BOWLING GREEN, Va., July 20 /PRNewswire-FirstCall/ -- Union Bankshares Corporation (the "Company") net income increased from the most recent quarter $493 thousand, or 9.6%, to $5.6 million for the quarter ended June 30, 2007. This represents an increase in earnings per share, on a diluted basis, of 10.8%, or $.04. The improvement was highlighted by an increase in interest income, driven largely by loan growth within the commercial, construction and indirect auto loan portfolios, partially offset by increased funding costs.
"There have been a number of positive developments since the end of the first quarter," said G. William Beale, the Company's President and Chief Executive Officer. "The yield curve has not yet returned to its traditional slope, but it is no longer inverted. Our net interest margin stabilized this quarter. We have seen increases in our loan volume, which is an indicator of future revenue growth, and a positive trend in deposit growth. Our asset quality continues to be strong and unemployment within our markets remains very low.
We are concerned about the continued decline in new home construction and the time 'on market' for previously owned homes. These factors impact both our mortgage lending and our bank lending. In addition, a number of our key sources of low cost deposits have been impacted by the reduced activity in the housing market. The result is a decline in low cost deposits and pressure on our margin.
We have signed a contract for the sale of our former operations center. We expect to close on the sale, which will result in a one-time gain, late in the third quarter. Also in the third quarter, we will close on the purchase of six branches, located in Winchester (2), Middleburg, Warrenton (2) and Charlottesville, from Provident Bank. We are excited about the potential of these branches and our expansion in these very attractive markets."
For the three months ended June 30, 2007, net income was $5.6 million, down 16.0% from $6.7 million the same quarter in 2006. Earnings per share, on a diluted basis decreased $.08, or 15.8%, from $.50 to $.42 for the same quarter a year ago. Return on average equity for the quarter ended June 30, 2007 was 11.07%, while return on average assets for the same period was 1.06%, compared to 14.02% and 1.33%, respectively, from the prior year's same quarter. This decline was largely impacted by a lower net interest margin due to funding pressure and cost of funds outpacing yields on earning assets. Additionally, continued slowing in the mortgage banking sector contributed to the net decline.
For the six months ended June 30, 2007, net income was $10.8 million, down 17.1% from $13.0 million compared to the same period a year ago. This represents a decrease in earnings per share, on a diluted basis of $.17, or 17.5%, from $.97 to $.80. Return on average equity for the six months ended June 30, 2007 was 10.73%, while return on average assets was 1.03%, compared to 14.03% and 1.36%, respectively, for the same period in 2006. This decrease was partially related to increased funding costs to support loan growth as well as a continued slowing in the mortgage banking sector. Additionally, during the first quarter of 2007, $750 thousand of specific loan loss reserves were released.
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 quarter ended June 30, 2007 were $.44 as compared to $.53 for the same quarter a year ago and $.41 for the quarter ended March 31, 2007. Additionally, cash basis return on average tangible equity for the second quarter ended June 30, 2007 was 16.91% as compared to 21.84% in the prior year's second quarter and 15.90% for the quarter ended March 31, 2007. Earnings per share on a cash basis and average tangible equity were $.85 and 16.41% and $1.01 and 20.11% for the six months ending June 30, 2007 and 2006, respectively.
NET INTEREST INCOME
For the three months ended June 30, 2007, net interest income, on a tax- equivalent basis, decreased $606 thousand or 2.9% to $20 million compared to last year's same period. This reflects the corresponding decline in net interest margin, on a tax-equivalent basis, from 4.52% to 4.20%. This 32 basis point margin (36 basis point interest rate spread) decline was driven by increased costs of interest-bearing liabilities which rose to 3.93%, or 66 basis points, compared to increased yields on earning assets which rose only 30 basis points to 7.54%. Growth in certificates of deposit, coupled with declines in low-cost deposits and demand deposits, put pressure on the funding side of the balance sheet. Average interest-earning assets for the quarter ended June 30, 2007 increased approximately $81.4 million, or 4.46%, over the same period a year ago. This growth was driven primarily by increases in the commercial, construction and indirect auto loan portfolios. Average interest- bearing liabilities for the period ended June 30, 2007 increased approximately $107 million, or 7.05%, over the same period a year ago. This growth was driven primarily by increases in certificates of deposit offset by lower demand deposit and money market volume.
On a linked quarter basis, the tax-equivalent net interest margin for the quarter ended June 30, 2007 increased to 4.20%, or 11 basis points, from 4.09% for the same period a year ago. Net interest income increased by $1.1 million to $20 million for the quarter ended June 30, 2007. Contributing to the net interest margin expansion was favorable loan growth (principally within the commercial, construction and indirect auto loan portfolios) yielding 7.81% or a 13 basis point increase from the prior quarter. This was partially offset by increased reliance on short-term advances from the Federal Home Loan Bank of Atlanta ("FHLB") mitigated by favorable demand deposit volume during a flat to inverted yield curve environment.
For the six months ended June 30, 2007, net interest income, on a tax- equivalent basis, declined $345 thousand or .9% to $38.8 million compared to last year's same period. This compares to a corresponding decline in net interest margin, on a tax-equivalent basis, from 4.53% to 4.14%. This 39 basis point margin (44 basis point interest rate spread) decline was driven by increases in certificates of deposit and FHLB advances offset by lower savings and money market volumes. Total cost of interest-bearing liabilities increased 79 basis points, to 3.93%, compared to earning asset yield increases of only 35 basis points, to 7.49%. Favorable loan volumes (principally within the commercial, construction and indirect auto loan portfolios) offset by lower securities balances (due to investment securities called by the issuers) resulted in approximately $144.5 million, or 8.3%, of growth in total earning assets from the same period a year ago.
