BOWLING GREEN, Va., Oct. 22 /PRNewswire-FirstCall/ -- Union Bankshares Corporation (the "Company") reports net income for the quarter ended September 30, 2008 of $4.3 million, down $78 thousand or 1.8% from as compared to the most recent quarter ending June 30, 2008. Earnings per share, on a diluted basis, declined $.01 from $.32 to $.31, representing a decline of 3.1%. Return on average assets and return on average equity were .71% and 7.87%, respectively. These results were largely attributable to increased provisions for loan losses partially offset by lower funding costs, gains from the sale of bank owned property and other increases in noninterest income.
"Any comments on the third quarter results for Union Bankshares seem insignificant when compared with recent industry-changing news of rescue packages, the U.S. Treasury's guaranteeing money market mutual funds, the Federal Reserve's taking ownership of the world's largest insurance company, the remaining two largest investment banks' becoming bank holding companies, and the U.S. Treasury's potentially taking a significant ownership position in many U.S. banks, including the nine largest," said G. William Beale, President and Chief Executive Officer of Union Bankshares Corporation. "We know the operating environment for financial institutions has changed. We do not yet know how the changes will shape the future landscape of our industry.
"Considering the state of the national and our marketplace economies, Union Bankshares had a good quarter. I am pleased to report all of our subsidiaries were profitable for the quarter and net income was equal to our second quarter results. Earnings, when compared to last year, are lower, but reflective of reduced economic activity and increased credit costs associated with the weakened economy.
"Loan growth was slowed both by design and as a result of decreased economic activity during the quarter. Liquidity concerns dominated the banking landscape and deposit growth remained a challenge for a myriad of reasons, but our third quarter results reflected positive deposit growth. We increased our provision for loan losses to reflect both the analysis of our loan portfolio and the studied expectation that economic weakness will continue for at least the next eighteen months."
For the three months ended September 30, 2008 net income was $4.3 million, down 20.6% from $5.4 million for the same quarter in 2007. Earnings per share, on a diluted basis, decreased $.09, or 22.5%, to $.31 from $.40 for the same quarter a year ago. Return on average equity for the quarter ended September 30, 2008 was 7.87%, while return on average assets for the same period was 0.71%, compared to 10.32% and .97%, respectively, for the prior year's same quarter.
This year to year decline was largely the result of increased provisions for loan losses, the costs associated with the purchase of six bank branches, effective September 7, 2007, the opening of one de novo branch and nonrecurring expenses related to merging affiliate banks. These increased expenses were partially offset by gains from the sale of bank owned property, increased profitability in the mortgage segment and growth in service charge income on deposit accounts. The six purchased branches and the de novo branch are referred to collectively herein as the "new branches."
For the nine months ended September 30, 2008 net income was $12.2 million down $3.9 million, or 24.2%, from $16.1 million compared to the same period a year ago. This decline represents a decrease in earnings per share, on a diluted basis, of $.29, or 24.2%, from $1.20 to $.91. Return on average equity for the nine months ended September 30, 2008 was 7.61%, while return on average assets was .70%, compared to 10.59% and 1.01%, respectively, for the same period in 2007. The decrease was partially related to increased provisions for loan losses, noninterest expenses associated with the purchase of new branches, partially offset by gains from the sale of bank owned property, increased profitability in the mortgage segment and growth in service charge income on deposit accounts.
As a supplement to U.S. generally accepted accounting principles ("GAAP"), the Company also uses certain alternate financial measures to review its operating performance. Diluted earnings per share on a cash basis for the quarter ended September 30, 2008 were $.34 as compared to $.42 for the same quarter a year ago and $.35 for the quarter ended June 30, 2008. Additionally, cash basis return on average tangible equity for the quarter ended September 30, 2008 was 12.26% as compared to 15.90% in the prior year's third quarter and 12.64% for the quarter ended June 30, 2008.
NET INTEREST INCOME
The targeted Federal funds rate was maintained at 2.00% from April 30, 2008 through September 30, 2008 by the Federal Open Market Committee ("FOMC") of the Federal Reserve Board of Governors. That rate remained unchanged until a coordinated effort, on October 8, 2008, among major central banks cut that rate an additional 50 basis points. The economic events and financial turmoil of the months leading up to this coordinated rate cut have placed stress on deposit pricing and competition for those deposits, both having an impact on the Company's net interest margin.
On a linked quarter basis, net interest income, on a tax-equivalent basis, increased $497 thousand, or 2.4%, to $21.1 million. The tax-equivalent net interest margin declined 3 basis points to 3.89% from 3.92% over the most recent quarter. Contributing to this decline was a slight decrease in earning asset yields as compared to costs associated with the funding of those assets. Additionally, increased volumes in money market savings accounts amid a decline in checking accounts and demand deposits put pressure on the net interest margin. Total average interest-bearing liabilities increased $50.2 million and the related cost declined 5 basis points to 2.91%. Total average interest-earning asset yields declined 6 basis points to 6.42% on increased total average earning-asset volumes of $44.9 million.
For the three months ended September 30, 2008, net interest income, on a tax-equivalent basis, increased $1.0 million, or 5.1%, to $21.1 million compared to the same period last year. This increase in net interest income was achieved despite a decline in the net interest margin of 18 basis points, from 4.07% to 3.89%. This net interest margin decline was partially attributable to the inability of increased loan volumes to cover the decline in loan yields despite a reduction in the cost of funds during this period. Yields on average earning-assets declined 107 basis points and the cost of interest-bearing liabilities declined 108 basis points. The increase in net interest income was primarily driven by increased loan volume and lower cost of borrowings and certificates of deposit greater than $100 thousand. Of the increase in funding sources, average money market volumes increased $114.8 million, certificates of deposit less than $100 thousand increased $50.3 million and other borrowings increased $50.6 million partially offset by lower demand deposit volumes of $10.5 million.
