses $18,662 $16,654
Allowance for loan losses / total
outstanding loans 1.23% 1.27%
Nonperforming Assets
Nonaccrual loans $11,291 $11,290
Other real estate and foreclosed
properties - -
Total nonperforming assets 11,291 11,290
Loans > 90 days and still accruing 199 779
Total nonperforming assets and loans
> 90 days and still accruing $11,490 $12,069
Nonperforming assets / total
outstanding loans 0.75% 0.86%
Nonperforming assets / allowance for
loan losses 60.50% 67.79%
Other Data
Mortgage loan originations $258,394 $269,559
% of originations that are refinances 33.53% 28.90%
End of period full-time employees 645 568
Number of full-service branches 49 45
Number of community banks
(subsidiaries) 5 4
Number of full automatic transaction
machines (ATM's) 133 115
Alternative Performance Measures (1)
Net income $13,021 $12,065
Plus: Core deposit intangible
amortization, net of tax 495 395
Cash basis operating earnings $13,516 $12,460
Average assets $1,924,007 $1,696,340
Less: Average goodwill 40,606 31,155
Less: Average core deposit
intangibles 10,921 9,419
Average tangible assets $1,872,480 $1,655,766
Average equity $187,089 $166,576
Less: Average goodwill 40,606 31,155
Less: Average core deposit
intangibles 10,921 9,419
Average tangible equity $135,562 $126,002
Cash basis earnings per share,
diluted $1.52 $1.41
Cash basis return on average tangible
assets 1.46% 1.52%
Cash basis return on average tangible
equity 20.11% 19.94%
(1) As a supplement to Generally Accepted Accounting Principles ("GAAP"),
management also reviews operating performance based on its "cash basis
earnings" to fully analyze its core business. Cash basis earnings
exclude amortization expense attributable to intangibles (goodwill and
core deposit intangibles) that do not qualify as regulatory capital.
Financial ratios based on cash basis earnings exclude the amortization
of nonqualifying intangible assets from earnings and the unamortized
balance of nonqualifying intangibles from assets and equity.
In management's opinion, cash basis earnings are useful to investors
because by excluding non-operating adjustments stemming from the
consolidation of our organization, they allow investors to see clearly
the combined economic results of our multi-bank company. These non-
GAAP disclosures should not, however, be viewed in direct comparison
with non-GAAP measures of other companies.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
June 30, December 31, June 30,
2006 2005 2005
ASSETS (Unaudited) (Audited) (Unaudited)
Cash and cash equivalents:
Cash and due from banks $59,645 $47,731 $42,648
Interest-bearing deposits in other
banks 5,575 578 5,576
Money market investments 158 94 102
Other interest-bearing deposits 2,598 2,598 2,598
Federal funds sold 16,542 18,537 1,027
Total cash and cash equivalents 84,518 69,538 51,951
Securities available for sale, at fair
value 288,432 246,017 224,587
Loans held for sale 37,619 28,068 49,280
Loans, net of unearned income 1,511,209 1,362,254 1,313,818
Less allowance for loan losses 18,662 17,116 16,654
Net loans 1,492,547 1,345,138 1,297,164
Bank premises and equipment, net 52,491 45,332 42,363
Other real estate owned - - -
Core deposit intangibles, net 13,255 8,504 9,112
Goodwill 50,026 31,297 31,297
Other assets 58,634 51,064 35,172
Total assets $2,077,522 $1,824,958 $1,740,926
LIABILITIES
Noninterest-bearing demand deposits $327,880 $258,085 $261,181
Interest-bearing deposits:
NOW accounts 207,743 197,888 203,139
Money market accounts 166,418 178,346 180,535
Savings accounts 122,681 117,046 120,333
Time deposits of $100,000 and over 389,638 333,709 252,564
Other time deposits 400,659 371,441 365,112