For the six months ended June 30, 2007, approximately $8.0 million ($6.2 million during the first quarter of 2007) of investment securities were called by the issuers resulting in gains of $508 thousand ($301 thousand during the first quarter of 2007). The proceeds from these calls plus additional funds were used to payoff approximately $15.0 million of higher cost (6.3%) FHLB advances. Penalties of approximately $513 thousand ($316 thousand during the first quarter of 2007) associated with the early payoff of these advances have been reflected as an interest expense adjustment in the net interest margin for the six months ended June 30, 2007. The anticipated interest expense savings from this balance sheet restructuring will be approximately $223 thousand for the remainder of 2007 and $942 thousand in 2008. Absent this interest expense adjustment, net interest margin would have been 4.20%, instead of 4.14%, for the six months ending June 30, 2007.
LOAN LOSS PROVISION/ASSET QUALITY
The Company's asset quality remains strong. Net charge-offs were $88 thousand for the quarter ended June 30, 2007, compared to net charge-offs of $27 thousand in the same quarter last year and $162 thousand for the quarter ended March 31, 2007. While up slightly from a year ago, these charge-off levels remain very low. At June 30, 2007, nonperforming assets totaled $8.5 million, including a single credit relationship totaling $7.5 million.
The Company entered into a workout agreement with the borrower in the aforementioned credit relationship in March 2004. Under the terms of the agreement, the Company extended further credit secured by additional property with significant equity. During the first quarter of 2007, such equity was extracted from this relationship, reducing nonperforming assets totals on this relationship from $10.7 million as of June 30, 2006 to $7.9 million and resulting in the recapture of $750 thousand in specific reserves. In the second quarter of 2007, approximately $400 thousand of this relationship returned to accrual status further reducing the nonperforming balance to $7.5 million as of the end of June 30, 2007. Despite the lengthy nature of this workout, the Company continues to have dialogue with the borrower toward a resolution of the affiliated loans and anticipates that this workout will result in further reductions of the Company's overall exposure to the borrower. The loans to this relationship continue to be secured by real estate (two assisted living facilities).
The provision for loan losses decreased slightly from $273 thousand in the second quarter of 2006 to $190 thousand for the same quarter in 2007. On a linked quarter basis, the provision for loan losses increased $175 thousand (without regard to a $750 thousand recapture noted during the first quarter of 2007 on a continuing nonperforming credit relationship). This net increase was primarily due to loan growth and a nominal increase in loans that management has identified through its risk rating system as having potential weaknesses. For the six months ended June 30, 2007 the provision for loan losses decreased $1.4 million from $811 thousand from the same period a year ago. This decline was largely attributable to the reduction of estimated loss exposure to the continuing nonperforming credit relationship noted above.
NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2007 declined $695 thousand, or 10.1%, from $6.9 million to $6.2 million compared to last year's same quarter. This decline reflects lower mortgage segment income from the sale of loans of approximately $1.0 million, or 32%, less from the same quarter a year ago. Additionally, gains of $207 thousand related to investment securities called by the issuer were recorded in the second quarter of 2007. Notwithstanding the aforementioned gains and lower mortgage segment income, noninterest income for the period increased approximately $133 thousand, or 3.5%, and was principally attributable to the increases in other service charges and deposit account charges of $228 thousand. These increases were mainly a result of increased brokerage commissions, overdraft fees and debit card transaction fee income.
On a linked quarter basis, noninterest income remained flat at $6.2 million from the quarter ended March 31, 2007. These results include gains of $207 thousand and $301 thousand related to investment securities called by the issuer during the second and first quarters of 2007, respectively. Notwithstanding the aforementioned gains on the called securities, noninterest income increased approximately $98 thousand, or 1.7%, and was principally attributable to increases in other service charges and deposit account charges of $304 thousand (primarily overdraft fees and letter of credit fees) as well as lower gains from the sale of loans of $212 thousand from the mortgage segment.
For the six months ended June 30, 2007, noninterest income decreased $1.5 million, or 10.5%, from $13.8 million to $12.4 million for the same period in 2006. The decrease was principally driven by lower gains on sales within the mortgage segment of $1.5 million. Contributing to the decline were gains on the sale of real estate of $856 thousand during the first quarter of 2006 offset by gains of $508 thousand on called investment securities for the six months ending June 30, 2007. Notwithstanding the sale of real estate and gains on called investment securities, noninterest income decreased $1.1 million, or 8.5%, primarily due to a reduction in revenue within the mortgage segment which was slightly offset by an increase in service charges on deposits and commissions and fees of $516 thousand.
