UNION FIRST MARKET BANKSHARES CORP. 
By BOWLING GREEN, Va., Jan. 27 /PRNewswire-FirstCall/ -- Union Bankshares Corporation (the "Company") (Nasdaq: UBSH) reports net income of $2.8 million for the quarter ended December 31, 2009, representing an increase of $575 thousand from $2.3 million for the quarter ended December 31, 2008. This increase was principally related to lower costs of funds and increased revenue from the mortgage segment, partially offset by increased credit costs and costs associated with the pending acquisition of First Market Bank. Net income available to common shareholders, which deducts from net income the dividends and discount accretion on preferred stock, was $406 thousand for the current quarter compared to $2.3 million from the same quarter last year. This represents a decrease in earnings per share, on a diluted basis, of $0.15, to $0.02 from $0.17. This reduction was largely attributable to acceleration of the discount accretion associated with the redemption of the Treasury's investment in the Company.
The Company reported net income of $8.4 million for the year ended December 31, 2009, representing a decline of $6.1 million from the prior year. Drivers of the decline included increased credit costs, lower yields on earning assets, increased Federal Deposit Insurance Corporation ("FDIC") assessments and costs associated with the pending acquisition of First Market Bank. These were partially offset by favorable cost of funds experience and increased revenue from the mortgage segment.
Select highlights:
-- Net interest income improved $3.9 million over the same quarter a year
ago and $1.8 million over the most recent quarter with the net interest
margin increasing to 3.97% from 3.52% a year ago and 3.69% in the most
recent quarter, due largely to reductions in the cost of funds and lower
wholesale borrowings.
-- Credit costs continued to impact earnings, resulting in provisions of
$5.7 million for the quarter and $18.2 million year-to-date. The
allowance for loan losses at year end represented 1.63% of total loans.
-- Fourth quarter mortgage segment net income of $492 thousand increased
compared to the most recent quarter and totaled $2.4 million for the
year, reflecting increased origination volume during a historically low
interest rate environment.
-- The Company redeemed preferred stock issued to the U. S. Treasury under
the Capital Purchase Program and recorded a charge of $2.4 million
related to the accelerated discount accretion on the preferred stock, or
$0.14, per share.
-- Costs related to the pending acquisition of First Market Bank amounted
to $554 thousand for the quarter and $1.5 million for the year.
-- Return on average common equity for the three months ended December 31,
2009 was 3.61%, while return on average assets was 0.44%, compared to
4.08% and 0.37%, respectively, for the same period in 2008.
"In a year filled with economic bad news and significant challenges, we are very pleased to closeout 2009 with another quarter of improved performance, generating momentum for 2010." said G. William Beale, President and Chief Executive Officer of Union Bankshares Corporation. "The net interest margin improved further in the fourth quarter driving earnings improvement and offsetting continued credit costs and acquisition-related costs. We also redeemed the U.S. Treasury's investment in our preferred stock and redeemed the related stock warrant during the fourth quarter. Nonperforming assets continue to be a central focus for our organization, but we are also focused on economic recovery and growth......we are poised and ready to lend to credit-worthy borrowers.
We are excited about the prospects for 2010 as we expect to close the First Market Bank deal and move forward as one of Virginia's premiere banking organizations."
The Company reported net income of $2.8 million in each of the three month periods ended December 31, 2009 and September 30, 2009. Net income remained unchanged principally as a result of favorable cost of funds experience and mortgage segment revenue offset by increased credit costs and costs related to the pending acquisition of First Market Bank.
The Company continues to incur costs related to the pending acquisition of First Market Bank. Such costs include legal and accounting fees, lease and contract termination expenses, and employee severances, which will be expensed as incurred. Current quarter and year-to-date costs were $554 thousand and $1.5 million, respectively. Total acquisition costs were initially estimated to be approximately $10.8 million, but will likely be less than $8.0 million with remaining costs to be expensed as incurred over the next two quarters.
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 December 31, 2009 were $0.17 as compared to $0.19 for the same quarter a year ago and $0.21 for the quarter ended September 30, 2009. Additionally, cash basis return on average tangible common equity for the quarter ended December 31, 2009 was 5.71% as compared to 6.98% in the prior year's same quarter and 7.47% for the quarter ended September 30, 2009.