Total interest-bearing deposits 1,287,139 1,198,430 1,121,683
Total deposits 1,615,019 1,456,515 1,382,864
Securities sold under agreements to
repurchase 71,986 60,828 54,034
Other short-term borrowings 85,600 42,600 7,610
Trust preferred capital notes 60,310 23,196 23,196
Long-term borrowings 47,000 47,000 89,700
Other liabilities 10,805 15,461 12,416
Total liabilities 1,890,720 1,645,600 1,569,820
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $2 par value, shares
authorized 24,000,000; issued and
outstanding, 8,837,234 shares at June
30, 2006, 8,797,325 shares at
December 31, 2005, and 8,767,996
shares at 2005 17,675 17,595 17,536
Surplus 36,660 35,426 34,241
Retained earnings 133,585 124,531 115,283
Accumulated other comprehensive income (1,118) 1,806 4,046
Total stockholders' equity 186,802 179,358 171,106
Total liabilities and stockholders'
equity $2,077,522 $1,824,958 $1,740,926
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Interest and dividend income:
Interest and fees on loans $28,426 $22,007 $53,530 $42,558
Interest on Federal funds sold 285 9 318 11
Interest on deposits in other banks 11 17 18 32
Interest on money market investments - - 2 -
Interest on other interest-bearing
deposits 32 20 60 35
Interest and dividends on securities:
Taxable 2,544 1,910 4,718 3,830
Nontaxable 1,049 925 1,991 1,854
Total interest and dividend
income 32,347 24,888 60,637 48,320
Interest expense:
Interest on deposits 9,320 6,058 17,534 11,518
Interest on Federal funds purchased 178 87 260 151
Interest on short-term borrowings 1,155 526 1,984 743
Interest on long-term borrowings 1,725 1,195 2,842 2,596
Total interest expense 12,378 7,866 22,620 15,008
Net interest income 19,969 17,022 38,017 33,312
Provision for loan losses 273 135 811 467
Net interest income after
provision for loan losses 19,696 16,887 37,206 32,845
Noninterest income:
Service charges on deposit accounts 1,809 1,802 3,424 3,299
Other service charges, commissions
and fees 1,437 1,086 2,704 2,097
Gains on securities transactions, net 5 4 7 4
Gains on sales of loans 3,161 3,674 5,952 6,259
Gains (losses) on sales of other real
estate owned and bank premises, net 12 43 879 38
Other operating income 483 408 916 667
Total noninterest income 6,907 7,017 13,882 12,364
Noninterest expenses:
Salaries and benefits 9,646 8,345 18,675 16,167
Occupancy expenses 1,234 997 2,328 1,995
Furniture and equipment expenses 1,109 967 2,186 1,869
Other operating expenses 5,220 4,185 9,640 7,933
Total noninterest expenses 17,209 14,494 32,829 27,964
Income before income taxes 9,394 9,410 18,259 17,245
Income tax expense 2,681 2,798 5,238 5,180
Net income $6,713 $6,612 $13,021 $12,065
Earnings per share, basic $0.76 $0.76 $1.48 $1.38
Earnings per share, diluted $0.75 $0.75 $1.46 $1.37
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES
(TAXABLE EQUIVALENT BASIS)
For Three Months Ended June 30,
2006
Interest
Income / Yield /
Average Balance Expense Rate (3)
(Dollars in thousands)
Assets:
Securities:
Taxable $196,286 $2,544 5.20%
Tax-exempt (1) 88,539 1,614 7.31%
Total securities 284,825 4,158 5.85%
Loans, net (1) (2) 1,493,093 28,012 7.53%
Loans held for sale 29,513 440 5.98%
Federal funds sold 14,266 285 5.01%
Money market investments 115 - 1.57%
Interest-bearing deposits in other banks 1,044 12 4.45%
Other interest-bearing deposits 2,598 32 4.91%
Total earning assets 1,825,454 32,939 7.24%
Allowance for loan losses (18,538)
Total non-earning assets 220,365
Total assets $2,027,281
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $211,017 201 0.38%
Money market savings 180,201 996 2.22%
Regular savings 124,880 289 0.93%