NONINTEREST EXPENSE
Noninterest expense for the three months ended June 30, 2007 increased $457 thousand, or 2.7%, to $17.7 million compared to last year's same period. Salaries and benefits decreased slightly by $28 thousand, or .29%, and were mainly attributable to normal compensation adjustments offset by lower commission expense from the mortgage segment. Other operating expenses increased $290 thousand, or 5.6%, and principally related to the operation of two additional branches, the relocation of two other branches for closer proximity to and convenience of customers, as well as the necessary infrastructure enhancements to support the Company's continued growth. Some of the infrastructure enhancements include voice over internet protocol (VOIP) and the associated hardware and software to support this technology. Other initiatives include online check deposit technology, as well as enhancements to our internet banking delivery channel. Occupancy expenses increased $188 thousand, or 15.2%, and were principally attributable to increased facilities costs associated with the Company's continued expansion. Some of these increased costs included depreciation, property insurance, rental expenses and, to a lesser extent, utility costs. In addition, the Company moved into its new 70,000 square foot operations center. This facility will allow for more effective deployment of the Company's support services and provide sufficient space for anticipated growth over the next ten years. The second quarter of 2007 contained a full month of depreciation related to this new operations center in Caroline County. This expense is approximately $38 thousand per month. Furniture and equipment expenses increased $7 thousand, or .6%, and were attributable to the related depreciation and software costs of the additional branches.
On a linked quarter basis, noninterest expense decreased by $293 thousand, or 1.6%, to $17.7 million from $18.0 million for the period ended June 30, 2007. Decreases in salaries and benefits of $321 thousand, or 3.2%, are primarily attributable to first quarter charges for incentive compensation as well as lower commissions from the mortgage segment. Increases in occupancy expenses of $31 thousand, or 2.2%, are principally due to a full month of operations (as stated above) of the new 70,000 square foot operations center. Other operating expenses increased $62 thousand, or 1.1%, principally driven by the Company's continued rollout of infrastructure enhancements (VOIP) and the related hardware and software to support this technology throughout the branch and operations center network. Furniture and equipment expenses decreased $65 thousand, or 5.5%, as a result of lower depreciation and software amortization.
For the six months ended June 30, 2007, noninterest expense increased $2.8 million, or 8.5%, from $32.8 million to $35.6 million for the same period in 2006. These figures include the acquisition of Prosperity Bank & Trust Company ("Prosperity") on April 1, 2006; therefore, results of operations include six months of activity for 2007 and only three months for 2006. Excluding this year's first quarter of noninterest expense related to Prosperity of $1.1 million, total noninterest expense increased $1.7 million, or 5.1%, when compared to the prior year. The following increases exclude the first quarter 2007 noninterest expenses of Prosperity. Other operating expenses increased $746 thousand, or 7.7%, and principally relate to two additional branches, relocation of two other branches as well as the infrastructure enhancements to support VOIP. Salary and benefits increased $494 thousand, or 2.6%, and may be attributed to normal compensation adjustments offset by lower commissions from the mortgage segment. Occupancy expense increased $373 thousand, or 16%, and was principally related to the Company's continued expansion. These costs include depreciation, property insurance and to a lesser extent utility costs. Furniture and fixtures increased $56 thousand, or 2.6%.
BALANCE SHEET
For the three months ended June 30, 2007, total assets were approximately $2.2 billion compared to $2.1 billion at December 31, 2006 and June 30, 2006. Net loans increased $87.7 million, or 5.7%, and $125.4 million, or 8.4%, from December 31, 2006 and June 30, 2006, respectively. Loan growth was concentrated in the commercial real estate, construction and indirect auto loan portfolios from the same quarter a year ago and from December 31, 2006. Total cash and cash equivalents decreased $29.1 million, or 34.5%, from June 30, 2006. A primary driver of this decrease was lower volumes of federal funds sold. Deposits grew $33.1 million, or 2.1%, over June 30, 2006 levels but decreased $17.7 million, or 1.1%, from December 31, 2006. The growth over June 30, 2006 was principally attributed to certificates of deposit whereas the decline from year-end 2006 related principally to money market accounts. Total borrowings also increased by $26.6 million and $70.4 million to $159.2 million, from June 30, 2006 and December 31, 2006, respectively. The Company's equity to assets ratio has increased slightly from 8.9% at June 30, 2006 to 9.53% at December 31, 2006 and 9.41% at June 30, 2007.
SEGMENT INFORMATION
Community Banking Segment
For the three months ended June 30, 2007, net income for the community banking segment decreased 12.1% or $801 thousand from $6.6 million to $5.8 million from the same quarter last year. This decline was partially attributable to net interest margin compression (from 4.38% to 4.02%) which resulted in a net interest income decline of $805 thousand, or 4.0%, over the same period. The provision for loan loss decreased $83 thousand, from $273 thousand to $190 thousand during this period.
Noninterest income increased $340 thousand, or 8.9%, in the second quarter of 2007 from the same period a year earlier. The increase was primarily related to gains on sales of called investment securities totaling $206 thousand. Additionally, brokerage income and service charges on deposits added approximately $228 thousand of increased income. Noninterest expense increased $984 thousand, or 6.9%, mainly due to increases in salary and benefits of $524 thousand, other operating expenses of $294 thousand, occupancy expenses of $141 thousand, and furniture and fixtures of $25 thousand. These increased costs related to the opening of two new branches since the second quarter of 2006 as well as the relocation of two existing branches to new sites during 2006. Other increased costs are reflective of our continued investment in people and technology necessary to support our growth and service goals.