NET INTEREST INCOME
During 2009, the Federal Open Market Committee ("FOMC") maintained the target range for the Federal funds rate at 0% to 0.25% and reiterated its intent to hold the Federal funds rate exceptionally low for an extended period. Additionally, the FOMC used liquidity and asset-purchase programs to support the financial markets and to stimulate the economy throughout 2009 but anticipates that, in light of recent ongoing improvements in the functioning of the financial markets, these programs will end as planned in 2010.
The decline in the target Federal funds rate throughout the last two years had placed downward pressure on the Company's earning asset yields and related net interest income. During the third and fourth quarters of 2009, however, repricing of money market accounts and certificates of deposit provided significant relief from this trend. The Company also expects net interest margin to be relatively stable over the next several quarters based on the current yield curve.
On a linked quarter basis, tax-equivalent net interest income increased $1.8 million, or 8.2%, to $23.5 million. The tax-equivalent net interest margin increased 28 basis points to 3.97% from 3.69% in the prior quarter. The net interest margin increase was principally attributable to a decline in costs of interest-bearing liabilities. Costs of interest-bearing liabilities declined 29 basis points to 2.08% while yields on interest-earning assets increased 1 basis point to 5.69%. Improvements in the cost of funds were principally a result of declining costs on certificates of deposit (higher rate certificates of deposit matured and repriced at lower rates) as well as lower costs related to Federal Home Loan Bank of Atlanta ("FHLB") borrowings.
Average money market deposits increased $191 million from the same time last year, principally related to the Company's money market promotion. The money market promotion provided customers who opened these accounts during the last half of 2008 a 3% yield through June 30, 2009. Following expiration of the offer, yields for these money market deposits adjusted to the Company's regular money market rates, which at the time were 1.60% or lower. Liquidity generated by this promotion allowed the Company to reduce reliance on other borrowings and not to reissue any brokered certificates of deposit. The repricing of the promotional money market accounts positively impacted the net interest margin in the second half of 2009 by adding approximately 19 basis points to net interest margin.
For the three months ended December 31, 2009, net interest income, on a tax-equivalent basis, increased $3.9 million, or 20.1%, to $23.5 million compared to the same period last year. This increase was attributable to lower deposit costs and lower wholesale funding volumes as compared to the decline in earning asset yields. The net interest margin increased 45 basis points, from 3.52% for the three months ended December 31, 2008, to 3.97% for the same period in 2009. Costs of interest-bearing liabilities declined 82 basis points over the same time, principally as a result of lower costs on certificates of deposit and lower costs and volume of FHLB advances. Yields on interest-earning assets declined 39 basis points over the past year, driven primarily by lower loan and investment security yields.
For the year ended December 31, 2009, tax-equivalent net interest income increased $2.2 million, or 2.8%, to $83.5 million. The tax-equivalent net interest margin decreased 24 basis points to 3.55% from 3.79% compared to the same period a year ago. The net interest margin decrease was partially attributable to a steeper decline in yields on interest-earning assets as compared to the costs of interest-bearing liabilities. Yields on interest-earning assets declined 84 basis points to 5.62% while the costs of interest-bearing liabilities declined only 60 basis points to 2.46% for the year. The decline in interest-earning asset yields was attributable to loan and investment balances repricing at lower rates, and to a lesser extent, an increase in nonaccrual loans. The decline in the cost of interest-bearing liabilities was attributable to declines in the cost of certificates of deposit and lower volumes and costs of FHLB advances, partially offset by increased volumes in promotional money market accounts.
On September 29, 2008, because of significant disruption and uncertainty in the financial markets, the Company borrowed $50 million under a FHLB advance at a rate of 3.52% with a maturity of September 28, 2009. At that time, the Company considered the FHLB advance to be a contingency plan against unforeseen and unprecedented market movements. The earnings spread between the advance and the corresponding short-term investment yield was negative and consequently had an unfavorable impact on the Company's net interest margin. The repayment of this advance during the third quarter, net of a prepayment penalty, favorably impacted the net interest margin over the last half of 2009.
ASSET QUALITY/LOAN LOSS PROVISION
Industry concerns regarding asset quality and softness in commercial real estate continued during the fourth quarter. These issues are impacting the markets in which the Company operates, mainly by slowing real estate activity and adding to the general economic uncertainty. The risk and performance of the Company's loan portfolio are reflective of the relatively stable markets in which it operates. While these markets have experienced slow economic activity, they remain in much better condition than the well-publicized markets in Arizona, Florida, California and other states where the Company does not lend and does not have loan loss exposure. The Company's loan portfolio also does not include exposure to subprime mortgage loans.