For the nine months ended September 30, 2008, net interest income, on a tax-equivalent basis, increased by $2.8 million, or 4.7%, to $61.7 million compared to the same period last year. This increase in net interest income was achieved despite a decline in the net interest margin of 23 basis points, from 4.12% to 3.89%. This net interest margin decline was partially attributable to the decline in yields on earning-assets as compared to costs of interest-bearing liabilities. Yields on earning-assets declined 89 basis points and the cost of interest-bearing liabilities declined 83 basis points. Additional pressure on the net interest margin related to lower yields on earning assets had a greater impact than the increase in loan volumes despite lower costs to fund those loans during this period. The increase in net interest income was principally due to favorable loan volumes, lower costs of certificates of deposit greater than $100 thousand and lower costs associated with borrowings.
A variety of investment and funding activity occurred during 2007 and is stated herein for comparative purposes. For the nine months ended September 30, 2007, approximately $8.0 million ($6.2 million during the first quarter and $1.8 million during the second quarter) of investment securities were called by the issuers resulting in gains of $508 thousand ($301 thousand during the first quarter and $207 thousand during the second quarter). The proceeds from these calls combined with additional funds were used to pay off approximately $15.0 million of higher cost (6.3%) Federal Home Loan Bank ("FHLB") advances. Penalties of approximately $513 thousand ($316 thousand during the first quarter and $197 thousand during the second quarter) associated with the early payoff of these advances have been reflected as an interest expense adjustment in the net interest income for the nine months ended September 30, 2007. Absent this interest expense adjustment, the net interest margin would have been 4.16%, instead of 4.12%, for the nine months ending September 30, 2007.
ASSET QUALITY/LOAN LOSS PROVISION
Industry concerns over asset quality, precipitated by issues related to subprime mortgage lending, declining real estate activity and general economic conditions, continued to increase during the third quarter. The impact of these concerns has begun to be reflected in the economic markets in which the Company operates, principally through slowing real estate activity. The Company has a significant concentration in real estate loans. Although the Company has experienced reduced activity in that sector, the markets in which the Company operates remain relatively stable with no significant deterioration in the quality of the Company's loan portfolio. The Company's loan portfolio does not include exposure to subprime mortgage loans. Residential acquisition and development lending and builder/construction lending have been scaled back as housing activity across our markets has declined. Several new nonperforming loans have come out of those portfolios and are being worked vigorously. Management will continue to monitor delinquencies, risk rating changes, charge-offs, market trends and other indicators of risk in the Company's portfolio, particularly those tied to residential real estate, and adjust the allowance for loan losses accordingly.
Despite increasing industry concerns over credit issues and an increase in loan losses, the Company's asset quality remains strong. Net charge-offs were $897 thousand, or 0.19% of loans, for the quarter ended September 30, 2008, compared to net charge-offs of $229 thousand, or 0.05%, in the same quarter last year and $478 thousand, or 0.11 %, for the quarter ended June 30, 2008. These charge-offs in the current quarter principally related to indirect auto lending of $303 thousand and residential real estate of $208 thousand. As of September 30, 2008, total past due loans were $12.1 million, or 0.65%, of total gross loans, up from 0.46% at September 30, 2007. At September 30, 2008, nonperforming assets totaled $17.1 million, including a single credit relationship totaling $7.0 million. Excluding this single credit relationship, total nonperforming assets increased $9.0 million since September 30, 2007 and $7.3 million since December 31, 2007. Net nonperforming assets increased $4.3 million during the third quarter of 2008. This third quarter increase was related to one acquisition and development relationship and one residential home building relationship, respectively. The second quarter increase was $2.2 million and primarily related to one commercial relationship operating in a construction-related industry. The remaining increase of $748 thousand occurred during the first quarter of 2008. The Company continues to closely monitor exposure in its loan portfolio, particularly in acquisition and development and residential construction relationships.
The Company entered into a workout agreement with the borrower in the aforementioned $7.0 million single credit relationship during 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 $10.6 million as of December 31, 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. This balance has been further reduced, due to payments from the borrower, to $7.0 million at September 30, 2008. Despite the lengthy nature of this workout, the Company continues to work with the borrower toward a resolution of the affiliated loans and anticipates 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).
For the quarter ended September 30, 2008, the provision for loan losses increased $3.2 million from September 30, 2007. On a linked quarter basis, the provision for loan losses increased $2.0 million. The provision for loan losses increased $7.1 million for the nine months ending September 30, 2008 compared to the same period a year ago. During the first quarter of 2007, the Company recaptured $750 thousand in provision for loan losses due to the reduction in the estimated loss exposure on a non-performing loan to a single credit relationship. Absent this recapture, the increase in the provision for loan losses was $6.3 million. The increases in the provision for loan losses and the current levels in the allowance for loan losses reflect continued loan growth, charge-off and delinquency trends, uncertainty with regard to general economic and other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses.
NONINTEREST INCOME
For the three months ended September 30, 2008, noninterest income increased $2.8 million, or 45.1%, from $6.3 million to $9.1 million compared to last year's same quarter. This increase includes gains on the sales of two parcels of bank owned real estate totaling approximately $1.4 million. Additionally, this increase also reflects an increase in mortgage segment revenue of approximately $766 thousand and an increase of $458 thousand in revenue from service charges on deposit accounts (primarily overdraft and returned check fees) from the same quarter a year ago. For comparative purposes during the three months ended September 30, 2007, the Company recorded a gain of $324 thousand from the sale of its former operations center.