On a linked quarter basis, community bank segment net income increased $517 thousand, or 9.8%, for the period ended June 30, 2007. Increases in net interest income, additional service charge income from deposits and brokerage income as well as less expense related to salaries and benefits contributed favorably to the linked quarter improvement. Additionally, during the first quarter of 2007, $750 thousand of specific loan loss reserves were released. See Loan Loss Provision/Asset Quality for additional information relating to this credit relationship. Net interest income increased $981 thousand, or 5.4%, to $19.1 million. Contributing to this was favorable average loan growth of approximately $46 million yielding 7.8%, funded by $10 million in demand deposit growth offset by purchased funding with a cost of 6.1%. Total noninterest income increased $203 thousand, or 5.1%, and was related to service charges on deposits and brokerage income. Noninterest expenses declined $203 thousand, or 1.3%, and were partially related to incentive compensation payouts during the first quarter.
For the six months ended June 30, 2007, compared to the same period in 2006, net income for the community banking segment decreased 13.7%, or approximately $1.8 million, from $12.9 million to $11.1 million. Net interest income declined $613 thousand, or 1.6%. Additionally, during the first quarter of 2007, $750 thousand of specific loan loss reserves were released. Net interest income after the provision for loan loss recapture was $743 thousand, or an increase of 2%, from a year ago. Noninterest income for the six months ended June 30, 2007 remained relatively flat and increased $38 thousand. If not for the gains from the called investment securities of $508 thousand in 2007 or gains from the sale of real estate of $856 thousand from 2006, the increase in noninterest income would have been $386 thousand, or 5.3%, over the prior year. Noninterest expense increased $3.5 million, or 13.0%, to $30.7 million for the six months ending June 30, 2007 compared to the same period a year ago. Salary and benefits contributed $1.7 million of this increase. Other operating expense comprised $1.3 million. Occupancy and furniture and fixtures expense were $383 thousand and $172 thousand, respectively. Additionally, six months of Prosperity's noninterest expenses were included in the first half of 2007 compared to only three months for the same period in 2006. The first quarter of 2007 noninterest expenses for Prosperity were $1.1 million.
Mortgage Segment
For the three months ended June 30, 2007, net income for the mortgage segment declined $271 thousand from $108 thousand net income to a net loss of $163 thousand compared to the same quarter in 2006. Although loan profitability ratios were similar to those achieved during the middle quarters of 2006, overall loan volume decreased 32.6% from the same period last year resulting in a similar decline in loan revenue. The housing market for both new construction and existing sales continued to slump during the quarter, providing fewer origination opportunities than during the same quarter last year. Reduced mortgage loan demand, combined with rising interest rates and tightening secondary market underwriting requirements have slowed both purchase and refinance production. Net interest income in this segment grew $56 thousand, or 124.4%, over the same period as interest margins improved over the prior year. The mortgage segment reserved approximately $35 thousand for losses related to early payment defaults on loans sold to investors, a decline of approximately 47.0% from the reserves recorded during the same period last year.
On a linked quarter basis, mortgage segment net income declined $24 thousand from a net loss of $139 thousand to a net loss of $163 thousand. Net interest income increased $78 thousand as interest margins improved by 19.2% on average over the prior quarter. While originations declined 1.7%, loan revenue fell 9.0% as market demand shifted towards less profitable loan products and the secondary market tightened product offerings.
For the six months ended June 30, 2007, mortgage segment net income declined $472 thousand, from net income of $170 thousand to a net loss of $302 thousand. This is principally due to a 25.4% decline in loan originations, from $258.4 million to $192.8 million, for the six months ending June 30, 2006 and 2007, respectively.
ABOUT UNION BANKSHARES CORPORATION
Union Bankshares Corporation is one of the largest community banking organizations based in Virginia, providing full service banking to the Northern, Central, Rappahannock, Tidewater and Northern Neck regions of Virginia through its bank subsidiaries, Union Bank and Trust Company (33 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 (2 locations in Washington and Front Royal, Virginia), Bay Community Bank (4 locations in Williamsburg, Newport News and Grafton), and Prosperity Bank & Trust Company (3 locations in Springfield and Burke, Virginia). Recently, Union Bankshares announced it had entered into an agreement to acquire six branches of Provident Bank, a subsidiary of Provident Bankshares Corporation . These six branches are located in Charlottesville, Middleburg, Warrenton (2) and Winchester (2). All of these branches will become branches of Rappahannock National Bank except for the Charlottesville branch which will become a branch of Union Bank and Trust Company. Union Bank and Trust Company also operates a loan production office in Manassas. In addition to banking services, Union Investment Services, Inc. provides full brokerage services; Union Mortgage Group, Inc. provides a full line of mortgage products; and Union Insurance Group, LLC offers various lines of insurance products. 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 Global Select Market under the symbol "UBSH".
FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise and are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate" or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, and consumer spending and savings habits. The Company does not update any forward-looking statements that may be made from time to time by or on behalf of the Company.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
KEY FINANCIAL RESULTS
(in thousands, except share data)
Three Months Ended
06/30/07 06/30/06 03/31/07
Results of Operations
Interest and dividend income $35,129 $32,347 $33,627
Interest expense 15,908 12,378 15,467
Net interest income 19,221 19,969 18,160
Provision for loan losses 190 273 (735)
Net interest income after provision
for loan losses 19,031 19,696 18,895
Noninterest income 6,212 6,907 6,209
Noninterest expenses 17,666 17,209 17,959
Income before income taxes 7,577 9,394 7,145
Income tax expense 1,936 2,681 1,997
Net income $5,641 $6,713 $5,148
Interest earned on loans (FTE) $31,760 $28,452 $29,959
Interest earned on securities (FTE) 3,934 4,158 4,073
Interest earned on earning assets
(FTE) 35,864 32,939 34,345
Net interest income (FTE) 19,956 20,562 18,879
Interest expense on certificates of
deposit 10,621 7,834 10,399
Interest expense on interest-bearing
deposits 12,040 9,320 11,859
Core deposit intangible amortization 457 457 457
Net income - community bank segment $5,804 $6,605 $5,287
Net income - mortgage segment (163) 108 (139)
Key Performance Ratios
Return on average assets (ROA) 1.06% 1.33% 1.00%
Return on average equity (ROE) 11.07% 14.02% 10.38%
Efficiency ratio 69.46% 64.03% 73.70%
Efficiency ratio - community bank
segment 65.47% 60.04% 69.90%
Net interest margin (FTE) 4.20% 4.52% 4.09%
Yields on earning assets (FTE) 7.54% 7.24% 7.44%
Cost of interest-bearing liabilities
(FTE) 3.93% 3.27% 3.94%
Noninterest expense less noninterest
income / average assets 2.16% 2.04% 2.28%
Per Share Data
Earnings per share, basic $0.42 $0.51 $0.39
Earnings per share, diluted 0.42 0.50 0.38
Cash basis earnings per share, diluted 0.44 0.53 0.41
Cash dividends paid 0.18 0.15 0.18
Market value per share 23.20 28.76 25.94
Book value per share 15.28 14.09 15.23
Tangible book value per share 10.54 9.32 10.44
Price to earnings ratio, diluted 13.74 14.34 16.83
Price to book value ratio 1.52 2.04 1.70
Weighted average shares outstanding,
basic 3,332,263 13,223,496 13,306,504
Weighted average shares outstanding,
diluted 13,412,933 13,339,216 13,413,303
Shares outstanding at end of period 13,369,409 13,255,851 13,318,046
Financial Condition
Assets $2,166,914 $2,077,522 $2,118,855
Loans, net of unearned income 1,636,345 1,511,209 1,600,059
Earning Assets 1,935,522 1,862,133 1,895,870
Goodwill 51,881 50,026 51,881
Core deposit intangibles, net 11,426 13,255 11,883
Deposits 1,648,136 1,615,019 1,667,171
Stockholders' equity 203,905 186,802 202,841
Tangible equity 140,598 123,521 139,077
Six Months Ended
06/30/07 06/30/06
Results of Operations
Interest and dividend income $68,756 $60,637
Interest expense 31,375 22,620
Net interest income 37,381 38,017
Provision for loan losses (545) 811
Net interest income after provision
for loan losses 37,926 37,206
Noninterest income 12,421 13,882
Noninterest expenses 35,625 32,829
Income before income taxes 14,722 18,259
Income tax expense 3,933 5,238
Net income $10,789 $13,021
Interest earned on loans (FTE) $61,721 $53,620
Interest earned on securities (FTE) 8,007 7,782
Interest earned on earning assets
(FTE) 70,211 61,799
Net interest income (FTE) 38,835 39,180
Interest expense on certificates of
deposit 21,020 14,596
Interest expense on interest-bearing
deposits 23,900 17,533
Core deposit intangible amortization 915 762
Net income - community bank segment $11,091 $12,851
Net income - mortgage segment (302) 170
Key Performance Ratios
Return on average assets (ROA) 1.03% 1.36%
Return on average equity (ROE) 10.73% 14.03%
Efficiency ratio 71.53% 63.26%
Efficiency ratio - community bank
segment 67.62% 59.11%
Net interest margin (FTE) 4.14% 4.53%
Yields on earning assets (FTE) 7.49% 7.14%
Cost of interest-bearing liabilities
(FTE) 3.93% 3.14%
Noninterest expense less noninterest
income / average assets 2.22% 1.99%
Per Share Data
Earnings per share, basic $0.81 $0.99
Earnings per share, diluted 0.80 0.97
Cash basis earnings per share,
diluted 0.85 1.01
Cash dividends paid 0.36 0.30
Market value per share 23.20 28.76
Book value per share 15.28 14.09
Tangible book value per share 10.54 9.32
Price to earnings ratio, diluted 14.38 14.65
Price to book value ratio 1.52 2.04
Weighted average shares outstanding,
basic 13,319,455 13,209,730
Weighted average shares outstanding,
diluted 13,411,830 13,340,614
Shares outstanding at end of period 13,369,409 13,255,851
Financial Condition
Assets $2,166,914 $2,077,522
Loans, net of unearned income 1,636,345 1,511,209
Earning Assets 1,935,522 1,862,133
Goodwill 51,881 50,026
Core deposit intangibles, net 11,426 13,255
Deposits 1,648,136 1,615,019
Stockholders' equity 203,905 186,802
Tangible equity 140,598 123,521
Three Months Ended
06/30/07 06/30/06 03/31/07
Averages
Assets $2,131,153 $2,027,281 $2,086,263