Certificates of deposit:
$100,000 and over 371,493 4,071 4.40%
Under $100,000 396,729 3,763 3.80%
Total interest-bearing deposits 1,284,320 9,320 2.91%
Other borrowings 232,639 3,057 5.27%
Total interest-bearing liabilities 1,516,959 12,377 3.27%
Noninterest-bearing liabilities:
Demand deposits 305,654
Other liabilities 12,656
Total liabilities 1,835,269
Stockholders' equity 192,012
Total liabilities and stockholders'
equity $2,027,281
Net interest income $20,562
Interest rate spread 3.97%
Interest expense as a percent of
average earning assets 2.72%
Net interest margin 4.52%
For Three Months Ended June 30,
2005
Interest
Income / Yield /
Average Balance Expense Rate (3)
(Dollars in thousands)
Assets:
Securities:
Taxable $150,968 $1,910 5.07%
Tax-exempt (1) 75,046 1,422 7.60%
Total securities 226,014 3,332 5.91%
Loans, net (1) (2) 1,309,827 21,401 6.55%
Loans held for sale 38,400 609 6.36%
Federal funds sold 4,205 9 0.89%
Money market investments 84 - 2.61%
Interest-bearing deposits in other banks 2,326 17 2.87%
Other interest-bearing deposits 2,598 19 2.92%
Total earning assets 1,583,454 25,387 6.43%
Allowance for loan losses (16,572)
Total non-earning assets 152,464
Total assets $1,719,346
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $200,773 177 0.35%
Money market savings 183,643 727 1.59%
Regular savings 119,952 245 0.82%
Certificates of deposit:
$100,000 and over 243,826 2,125 3.50%
Under $100,000 362,450 2,784 3.08%
Total interest-bearing deposits 1,110,644 6,058 2.19%
Other borrowings 185,589 1,808 3.91%
Total interest-bearing liabilities 1,296,233 7,866 2.43%
Noninterest-bearing liabilities:
Demand deposits 242,183
Other liabilities 13,580
Total liabilities 1,551,996
Stockholders' equity 167,350
Total liabilities and stockholders'
equity $1,719,346
Net interest income $17,521
Interest rate spread 4.00%
Interest expense as a percent of
average earning assets 1.99%
Net interest margin 4.44%
For Three Months Ended June 30,
2004
Interest
Income / Yield /
Average Balance Expense Rate (3)
(Dollars in thousands)
Assets:
Securities:
Taxable $163,682 $1,880 4.62%
Tax-exempt (1) 84,557 1,507 7.17%
Total securities 248,239 3,387 5.49%
Loans, net (1) (2) 1,071,260 15,981 6.00%
Loans held for sale 40,561 553 5.48%
Federal funds sold 7,520 14 0.75%
Money market investments 82 - 0.69%
Interest-bearing deposits in other banks 2,624 1 0.21%
Other interest-bearing deposits 2,306 6 1.08%
Total earning assets 1,372,592 19,942 5.84%
Allowance for loan losses (13,524)
Total non-earning assets 129,767
Total assets $1,488,835
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $174,355 119 0.27%
Money market savings 150,711 322 0.86%
Regular savings 113,242 169 0.60%
Certificates of deposit:
$100,000 and over 189,080 1,630 3.47%
Under $100,000 351,406 2,624 3.00%
Total interest-bearing deposits 978,794 4,864 2.00%
Other borrowings 161,154 1,324 3.30%
Total interest-bearing liabilities 1,139,948 6,188 2.18%
Noninterest-bearing liabilities:
Demand deposits 188,696
Other liabilities 8,993
Total liabilities 1,337,637
Stockholders' equity 151,198
Total liabilities and stockholders'
equity $1,488,835
Net interest income $13,754
Interest rate spread 3.66%
Interest expense as a percent of
average earning assets 1.81%
Net interest margin 4.03%
(1) Income and yields are reported on a taxable equivalent basis using the
statutory federal corporate tax rate of 35%.
(2) Foregone interest on previously charged off credits of $76 thousand
and $94 thousand has been excluded for 2006 and 2005, respectively.
(3) Rates and yields are annualized and calculated from actual, not
rounded amounts in the thousands, which appear above.