On a linked quarter basis, noninterest income increased $1.5 million, or 19.0%, to $9.1 million from $7.7 million for the quarter ended June 30, 2008. This increase includes the aforementioned gains on the sales of two parcels of bank owned real estate totaling approximately $1.7 million. Additionally, the Company had lower mortgage segment revenue as gains on sales of loans decreased by approximately $389 thousand from the prior quarter. Absent this third quarter real estate gain and gains on mortgage loan sales, noninterest income increased approximately $76 thousand, or 1.7%, from the quarter ended June 30, 2008.
For the nine months ended September 30, 2008, noninterest income increased $5.4 million, or 28.9%, to $24.1 million from $18.7 million for the same period in 2007. This increase included gains from the sale of mortgage loans of approximately $2.5 million, increased revenue of $1.3 million from service charges on deposit accounts and gains from sales of bank owned real estate totaling approximately $1.6 million over the same period a year ago.
During the first nine months of 2008, the Commonwealth of Virginia, exercising its eminent domain rights, acquired bank owned real estate for a public easement, which resulted in a gain of $127 thousand. The initial public offering of Visa, Inc. common stock during March 2008 resulted in the mandatory redemption of certain classes of common stock to financial institution members of Visa U.S.A. The Company recorded a gain of $198 thousand relating to this redemption of its member banks' Visa, Inc. common stock. Additionally during the third quarter of 2008, the Company sold two parcels of bank owned real estate resulting in gains of approximately $1.8 million. For comparative purposes during the same period in 2007, the Company recorded a gain of $508 thousand on sales of trust preferred securities called by the issuer and a gain of $324 thousand from the sale of its former operations center. Absent these real estate and securities gain transactions and mortgage segment revenue during the nine month period ended September 30, 2008 and 2007, noninterest income increased $1.7 million, or 14.5%, compared to the same period in 2007.
For comparative purposes, noninterest income for the nine months ended September 30, 2008 and 2007 included income associated with the purchase of six bank branches since their September 2007 purchase date. It also includes the opening of one de novo bank branch in December 2007. The purchased six bank branches contributed approximately $16 thousand of noninterest income during the year and for the quarter ending September 30, 2007. During the first nine months of 2008, these new branches contributed $309 thousand toward the increase in noninterest income. Absent the noninterest income associated with the new branches, real estate and securities gain transactions and mortgage operations during the nine month period ended September 30, 2008 and 2007, noninterest income increased approximately $1.4 million, or 11.9% compared to the same nine month period ended September 30, 2007.
NONINTEREST EXPENSE
For the three months ended September 30, 2008, noninterest expense increased $2.1 million, or 11.9%, to $20.1 million over the same quarter a year ago, primarily related to increases in salaries and benefits, the new branches and mortgage segment operations. Salaries and benefits increased $1.8 million for the three months ended September 30, 2008 as compared to the same quarter a year ago. Of the $1.8 million increase, $1.1 million related to normal compensation increases and profit sharing expenses, $397 thousand was incurred at the mortgage segment related to commissions on increased loan production, and $296 thousand related to employees at the new branches. Occupancy expenses increased $195 thousand of which $109 thousand related to the new branches. Other operating expenses and furniture and equipment expenses increased $91 thousand and $29 thousand, respectively. Excluding the new branches and mortgage segment operations the increase in noninterest expense was approximately $1.2 million, or 8.0%, from the same quarter a year ago.
On a linked quarter basis, noninterest expense increased by $75 thousand, or 0.4%, to $20.1 million for the three months ended September 30, 2008. Salaries and benefits expenses declined $233 thousand, or 2.1%, primarily attributable to lower mortgage segment commissions, but were offset by increased other operating expenses of $262 thousand, including $143 thousand related to exhausting Federal Deposit Insurance Corporation ("FDIC") insurance assessment credits during the quarter. Occupancy expenses and furniture and equipment expenses increased $36 thousand and $10 thousand, respectively. Without the expenses associated with the new branches and mortgage segment operations, noninterest expenses increased $503 thousand, or 3.1%, over the prior quarter.
For the nine months ended September 30, 2008, noninterest expense increased by $6.5 million, or 12.1 %, to $60.1 million compared to the nine months ended September 30, 2007. Increases in salaries and benefits of $4.6 million, or 16.0%, were primarily attributable to increased mortgage segment commissions of $1.5 million as well as additional personnel in the new branches and normal compensation increases. Occupancy expenses increased $809 thousand, or 18.5%, and were principally attributable to increased facilities costs associated with the Company's new operations center and the new branches. Some of these increased costs included depreciation, rental expenses and, to a lesser extent, utility costs. Operating expenses increased $837 thousand, or 4.9%, and principally related to ongoing infrastructure enhancements to support the Company's continued growth as well as higher FDIC insurance costs due to exhausting assessment credits. Infrastructure enhancements included such things as Voice-over Internet Protocol and the associated hardware and software to support this technology. Approximately $269 thousand of operating expenses related to conversion costs incurred to merge an affiliate bank. Furniture and equipment expenses increased $229 thousand, or 6.5%, and were attributable to the related depreciation of the new branches and the new operations center.
For comparative purposes, noninterest expense for the nine months ended September 30, 2008 and 2007 includes expense associated with the purchase of six bank branches acquired in September 2007, and the opening of one de novo bank branch in December 2007. These new branches contributed approximately $192 thousand of noninterest expense during the month of September in 2007. During the first nine months of 2008, these new branches contributed $928 thousand toward the increase in salaries and benefits, $392 thousand in occupancy expenses, $256 thousand in other operating expenses and $171 thousand in furniture and equipments expenses. Absent the noninterest expense associated with the new branches, merger-related costs, and mortgage segment expenses, noninterest expense increased approximately $2.6 million, or 5.7%, over the same nine month period ended September 30, 2007.