Loans, net of unearned income 1,612,164 1,493,093 1,565,888
Loans held for sale 22,332 29,513 21,642
Securities 266,880 284,825 276,882
Earning assets 1,906,823 1,825,454 1,872,224
Deposits 1,652,903 1,589,974 1,646,819
Certificates of deposit 900,573 768,222 897,974
Interest-bearing deposits 1,367,489 1,284,320 1,371,428
Borrowings 256,380 232,639 221,461
Interest-bearing liabilities 1,623,869 1,516,959 1,592,889
Stockholders' equity 204,371 192,012 201,115
Tangible equity 140,844 128,739 138,918
Asset Quality
Allowance for Loan Losses
Beginning balance of allowance for
loan losses $18,251 $17,631 $19,148
Add: Allowance from acquired banks - 785 -
Add: Recoveries 84 163 131
Less: Charge-offs 172 190 293
Add: Provision for loan losses 190 273 (735)
Ending balance of allowance for loan
losses $18,353 $18,662 $18,251
Allowance for loan losses / total
outstanding loans 1.12% 1.23% 1.14%
Nonperforming Assets
Nonaccrual loans $8,232 $11,291 $8,558
Other real estate and foreclosed
properties 217 - 217
Total nonperforming assets 8,449 11,291 8,775
Loans > 90 days and still accruing 1,176 199 1,064
Total nonperforming assets and
loans > 90 days and still accruing $9,625 $11,490 $9,839
Nonperforming assets / total
outstanding loans 0.52% 0.75% 0.55%
Nonperforming assets / allowance for
loan losses 46.04% 60.50% 48.08%
Other Data
Mortgage loan originations $95,578 $142,289 $97,236
% of originations that are refinances 42.47% 30.69% 46.26%
End of period full-time employees 650 645 660
Number of full-service branches 51 49 51
Number of community banks
(subsidiaries) 5 5 5
Number of full automatic transaction
machines (ATM's) 137 133 135
Alternative Performance Measures (1)
Net income $5,641 $6,713 $5,148
Plus: Core deposit intangible
amortization, net of tax 297 297 297
Cash basis operating earnings $5,938 $7,010 $5,445
Average assets $2,131,153 $2,027,281 $2,086,263
Less: Average goodwill 51,881 49,812 50,089
Less: Average core deposit
intangibles 11,646 13,461 12,108
Average tangible assets $2,067,626 $1,964,008 $2,024,066
Average equity $204,371 $192,012 $201,115
Less: Average goodwill 51,881 49,812 50,089
Less: Average core deposit
intangibles 11,646 13,461 12,108
Average tangible equity $140,844 $128,739 $138,918
Cash basis earnings per share,
diluted $0.44 $0.53 $0.41
Cash basis return on average
tangible assets 1.15% 1.43% 1.09%
Cash basis return on average
tangible equity 16.91% 21.84% 15.90%
Six Months Ended
06/30/07 06/30/06
Averages
Assets $2,108,832 $1,924,007
Loans, net of unearned income 1,589,154 1,441,622
Loans held for sale 21,989 26,649
Securities 271,853 265,200
Earning assets 1,889,618 1,745,132
Deposits 1,649,878 1,519,843
Certificates of deposit 899,281 742,531
Interest-bearing deposits 1,369,448 1,246,363
Borrowings 239,017 204,037
Interest-bearing liabilities 1,608,465 1,450,400
Stockholders' equity 202,752 187,089
Tangible equity 139,886 135,742
Asset Quality
Allowance for Loan Losses
Beginning balance of allowance for
loan losses $19,148 $17,116
Add: Allowance from acquired banks - 785
Add: Recoveries 215 253
Less: Charge-offs 465 303
Add: Provision for loan losses (545) 811
Ending balance of allowance for loan
losses $18,353 $18,662
Allowance for loan losses / total
outstanding loans 1.12% 1.23%
Nonperforming Assets
Nonaccrual loans $8,232 $11,291
Other real estate and foreclosed
properties 217 -
Total nonperforming assets 8,449 11,291
Loans > 90 days and still accruing 1,176 199
Total nonperforming assets and loans
> 90 days and still accruing $9,625 $11,490
Nonperforming assets / total
outstanding loans 0.52% 0.75%
Nonperforming assets / allowance for
loan losses 46.04% 60.50%
Other Data
Mortgage loan originations $192,814 $258,394
% of originations that are refinances 44.39% 33.53%
End of period full-time employees 650 645
Number of full-service branches 51 49
Number of community banks
(subsidiaries) 5 5
Number of full automatic transaction
machines (ATM's) 137 133
Alternative Performance Measures (1)
Net income $10,789 $13,021
Plus: Core deposit intangible
amortization, net of tax 595 495
Cash basis operating earnings $11,384 $13,516
Average assets $2,108,832 $1,924,007
Less: Average goodwill 50,990 40,606
Less: Average core deposit
intangibles 11,876 10,921
Average tangible assets $2,045,966 $1,872,480
Average equity $202,752 $187,089
Less: Average goodwill 50,990 40,606
Less: Average core deposit
intangibles 11,876 10,921
Average tangible equity $139,886 $135,562
Cash basis earnings per share,
diluted $0.85 $1.01
Cash basis return on average tangible
assets 1.12% 1.46%
Cash basis return on average tangible
equity 16.41% 20.11%
(1) As a supplement to accounting principles generally accepted in the
United States ("GAAP"), management also reviews operating performance
based on its "cash basis earnings" to fully analyze its core business.
Cash basis earnings exclude amortization expense attributable to
intangibles (goodwill and core deposit intangibles) that do not
qualify as regulatory capital. Financial ratios based on cash basis
earnings exclude the amortization of nonqualifying intangible assets
from earnings and the unamortized balance of nonqualifying intangibles
from assets and equity.