During the current quarter the Company continued to experience deterioration in asset quality. While all economic indicators suggest the recession has technically ended, there could be additional softening in asset quality in the near-term, with the magnitude depending upon the potential lagging impact on commercial real estate, unemployment and the pace at which the local economy recovers. The Company sees indications that the housing markets and unemployment in Virginia are improving; however, the commercial real estate market may weaken further as continued job losses negatively affect both consumer spending and occupancy needs by employers.
The Company's loan portfolio has a significant concentration in real estate loans. Residential acquisition and development lending and builder/construction lending have been scaled back as housing activity across the Company's markets has declined. While this softening negatively impacts delinquency and nonperforming asset levels, the collateralized nature of real estate loans serves to better protect the Company from loss.
Necessary resources continue to be devoted to the ongoing review of the loan portfolio and the workouts of problem assets to minimize any losses to the Company. 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 and commercial real estate, and adjust the allowance for loan losses accordingly.
Year-to-date net charge-offs were $13.3 million, or 0.71%, of total loans. For the quarter ended December 31, 2009, net charge-offs were $8.2 million, or 1.73% of loans on an annualized basis, compared to $1.2 million, or 0.26%, for the quarter ended September 30, 2009 and $2 million, or 0.42%, in the same quarter last year. Net charge-offs in the fourth quarter included construction loans of $3.7 million, commercial loans of $3.2 million and consumer loans of $1.0 million. At December 31, 2009, total past due loans were $29.2 million, or 1.56% of total loans, nearly flat from 1.57% a year ago, and up from 1.53% at September 30, 2009.
At December 31, 2009, nonperforming assets totaled $44.9 million, a marginal increase compared to $43.4 million at September 30, 2009 and an increase of $23.3 million from a year ago. The overall increases in the trailing 12 months relate principally to loans in the real estate development and housing sectors. The net decline from the second quarter of 2009 of $8.9 million was primarily related to a successful workout and return to accruing status of a nonaccrual commercial real estate loan relating to a single credit relationship ($6.2 million) and the sale of land from other real estate owned ($2.9 million).
At December 30, 2009 the coverage ratio of allowance for loan losses to nonperforming loans was 136.4%, an increase from 111.1% at September 30, 2009, but down from 176.9% a year earlier. Similarly, the coverage ratio of allowance for loan losses to nonperforming assets (including other real estate owned) was 68.0%, a decline from 75.8% at September 30, 2009 and 118.3% a year earlier.
Nonperforming assets at December 31, 2009 include $22.3 million in nonperforming loans. This total includes residential real estate loans of $9.6 million, commercial and industrial loans of $5.8 million, commercial real estate loans of $2.2 million, land loans of $2.1 million, land development loans of $1.3 million and other loans totaling $1.3 million. Historically, and particularly in the current economic environment, the Company seeks to work with its customers on loan collection matters while taking appropriate actions to improve the Company's position and minimize any losses. These loans are closely monitored and evaluated for collection with appropriate loss reserves established whenever necessary.
Additionally, nonperforming assets also include $22.5 million in other real estate owned. This total includes land development of $10.3 million, land of $7.0 million, residential real estate of $2.6 million, commercial real estate of $1.6 million and land held for development of bank branch sites of $1.0 million. Included in land development is $8.7 million related to a residential community in the Northern Neck region of Virginia which includes developed residential lots, a golf course and undeveloped land. Foreclosed properties have been adjusted to their fair values at the time of foreclosure and any losses have been taken as loan charge-offs against the allowance for loan losses. Other real estate owned asset valuations are also evaluated at least quarterly and any necessary write down to fair value is recorded as impairment.
The provision for loan losses for the quarter ended December 31, 2009 was $5.7 million, an increase of $1.2 million from the most recent quarter and an increase of $2.7 million from the same quarter a year ago. The net increase in the current quarter provision for loan losses principally related to specific reserves. The increase in the provision for loan losses and the current levels of the allowance for loan losses reflect specific reserves related to nonperforming loans, changes in risk rating on loans, net charge-off activity, loan growth, delinquency trends and other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses. The allowance for loan losses as a percentage of the loan portfolio was 1.63% at December 31, 2009, 1.75% at September 30, 2009, and 1.36% and 1.31% for the periods ending December 31, 2008 and September 30, 2008, respectively. The reduction in the allowance from the most recent quarter as a percentage of loans related to prior quarters identification of specific reserves that were charged-off in the current quarter.