BALANCE SHEET
At September 30, 2008, total assets were approximately $2.4 billion compared to $2.2 billion and $2.3 billion at September 30, 2007 and December 31, 2007, respectively. Net loans increased $176.1 million, or 10.6%, from September 30, 2007, and increased $112.8 million, or 6.5% from December 31, 2007. The year over year increase in loan growth was spread among consumer and commercial loan portfolios. Total cash and cash equivalents increased $34.1 million to $84.5 million at September 30, 2008 from $50.5 million a year ago, and increased $26.2 million from $58.3 million at December 31, 2007. This increase was in Federal funds sold and represented excess liquidity from an FHLB advance. Deposits increased $151.8 million, or 9.1%, and $154.6 million, or 9.3%, from September 30, 2007 and December 31, 2007, respectively, primarily due to increases in money market accounts and the issuance of approximately $81.7 million in brokered certificates of deposit. Total borrowings (including repurchase agreements) increased $71.8 million from September 30, 2007, but decreased by $10.9 million from December 31, 2007 to $401.8 million at September 30, 2008. The Company's equity to assets ratio was 8.74% at September 30, 2008. The Company's current strategic plan includes a targeted equity to asset ratio between 8% and 9%.
While not immune from the effects of weakening economic conditions, the Company remains focused on maintaining adequate levels of liquidity and capital during this challenging environment, and believes its sound risk management practices in underwriting and lending will enable it to successfully weather this period of economic uncertainty.
SEGMENT INFORMATION Mortgage Segment
For the three months ended September 30, 2008, the mortgage segment reported net income of $75 thousand, a $246 thousand increase from $171 thousand net loss for the same quarter in 2007. Originations increased 18.3% from the same period last year, resulting in an increase in loan revenue of $768 thousand driven by loan origination growth within core market areas. Total noninterest expenses increased $469 thousand. Of this increase, $397 thousand related to salaries and benefits, a function of increased commission expense resulting from higher loan originations. Other operating expenses increased $44 thousand principally as a result of other costs related to increased loan growth and the addition of new branch offices.
On a linked quarter basis, mortgage segment net income declined by $13 thousand from net income of $88 thousand in the second quarter of 2008 to net income of $75 thousand. Revenue from the sale of loans declined $396 thousand, or 12.4%, while originations fell 18.6%. Salaries and benefits declined $455 thousand correlating to the decrease in originations. Operating expenses and furniture and equipment expenses each increased $41 thousand and $8 thousand, respectively, from the prior quarter. Occupancy expenses declined $23 thousand, principally due to lower maintenance costs.
For the nine months ended September 30, 2008, mortgage segment net income increased by $606 thousand from a net loss of $473 thousand to net income of $133 thousand. Revenue from the sale of loans increased $2.5 million, or 38.1%, as a result of revised fee schedules, consumer demand for loans with increased profit margins and an increase in originations of 21.1%. Salaries and benefits increased $1.5 million, principally due to commissions and other expenses related to increased loan originations. Operating and occupancy costs increased $119 thousand and $93 thousand, respectively, while furniture and equipment costs increased $36 thousand. These costs were largely driven by origination growth and additions to the branch office network.
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 (38 locations in the counties of Albemarle, Caroline, Chesterfield, Fairfax, 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 (7 locations in Washington, Front Royal, Middleburg, Warrenton, and Winchester) and Bay Community Bank (4 locations in Williamsburg, Newport News and Grafton). Union Bank and Trust Company also operates a loan production office in Manassas. 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.
On March 14, 2008, the Company completed the previously announced merger of its Prosperity Bank & Trust Company affiliate into Union Bank and Trust Company ("Union Bank").
On May 28, 2008, the Company announced that its affiliate Bay Community Bank will merge into its largest bank affiliate, Union Bank. The projected completion date of the merger is October 31, 2008.