In management's opinion, cash basis earnings are useful to investors
because by excluding non-operating adjustments stemming from the
consolidation of our organization, they allow investors to see clearly
the combined economic results of our multi-bank company. 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,
2007 2006 2006
ASSETS (Unaudited) (Audited) (Unaudited)
Cash and cash equivalents:
Cash and due from banks $51,474 $55,511 $59,645
Interest-bearing deposits in other
banks 899 950 5,575
Money market investments 190 322 158
Other interest-bearing deposits 2,598 2,598 2,598
Federal funds sold 236 16,509 16,542
Total cash and cash equivalents 55,397 75,890 84,518
Securities available for sale, at fair
value 270,095 282,824 288,432
Loans held for sale 25,159 20,084 37,619
Loans, net of unearned income 1,636,345 1,549,445 1,511,209
Less allowance for loan losses 18,353 19,148 18,662
Net loans 1,617,992 1,530,297 1,492,547
Bank premises and equipment, net 74,044 63,461 52,491
Other real estate owned 217 - -
Core deposit intangibles, net 11,426 12,341 13,255
Goodwill 51,881 50,049 50,026
Other assets 60,703 57,945 58,634
Total assets $2,166,914 $2,092,891 $2,077,522
LIABILITIES
Noninterest-bearing demand deposits $293,736 $292,262 $327,880
Interest-bearing deposits:
NOW accounts 206,378 212,328 207,743
Money market accounts 148,527 165,202 166,418
Savings accounts 106,939 107,163 122,681
Time deposits of $100,000 and over 450,133 442,953 389,638
Other time deposits 442,423 446,000 400,659
Total interest-bearing deposits 1,354,400 1,373,646 1,287,139
Total deposits 1,648,136 1,665,908 1,615,019
Securities sold under agreements to
repurchase 76,179 62,696 71,986
Other short-term borrowings 76,769 - 85,600
Trust preferred capital notes 60,310 60,310 60,310
Long-term borrowings 82,475 88,850 47,000
Other liabilities 19,140 15,711 10,805
Total liabilities 1,963,009 1,893,475 1,890,720
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares
authorized 36,000,000; issued and
outstanding, 13,369,409 shares,
13,303,520 shares, and 13,195,987
shares, respectively. 17,790 17,716 17,675
Surplus 39,215 38,047 36,660
Retained earnings 148,222 142,168 133,585
Accumulated other comprehensive income (1,322) 1,485 (1,118)
Total stockholders' equity 203,905 199,416 186,802
Total liabilities and
stockholders' equity $2,166,914 $2,092,891 $2,077,522
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2007 2006 2007 2006
Interest and dividend income:
Interest and fees on loans $31,642 $28,426 $61,492 $53,530
Interest on Federal funds sold 122 285 385 318
Interest on deposits in other banks 12 11 27 18
Interest on money market investments 1 - 2 2
Interest on other interest-bearing
deposits 35 32 69 60
Interest and dividends on securities:
Taxable 2,173 2,544 4,505 4,718
Nontaxable 1,144 1,049 2,276 1,991
Total interest and dividend
income 35,129 32,347 68,756 60,637
Interest expense:
Interest on deposits 12,039 9,320 23,899 17,534
Interest on Federal funds purchased 262 178 568 260
Interest on short-term borrowings 1,211 1,155 1,967 1,984
Interest on long-term borrowings 2,396 1,725 4,941 2,842
Total interest expense 15,908 12,378 31,375 22,620
Net interest income 19,221 19,969 37,381 38,017
Provision for (recapture of) loan
losses 190 273 (545) 811
Net interest income after provision
for (recapture of) loan losses 19,031 19,696 37,926 37,206
Noninterest income:
Service charges on deposit accounts 1,917 1,809 3,643 3,424
Other service charges, commissions and
fees 1,557 1,437 3,001 2,704
Gains on securities transactions, net 207 5 508 7
Gains on sales of loans 2,132 3,161 4,476 5,952
Gains (losses) on sales of other real
estate (6) 12 (9) 879
Other operating income 405 483 802 916
Total noninterest income 6,212 6,907 12,421 13,882
Noninterest expenses:
Salaries and benefits 9,618 9,646 19,557 18,675
Occupancy expenses 1,422 1,234 2,813 2,328
Furniture and equipment expenses 1,116 1,109 2,297 2,186
Other operating expenses 5,510 5,220 10,958 9,640
Total noninterest expenses 17,666 17,209 35,625 32,829
Income before income taxes 7,577 9,394 14,722 18,259
Income tax expense 1,936 2,681 3,933 5,238
Net income $5,641 $6,713 $10,789 $13,021
Earnings per share, basic $0.42 $0.51 $0.81 $0.99
Earnings per share, diluted $0.42 $0.50 $0.80 $0.97
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE
EQUIVALENT BASIS)
For the Three Months Ended June 30,
2007
Interest
Average Income / Yield /
Balance Expense Rate (1)
(Dollars in thousands)
Assets:
Securities:
Taxable $169,359 $2,174 5.15%
Tax-exempt 97,521 1,760 7.24%
Total securities 266,880 3,934 5.91%
Loans, net (2) (3) 1,612,164 31,401 7.81%
Loans held for sale 22,332 359 6.45%
Federal funds sold 1,802 122 5.49%
Money market investments 146 1 1.72%
Interest-bearing deposits in other
banks 901 12 5.21%
Other interest-bearing deposits 2,598 35 5.39%
Total earning assets 1,906,823 35,864 7.54%
Allowance for loan losses (18,306)
Total non-earning assets 242,636
Total assets $2,131,153
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $208,068 334 0.64%
Money market savings 154,105 885 2.30%