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES
(TAXABLE EQUIVALENT BASIS)
For Six Months Ended June 30,
2006
Interest
Income / Yield /
Average Balance Expense Rate (3)
(Dollars in thousands)
Assets:
Securities:
Taxable $181,954 $4,718 5.23%
Tax-exempt (1) 83,246 3,064 7.42%
Total securities 265,200 7,782 5.92%
Loans, net (1) (2) 1,441,622 52,764 7.38%
Loans held for sale 26,649 856 6.48%
Federal funds sold 8,106 318 4.88%
Money market investments 103 1 2.46%
Interest-bearing deposits in other banks 854 18 4.34%
Other interest-bearing deposits 2,598 60 4.65%
Total earning assets 1,745,132 61,799 7.14%
Allowance for loan losses (17,936)
Total non-earning assets 196,811
Total assets $1,924,007
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $203,147 382 0.38%
Money market savings 180,418 2,006 2.24%
Regular savings 120,267 549 0.92%
Certificates of deposit:
$100,000 and over 356,284 7,534 4.26%
Under $100,000 386,247 7,062 3.69%
Total interest-bearing deposits 1,246,363 17,533 2.84%
Other borrowings 204,037 5,086 5.03%
Total interest-bearing liabilities 1,450,400 22,619 3.14%
Noninterest-bearing liabilities:
Demand deposits 273,480
Other liabilities 13,038
Total liabilities 1,736,918
Stockholders' equity 187,089
Total liabilities and stockholders'
equity $1,924,007
Net interest income $39,180
Interest rate spread 4.00%
Interest expense as a percent of
average earning assets 2.61%
Net interest margin 4.53%
For Six Months Ended June 30,
2005
Interest
Income / Yield /
Average Balance Expense Rate (3)
(Dollars in thousands)
Assets:
Securities:
Taxable $153,016 $3,829 5.05%
Tax-exempt (1) 74,750 2,853 7.70%
Total securities 227,766 6,682 5.92%
Loans, net (1) (2) 1,292,630 41,477 6.47%
Loans held for sale 35,054 1,081 6.22%
Federal funds sold 2,644 11 0.86%
Money market investments 77 1 2.28%
Interest-bearing deposits in other banks 2,415 32 2.69%
Other interest-bearing deposits 2,598 34 2.65%
Total earning assets 1,563,184 49,318 6.36%
Allowance for loan losses (16,535)
Total non-earning assets 149,691
Total assets $1,696,340
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $197,706 324 0.33%
Money market savings 187,689 1,365 1.47%
Regular savings 119,453 464 0.78%
Certificates of deposit:
$100,000 and over 232,836 3,959 3.43%
Under $100,000 361,588 5,406 3.01%
Total interest-bearing deposits 1,099,272 11,518 2.11%
Other borrowings 184,235 3,490 3.82%
Total interest-bearing liabilities 1,283,507 15,008 2.36%
Noninterest-bearing liabilities:
Demand deposits 233,309
Other liabilities 12,948
Total liabilities 1,529,764
Stockholders' equity 166,576
Total liabilities and stockholders'
equity $1,696,340
Net interest income $34,310
Interest rate spread 4.00%
Interest expense as a percent of
average earning assets 1.94%
Net interest margin 4.43%
For Six Months Ended June 30,
2004
Interest
Income / Yield /
Average Balance Expense Rate (3)
(Dollars in thousands)
Assets:
Securities:
Taxable $160,326 $3,734 4.68%
Tax-exempt (1) 83,112 3,034 7.34%
Total securities 243,438 6,768 5.59%
Loans, net (1) (2) 982,048 29,692 6.08%
Loans held for sale 31,626 884 5.62%
Federal funds sold 13,294 60 0.91%
Money market investments 112 - 0.43%
Interest-bearing deposits in other banks 2,269 5 0.43%
Other interest-bearing deposits 1,181 6 1.06%
Total earning assets 1,273,968 37,415 5.91%
Allowance for loan losses (12,605)
Total non-earning assets 106,609
Total assets $1,367,972
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $161,056 225 0.28%
Money market savings 129,590 544 0.84%
Regular savings 104,416 314 0.60%
Certificates of deposit:
$100,000 and over 183,798 3,211 3.51%
Under $100,000 340,311 5,298 3.13%
Total interest-bearing deposits 919,171 9,592 2.10%
Other borrowings 134,670 2,370 3.54%
Total interest-bearing liabilities 1,053,841 11,962 2.28%
Noninterest-bearing liabilities:
Demand deposits 169,163
Other liabilities 8,645
Total liabilities 1,231,649
Stockholders' equity 136,323
Total liabilities and stockholders'
equity $1,367,972
Net interest income $25,453
Interest rate spread 3.62%
Interest expense as a percent of
average earning assets 1.89%
Net interest margin 4.02%
(1) Income and yields are reported on a taxable equivalent basis using the
statutory federal corporate tax rate of 35%.
(2) Foregone interest on previously charged off credits of $114 thousand
and $196 thousand has been excluded for 2006 and 2005, respectively.
(3) Rates and yields are annualized and calculated from actual, not
rounded amounts in the thousands, which appear above.