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 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 09/30/08 09/30/07 06/30/08 Results of Operations Interest and dividend income $34,012 $36,251 $33,308 Interest expense 13,758 16,903 13,480 Net interest income 20,254 19,348 19,828 Provision for loan losses 3,667 432 1,676 Net interest income after provision for loan losses 16,587 18,916 18,152 Noninterest income 9,113 6,282 7,656 Noninterest expenses 20,109 17,978 20,034 Income before income taxes 5,591 7,220 5,774 Income tax expense 1,336 1,863 1,441 Net income $4,255 $5,357 $4,333 Interest earned on loans (FTE) $30,610 $32,644 $29,857 Interest earned on securities (FTE) 4,273 4,099 4,248 Interest earned on earning assets (FTE) 34,903 37,020 34,127 Net interest income (FTE) 21,144 20,116 20,647 Interest expense on certificates of deposit 8,500 10,613 9,025 Interest expense on interest-bearing deposits 10,685 12,079 10,676 Core deposit intangible amortization 483 471 487 Net income - community bank segment $4,181 $5,528 $4,245 Net income - mortgage segment 75 (171) 88 Key Performance Ratios Return on average assets (ROA) 0.71% 0.97% 0.74% Return on average equity (ROE) 7.87% 10.32% 8.10% Efficiency ratio 68.47% 70.14% 72.89% Efficiency ratio - community bank segment 65.52% 66.40% 69.77% Net interest margin (FTE) 3.89% 4.07% 3.92% Yields on earning assets (FTE) 6.42% 7.49% 6.48% Cost of interest-bearing liabilities (FTE) 2.91% 3.99% 2.96% Noninterest expense less noninterest income / average assets 1.83% 2.12% 2.12% Per Share Data Earnings per share, basic $0.32 $0.40 $0.32 Earnings per share, diluted 0.31 0.40 0.32 Cash basis earnings per share, diluted 0.34 0.42 0.35 Cash dividends paid 0.185 0.185 0.185 Market value per share 24.00 22.71 14.89 Book value per share 15.82 15.59 15.81 Tangible book value per share 10.90 10.46 10.84 Price to earnings ratio, diluted 19.46 14.31 11.57 Price to book value ratio 1.52 1.46 0.94 Weighted average shares outstanding, basic 13,482,030 13,350,143 13,469,589 Weighted average shares outstanding, diluted 13,536,670 13,420,199 13,506,929 Shares outstanding at end of period 13,523,136 13,388,789 13,503,853 Financial Condition Assets $2,448,165 $2,219,032 $2,395,930 Loans, net of unearned income 1,865,667 1,683,742 1,823,706 Earning Assets 2,213,682 1,985,891 2,147,877 Goodwill 56,474 56,075 56,474 Core deposit intangibles, net 10,094 12,407 10,577 Deposits 1,814,160 1,662,341 1,786,847 Stockholders' equity 213,949 208,251 213,475 Tangible equity 147,381 139,769 146,424 Nine Months Ended 09/30/08 09/30/07 Results of Operations Interest and dividend income $102,190 $105,007 Interest expense 42,983 48,278 Net interest income 59,207 56,729 Provision for loan losses 6,943 (113) Net interest income after provision for loan losses 52,264 56,842 Noninterest income 24,117 18,703 Noninterest expenses 60,076 53,603 Income before income taxes 16,305 21,942 Income tax expense 4,065 5,796 Net income $12,240 $16,146 Interest earned on loans (FTE) $91,855 $94,363 Interest earned on securities (FTE) 12,740 12,105 Interest earned on earning assets (FTE) 104,699 107,227 Net interest income (FTE) 61,715 58,951 Interest expense on certificates of deposit 27,792 31,631 Interest expense on interest-bearing deposits 33,096 35,976 Core deposit intangible amortization 1,456 1,386 Net income - community bank segment $12,108 $16,619 Net income - mortgage segment 133 (473) Key Performance Ratios Return on average assets (ROA) 0.70% 1.01% Return on average equity (ROE) 7.61% 10.59% Efficiency ratio 72.10% 71.06% Efficiency ratio - community bank segment 68.95% 67.21% Net interest margin (FTE) 3.89% 4.12% Yields on earning assets (FTE) 6.60% 7.49% Cost of interest-bearing liabilities (FTE) 3.12% 3.95% Noninterest expense less noninterest income / average assets 2.04% 2.18% Per Share Data Earnings per share, basic $0.91 $1.21 Earnings per share, diluted 0.91 1.20 Cash basis earnings per share, diluted 0.98 1.27 Cash dividends paid 0.555 0.540 Market value per share 24.00 22.71 Book value per share 15.82 15.59 Tangible book value per share 10.90 10.46 Price to earnings ratio, diluted 19.74 14.15 Price to book value ratio 1.52 1.46 Weighted average shares outstanding, basic 13,466,009 13,329,797 Weighted average shares outstanding, diluted 13,511,178 13,415,537 Shares outstanding at end of period 13,523,136 13,388,789 Financial Condition Assets $2,448,165 $2,219,032 Loans, net of unearned income 1,865,667 1,683,742 Earning Assets 2,213,682 1,985,891 Goodwill 56,474 56,075 Core deposit intangibles, net 10,094 12,407 Deposits 1,814,160 1,662,341 Stockholders' equity 213,949 208,251 Tangible equity 147,381 139,769 Three Months Ended 09/30/08 09/30/07 06/30/08 Averages Assets $2,391,010 $2,190,166 $2,345,698 Loans, net of unearned income 1,840,979 1,657,002 1,794,443 Loans held for sale 24,682 21,350 31,021 Securities 289,784 276,537 287,234 Earning assets 2,161,566 1,960,836 2,116,639 Deposits 1,779,414 1,637,453 1,738,866 Certificates of deposit 915,349 888,862 922,909 Interest-bearing deposits 1,505,718 1,353,293 1,461,568 Borrowings 378,126 327,515 372,073 Interest-bearing liabilities 1,883,844 1,680,808 1,833,641 Stockholders' equity 215,040 205,848 215,223 Tangible equity 148,235 141,307 147,937 Asset Quality Allowance for Loan Losses Beginning balance of allowance for loan losses $21,650 $18,353 $20,452 Add: Allowance from acquired banks - - - Add: Recoveries 60 23 88 Less: Charge-offs 957 252 566 Add: Provision for loan losses 3,667 432 1,676 Ending balance of allowance for loan losses $24,420 $18,556 $21,650 Allowance for loan losses / total outstanding loans 1.31% 1.10% 1.19% Nonperforming Assets Nonaccrual loans $15,848 $8,307 $12,135 Other real estate and foreclosed properties 1,293 217 781 Total nonperforming assets 17,141 8,524 12,916 Loans > 90 days and still accruing 2,738 1,439 2,481 Total nonperforming assets and loans > 90 days and still accruing $19,879 $9,963 $15,397 Nonperforming assets / total outstanding loans 0.92% 0.51% 0.71% Allowance for loan losses / nonperforming assets 142.47% 217.69% 167.62% Other Data Mortgage loan originations $103,948 $87,861 $126,916 % of originations that are refinances 28.50% 33.51% 