Regular savings 104,743 200 0.76%
Certificates of deposit:
$100,000 and over 448,728 5,535 4.95%
Under $100,000 451,845 5,086 4.51%
Total interest-bearing deposits 1,367,489 12,040 3.53%
Other borrowings 256,380 3,868 6.05%
Total interest-bearing liabilities 1,623,869 15,908 3.93%
Noninterest-bearing liabilities:
Demand deposits 285,414
Other liabilities 17,499
Total liabilities 1,926,782
Stockholders' equity 204,371
Total liabilities and stockholders'
equity $2,131,153
Net interest income $19,956
Interest rate spread (4) 3.61%
Interest expense as a percent of
average earning assets 3.35%
Net interest margin 4.20%
For the Three Months Ended June 30,
2006
Interest
Average Income / Yield /
Balance Expense Rate (1)
(Dollars in thousands)
Assets:
Securities:
Taxable $196,286 $2,544 5.20%
Tax-exempt 88,539 1,614 7.31%
Total securities 284,825 4,158 5.85%
Loans, net (2) (3) 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 (4) 3.97%
Interest expense as a percent of
average earning assets 2.72%
Net interest margin 4.52%
For the Three Months Ended June 30,
2005
Interest
Average Income / Yield /
Balance Expense Rate (1)
(Dollars in thousands)
Assets:
Securities:
Taxable $150,968 $1,910 5.07%
Tax-exempt 75,046 1,422 7.60%
Total securities 226,014 3,332 5.91%
Loans, net (2) (3) 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) 4.00%
Interest expense as a percent of
average earning assets 1.99%
Net interest margin 4.44%
(1) Rates and yields are annualized and calculated from actual, not
rounded amounts in thousands, which appear above.
(2) Foregone interest on previously charged off credits of $76 thousand
and $94 thousand has been excluded for 2006 and 2005, respectively.
(3) Nonaccrual loans are included in average loans outstanding.
(4) Income and yields are reported on a taxable equivalent basis using
the statutory federal corporate tax rate of 35%.
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE
EQUIVALENT BASIS)
For the Six Months Ended June 30,
2007
Interest
Average Income / Yield /
Balance Expense Rate (1)
(Dollars in thousands)
Assets:
Securities:
Taxable $175,324 $4,505 5.18%
Tax-exempt 96,529 3,502 7.32%
Total securities 271,853 8,007 5.94%
Loans, net (2) (3) 1,589,154 61,061 7.75%
Loans held for sale 21,989 660 6.05%
Federal funds sold 2,801 385 5.47%
Money market investments 205 2 1.97%
Interest-bearing deposits in other
banks 1,018 27 5.27%
Other interest-bearing deposits 2,598 69 5.36%
Total earning assets 1,889,618 70,211 7.49%
Allowance for loan losses (18,704)
Total non-earning assets 237,918
Total assets $2,108,832
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Checking $207,137 652 0.63%
Money market savings 158,008 1,802 2.30%
Regular savings 105,022 426 0.82%
Certificates of deposit:
$100,000 and over 447,017 10,942 4.94%
Under $100,000 452,264 10,078 4.49%
Total interest-bearing deposits 1,369,448 23,900 3.52%
Other borrowings 239,017 7,476 6.31%
Total interest-bearing liabilities 1,608,465 31,376 3.93%
Noninterest-bearing liabilities:
Demand deposits 280,430
Other liabilities 17,185
Total liabilities 1,906,080
Stockholders' equity 202,752
Total liabilities and stockholders'
equity $2,108,832
Net interest income $38,835
Interest rate spread (4) 3.56%
Interest expense as a percent of
average earning assets 3.35%
Net interest margin 4.14%
For the Six Months Ended June 30,
2006
Interest
Average Income / Yield /
Balance Expense Rate (1)
(Dollars in thousands)
Assets:
Securities:
Taxable $181,954 $4,718 5.23%
Tax-exempt 83,246 $3,064 7.42%
Total securities 265,200 $7,782 5.92%
Loans, net (2) (3) 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) 4.00%
Interest expense as a percent of
average earning assets 2.61%
Net interest margin 4.53%
(1) Rates and yields are annualized and calculated from actual, not
rounded amounts in thousands, which appear above.
(2) Foregone interest on previously charged off credits of $196 thousand
and $114 thousand has been excluded for 2006 and 2005, respectively.
(3) Nonaccrual loans are included in average loans outstanding.
(4) Income and yields are reported on a taxable equivalent basis using the
statutory federal corporate tax rate of 35%.
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE
EQUIVALENT BASIS)
For the Six Months Ended June 30,
2005
Interest
Average Income / Yield /
Balance Expense Rate (1)
(Dollars in thousands)
Assets:
Securities:
Taxable $153,016 $3,829 5.05%
Tax-exempt 74,750 2,853 7.70%
Total securities 227,766 6,682 5.92%
Loans, net (2) (3) 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) 4.00%
Interest expense as a percent of
average earning assets 1.94%
Net interest margin 4.43%
(1) Rates and yields are annualized and calculated from actual, not
rounded amounts in thousands, which appear above.
(2) Foregone interest on previously charged off credits of $196 thousand
and $114 thousand has been excluded for 2006 and 2005, respectively.
(3) Nonaccrual loans are included in average loans outstanding.
(4) Income and yields are reported on a taxable equivalent basis using the
statutory federal corporate tax rate of 35%.