36.30% End of period full-time employees 679 675 705 Number of full-service branches 58 57 58 Number of community banks (subsidiaries) 4 5 4 Number of full automatic transaction machines (ATM's) 150 144 147 Alternative Performance Measures (1) Net income $4,255 $5,357 $4,333 Plus: Core deposit intangible amortization, net of tax 314 306 317 Cash basis operating earnings $4,569 $5,663 $4,650 Average assets $2,391,010 $2,190,166 $2,345,698 Less: Average goodwill 56,474 52,975 56,474 Less: Average core deposit intangibles 10,331 11,566 10,812 Average tangible assets $2,324,205 $2,125,625 $2,278,412 Average equity $215,040 $205,848 $215,223 Less: Average goodwill 56,474 52,975 56,474 Less: Average core deposit intangibles 10,331 11,566 10,812 Average tangible equity $148,235 $141,307 $147,937 Cash basis earnings per share, diluted $0.34 $0.42 $0.35 Cash basis return on average tangible assets 0.78% 1.06% 0.82% Cash basis return on average tangible equity 12.26% 15.90% 12.64% Nine Months Ended 09/30/08 09/30/07 Averages Assets $2,349,589 $2,135,837 Loans, net of unearned income 1,801,561 1,612,018 Loans held for sale 26,398 21,774 Securities 286,934 273,432 Earning assets 2,120,535 1,913,214 Deposits 1,734,603 1,645,690 Certificates of deposit 922,810 895,770 Interest-bearing deposits 1,461,987 1,364,004 Borrowings 380,220 268,436 Interest-bearing liabilities 1,842,207 1,632,440 Stockholders' equity 214,904 203,796 Tangible equity 147,620 140,365 Asset Quality Allowance for Loan Losses Beginning balance of allowance for loan losses $19,336 $19,148 Add: Allowance from acquired banks - - Add: Recoveries 227 238 Less: Charge-offs 2,086 717 Add: Provision for loan losses 6,943 (113) Ending balance of allowance for loan losses $24,420 $18,556 Allowance for loan losses / total outstanding loans 1.31% 1.10% Nonperforming Assets Nonaccrual loans $15,848 $8,307 Other real estate and foreclosed properties 1,293 217 Total nonperforming assets 17,141 8,524 Loans > 90 days and still accruing 2,738 1,439 Total nonperforming assets and loans > 90 days and still accruing $19,879 $9,963 Nonperforming assets / total outstanding loans 0.92% 0.51% Allowance for loan losses / nonperforming assets 142.47% 217.69% Other Data Mortgage loan originations $339,919 $280,675 % of originations that are refinances 39.20% 41.11% End of period full-time employees 679 675 Number of full-service branches 58 57 Number of community banks (subsidiaries) 4 5 Number of full automatic transaction machines (ATM's) 150 144 Alternative Performance Measures (1) Net income $12,240 $16,146 Plus: Core deposit intangible amortization, net of tax 946 901 Cash basis operating earnings $13,186 $17,047 Average assets $2,349,589 $2,135,837 Less: Average goodwill 56,474 51,659 Less: Average core deposit intangibles 10,810 11,772 Average tangible assets $2,282,305 $2,072,406 Average equity $214,904 $203,796 Less: Average goodwill 56,474 51,659 Less: Average core deposit intangibles 10,810 11,772 Average tangible equity $147,620 $140,365 Cash basis earnings per share, diluted $0.98 $1.27 Cash basis return on average tangible assets 0.77% 1.10% Cash basis return on average tangible equity 11.93% 16.24%
(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) September December September 30, 2008 31, 2007 30, 2007 ASSETS (Unaudited) (Audited) (Unaudited) Cash and cash equivalents: Cash and due from banks $49,848 $54,716 $45,712 Interest-bearing deposits in other banks 960 662 1,238 Money market investments 180 303 192 Other interest-bearing deposits 2,598 2,598 2,598 Federal funds sold 30,937 - 732 Total cash and cash equivalents 84,523 58,279 50,472 Securities available for sale, at fair value 290,357 282,699 276,672 Loans held for sale 22,983 25,248 20,717 Loans, net of unearned income 1,865,667 1,747,820 1,683,742 Less allowance for loan losses 24,420 19,336 18,556 Net loans 1,841,247 1,728,484 1,665,186 Bank premises and equipment, net 77,127 75,741 75,398 Other real estate owned 1,293 694 217 Core deposit intangibles, net 10,094 11,550 12,407 Goodwill 56,474 56,474 56,075 Other assets 64,067 62,228 61,888 Total assets $2,448,165 $2,301,397 $2,219,032 LIABILITIES Noninterest-bearing demand deposits $284,940 $281,405 $286,675 Interest-bearing deposits: NOW accounts 217,223 217,809 205,063 Money market accounts 272,830 156,576 162,183 Savings accounts 99,897 100,885 107,232 Time deposits of $100,000 and over 410,035 453,243 446,401 Brokered Certificates of Deposit 81,729 - - Other time deposits 447,506 449,660 454,787 Total interest-bearing deposits 1,529,220 1,378,173 1,375,666 Total deposits 1,814,160 1,659,578 1,662,341 Securities sold under agreements to repurchase 66,966 82,049 70,493 Other short-term borrowings 70,000 200,837 129,700 Trust preferred capital notes 60,310 60,310 60,310 Long-term borrowings 204,500 69,500 69,500 Other liabilities 18,280 17,041 18,437 Total liabilities 2,234,216 2,089,315 2,010,781 Commitments and contingencies STOCKHOLDERS' EQUITY Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 13,523,135 shares, 13,438,334 shares, and 13,388,789 shares, respectively. 17,988 17,879 17,813 Surplus 42,297 40,758 39,693 Retained earnings 155,387 152,238 151,104 Accumulated other comprehensive income (loss) (1,723) 1,207 (359) Total stockholders' equity 213,949 212,082 208,251 Total liabilities and stockholders' equity 2,448,165 2,301,397 2,219,032 UNION BANKSHARES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 2008 2007 2008 2007 Interest and dividend income: Interest and fees on loans $30,437 $32,530 $91,426 $94,022 Interest on Federal funds sold 5 221 34 606 Interest on deposits in other banks 8 20 22 47 Interest on money market investments - 1 1 3 Interest on other interest-bearing deposits 7 34 47 103 Interest and dividends on securities: Taxable 2,220 2,230 6,797 6,735 Nontaxable 1,335 1,215 3,863 3,491 Total interest and dividend income 34,012 36,251 102,190 105,007 Interest expense: Interest on deposits 10,685 12,078 33,096 35,977 Interest on Federal funds purchased 114 432 378 1,000 Interest on short-term borrowings 661 2,256 3,698 4,223 Interest on long-term borrowings 2,298 2,137 5,811 7,078 Total interest expense 13,758 16,903 42,983 48,278 Net interest income 20,254 19,348 59,207 56,729 Provision for (recapture of) loan losses 3,667 432 6,943 (113) Net interest income after provision for loan losses 16,587 18,916 52,264 56,842 Noninterest income: Service charges on deposit accounts 2,405 1,947 6,854 5,590 Other service charges, commissions and fees 1,804 1,525 4,985 4,526 Gains on securities transactions, net 1 93 29 601 Gains on sales of loans 2,790 2,024 8,967 6,500 Gains (losses) on sales of other real estate and bank premises, net 1,737 317 1,872 308 Other operating income 376 376 1,410 1,178 Total noninterest income 9,113 6,282 24,117 18,703 Noninterest expenses: Salaries and benefits 11,046 9,230 33,385 28,787 Occupancy expenses 1,755 1,560 5,182 4,373 Furniture and equipment expenses 1,242 1,213 3,739 3,510 Other operating expenses 6,066 5,975 17,770 16,933 Total noninterest expenses 20,109 17,978 60,076 53,603 Income before income taxes 5,591 7,220 16,305 21,942 Income tax expense 1,336 1,863 4,065 5,796 Net income $4,255 $5,357 $12,240 $16,146 Earnings per share, basic $0.32 $0.40 $0.91 $1.21 Earnings per share, diluted $0.31 $0.40 $0.91 $1.20 AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS) For the Three Months Ended September 30, 2008 Interest Income / Yield / Average Balance Expense Rate (1) (Dollars in thousands) Assets: Securities: Taxable $176,959 $2,220 4.99% Tax-exempt 112,825 2,053 7.24% Total securities 289,784 4,273 5.87% Loans, net (2) (3) 1,840,979 30,231 6.53% Loans held for sale 24,682 379 6.10% Federal funds sold 1,661 5 1.20% Money market investments 124 - 0.01% Interest-bearing deposits in other banks 1,738 8 1.88% Other interest-bearing deposits 2,598 7 1.01% Total earning assets 2,161,566 34,903 6.42% Allowance for loan losses (22,125) Total non-earning assets 251,569 Total assets $2,391,010 Liabilities and Stockholders' Equity: Interest-bearing deposits: Checking $215,675 341 0.63% Money market savings 272,513 1,701 2.48% Regular savings 102,181 143 0.56% Certificates of deposit: $100,000 and over 419,448 3,895 3.69% Under $100,000 495,901 4,605 3.69% Total interest-bearing deposits 1,505,718 10,685 2.82% Other borrowings 378,126 3,074 3.23% Total interest-bearing liabilities 1,883,844 13,759 2.91% Noninterest-bearing liabilities: Demand deposits 273,696 Other liabilities 18,430 Total liabilities 2,175,970 Stockholders' equity 215,040 Total liabilities and stockholders' equity $2,391,010 Net interest income $21,144 Interest rate spread (4) 3.51% Interest expense as a percent of average earning assets 2.53% Net interest margin 3.89% For the Three Months Ended September 30, 2007 Interest Income / Yield / Average Balance Expense Rate (1) (Dollars in thousands) Assets: Securities: Taxable $171,600 $2,230 5.16% Tax-exempt 104,937 1,869 7.07% Total securities 276,537 4,099 5.88% Loans, net (2) (3) 1,657,002 32,292 7.73% Loans held for sale 21,350 352 6.53% Federal funds sold 1,674 221 5.59% Money market investments 216 1 2.17% Interest-bearing deposits in other banks 1,459 21 5.61% Other interest-bearing deposits 2,598 34 5.26% Total earning assets 1,960,836 37,020 7.49% Allowance for loan losses (18,361) Total non-earning assets 247,691 Total assets $2,190,166 Liabilities and Stockholders' Equity: Interest-bearing deposits: Checking $201,803 330 0.65% Money market savings 157,729 935 2.35% Regular savings 104,899 201 0.76% Certificates of deposit: $100,000 and over 443,292 5,537 4.96% Under $100,000 445,570 5,076 4.52% Total interest-bearing deposits 1,353,293 12,079 3.54% Other borrowings 327,515 4,825 5.84% Total interest-bearing liabilities 1,680,808 16,904 3.99% Noninterest-bearing liabilities: Demand deposits 284,160 Other liabilities 19,350 Total liabilities 1,984,318 Stockholders' equity 205,848 Total liabilities and stockholders' equity $2,190,166 Net interest income $20,116 Interest rate spread (4) 3.50% Interest expense as a percent of average earning assets 3.42% Net interest margin 4.07% For the Three Months Ended September 30, 2006 Interest Income / Yield / Average Balance Expense Rate (1) (Dollars in thousands) Assets: Securities: Taxable $196,351 $2,619 5.29% Tax-exempt 94,966 1,725 7.21% Total securities 291,317 4,344 5.92% Loans, net (2) (3) 1,519,694 29,171 7.62% Loans held for sale 25,531 430 6.68% Federal funds sold 8,288 520 5.61% Money market investments 203 2 3.67% Interest-bearing deposits in other banks 1,722 25 5.81% Other interest-bearing deposits 2,598 34 5.24% Total earning assets 1,849,353 34,526 7.41% Allowance for loan losses (18,815) Total non-earning assets 223,063 Total assets $2,053,601 Liabilities and Stockholders' Equity: Interest-bearing deposits: Checking $200,591 211 0.42% Money market savings 166,633 942 2.24% Regular savings 117,297 271 0.92% Certificates of deposit: $100,000 and over 402,793 4,770 4.70% Under $100,000 412,867 4,308 4.14% Total interest-bearing deposits 1,300,181 10,502 3.20% Other borrowings 251,470 3,902 6.16% Total interest-bearing liabilities 1,551,651 14,404 3.68% Noninterest-bearing liabilities: Demand deposits 296,715 Other liabilities 13,907 Total liabilities 1,862,273 Stockholders' equity 191,328 Total liabilities and stockholders' equity $2,053,601 Net interest income $20,122 Interest rate spread (4) 3.73% Interest expense as a percent of average earning assets 3.09% Net interest margin 4.32% (1) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above. (2) Nonaccrual loans are included in average loans outstanding. (3) Foregone interest on previously charged off credits of $350 thousand has been excluded for 2006. (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 Nine Months Ended September 30, 2008 Interest Income / Yield / Average Balance Expense Rate (1) (Dollars in thousands) Assets: Securities: Taxable $177,184 $6,797 5.12% Tax-exempt 109,750 5,943 7.23% Total securities 286,934 12,740 5.93% Loans, net (2) (3) 1,801,561 90,751 6.73% Loans held for sale 26,398 1,104 5.59% Federal funds sold 1,615 34 2.81% Money market investments 170 1 0.47% Interest-bearing deposits in other banks 1,259 22 2.31% Other interest-bearing deposits 2,598 47 2.41% Total earning assets 2,120,535 104,699 6.60% Allowance for loan losses (20,833) Total non-earning assets 249,887 Total assets $2,349,589 Liabilities and Stockholders' Equity: Interest-bearing deposits: Checking $220,627 1,077 0.65% Money market savings 216,255 3,776 2.33% Regular savings 102,295 451 0.59% Certificates of deposit: $100,000 and over 436,229 13,315 4.08% Under $100,000 486,581 14,477 3.97% Total interest-bearing deposits 1,461,987 33,096 3.02% Other borrowings 380,220 9,888 3.47% Total interest-bearing liabilities 1,842,207 42,984 3.12% Noninterest-bearing liabilities: Demand deposits 272,616 Other liabilities 19,862 Total liabilities 2,134,685 Stockholders' equity 214,904 Total liabilities and stockholders' equity $2,349,589 Net interest income $61,715 Interest rate spread (4) 3.48% Interest expense as a percent of average earning assets 2.71% Net interest margin 3.89% For the Nine Months Ended September 30, 2007 Interest Income / Yield / Average Balance Expense Rate (1) (Dollars in thousands) Assets: Securities: Taxable $174,069 $6,735 5.17% Tax-exempt 99,363 5,370 7.23% Total securities 273,432 12,105 5.92% Loans, net (2) (3) 1,612,018 93,351 7.74% Loans held for sale 21,774 1,012 6.21% Federal funds sold 2,017 606 5.53% Money market investments 209 3 2.04% Interest-bearing deposits in other banks 1,166 47 5.41% Other interest-bearing deposits 2,598 103 5.33% Total earning assets 1,913,214 107,227 7.49% Allowance for loan losses (18,589) Total non-earning assets 241,212 Total assets $2,135,837 Liabilities and Stockholders' Equity: Interest-bearing deposits: Checking $205,340 982 0.64% Money market savings 157,913 2,737 2.32% Regular savings 104,981 626 0.80% Certificates of deposit: $100,000 and over 445,762 16,477 4.94% Under $100,000 450,008 15,154 4.50% Total interest-bearing deposits 1,364,004 35,976 3.53% Other borrowings 268,436 12,300 6.13% Total interest-bearing liabilities 1,632,440 48,276 3.95% Noninterest-bearing liabilities: Demand deposits 281,686 Other liabilities 17,915 Total liabilities 1,932,041 Stockholders' equity 203,796 Total liabilities and stockholders' equity $2,135,837 Net interest income $58,951 Interest rate spread (4) 3.54% Interest expense as a percent of average earning assets 3.37% Net interest margin 4.12% For the Nine Months Ended September 30, 2006 Interest Income / Yield / Average Balance Expense Rate (1) (Dollars in thousands) Assets: Securities: Taxable $186,806 $7,337 5.25% Tax-exempt 87,196 4,789 7.34% Total securities 274,002 12,126 5.92% Loans, net (2) (3) 1,467,932 81,935 7.46% Loans held for sale 26,272 1,287 6.55% Federal funds sold 8,167 838 5.19% Money market investments 136 3 3.07% Interest-bearing deposits in other banks 1,146 44 5.09% Other interest-bearing deposits 2,598 93 4.85% Total earning assets 1,780,253 96,326 7.23% Allowance for loan losses (18,232) Total non-earning assets 205,659 Total assets $1,967,680 Liabilities and Stockholders' Equity: Interest-bearing deposits: Checking $202,286 593 0.39% Money market savings 175,772 2,948 2.24% Regular savings 119,266 821 0.92% Certificates of deposit: $100,000 and over 371,957 12,304 4.42% Under $100,000 395,218 11,369 3.85% Total interest-bearing deposits 1,264,499 28,035 2.96% Other borrowings 220,022 8,988 5.46% Total interest-bearing liabilities 1,484,521 37,023 3.33% Noninterest-bearing liabilities: Demand deposits 281,310 Other liabilities 13,332 Total liabilities 1,779,163 Stockholders' equity 188,517 Total liabilities and stockholders' equity $1,967,680 Net interest income $59,303 Interest rate spread (4) 3.90% Interest expense as a percent of average earning assets 2.78% Net interest margin 4.45% (1) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above. (2) Nonaccrual loans are included in average loans outstanding. (3) Foregone interest on previously charged off credits of $464 thousand has been excluded for 2006. (4) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.