Approximately $643.4 million, or 34.3%, of the Company's loan portfolio is comprised of amortizing commercial real estate loans, of which approximately 42% is owner-occupied real estate and which typically carries a lower risk of loss. While there are industry concerns over possible softening in the commercial real estate sector, the Company's portfolio is not highly speculative or concentrated in large credits. In addition, $307.7 million of the loan portfolio is concentrated in real estate construction loans, including raw land, land development, residential lots, speculative and presold residential construction and commercial construction loans (both owner-occupied and non-owner occupied). Of this amount, $153.9 million, or 50.0%, represents land and lot loans; $64.6 million, or 21.0%, represents land development loans; $44.9 million, or 14.6%, represents speculative and presold residential construction loans and $38.4 million, or 12.5%, is commercial construction. The Company's real estate lending is conducted within its operating footprint in markets it understands and monitors.
NONINTEREST INCOME
For the three months ended December 31, 2009, noninterest income increased $2.0 million, or 31.2%, to $8.4 million from $6.4 million in the same period in 2008. Gains on sales of loans in the mortgage segment increased $2.1 million and related to higher origination volume driven by lower mortgage rates and the homebuyer's tax credit. Gains on sales of investment securities increased $133 thousand while gains on sales of bank property and other real estate owned increased $33 thousand. Other operating income increased $71 thousand and related primarily to bank-owned life insurance. Service charges on deposit accounts declined $264 thousand, driven by reduced overdraft and returned check charges. Other service charges decreased $71 thousand, primarily related to lower brokerage commissions, letter of credit fees, ATM fees, partially offset by higher debit card income. Excluding the contribution of the mortgage segment, noninterest income decreased $102 thousand, or 2.3%.
On a linked quarter basis, noninterest income increased $534 thousand, or 6.8%, to $8.4 million from $7.9 million at September 30, 2009, primarily related to a $497 thousand increase in gains on sales of loans in the mortgage segment, $117 thousand related to gains on sales of investment securities and $74 thousand increase in fee income, primarily related to higher brokerage commissions, safe deposit box rent and debit card fees. Partially offsetting these increases were decreases of $79 thousand in service charges, primarily overdraft fees, $43 thousand in net losses on the sales of bank property and other real estate owned, and $32 thousand in other operating income. Excluding the contribution of the mortgage segment, noninterest income increased $35 thousand, or 0.8%.
For the year ended December 31, 2009, noninterest income increased $2.4 million, or 7.9%, to $33.0 million from $30.6 million for the same period in 2008. Of this increase, gains on sales of loans in the mortgage segment accounted for $5.5 million and related to higher origination volume and a surge in refinance activity, partially offset by declines in account service charges and other fee income of $902 thousand and $634 thousand, respectively as well as non-recurring gains on sales of bank property of $1.9 million during 2008. The decline in service charges and other fee income was primarily the result of decreased overdraft fees and returned check charges of $984 thousand, annuity sales of $207 thousand and brokerage commissions of $341 thousand. During the same period in 2008, the Company recorded gains of $1.9 million from the sale of bank property and $198 thousand relating to the mandatory redemption of certain classes of common stock to financial institution members of Visa U.S.A. Excluding the contribution of the mortgage segment and prior period gain transactions, noninterest income declined $1.0 million, or 5.7%.
NONINTEREST EXPENSE
For the three months ended December 31, 2009, noninterest expense increased $2.3 million, or 12.0%, to $21.9 million from $19.6 million compared to the fourth quarter of 2008. Other operating expenses increased $1.3 million, including increased FDIC insurance assessment premiums of $437 thousand related to higher regular assessment rates in 2009. Costs associated with the pending acquisition of First Market Bank were $554 thousand during the quarter. Other costs contributing to the increase included the acceleration of amounts due under a contract with a former employee upon his death totaling $420 thousand and legal fees of $172 thousand related to the Company's problem loan workouts and collection efforts. Costs associated with maintaining other real estate owned increased $351 thousand and marketing and advertising expenses declined $236 thousand primarily due to lower print advertising of $134 thousand and donations of $126 thousand. These were partially offset by higher expenses relating to the Company's Loyalty Banking(SM) and customer rewards campaigns of $161 thousand. Salaries and benefits also increased $1.2 million primarily related to higher mortgage segment commissions of $1.2 million, profit sharing expense of $239 thousand, group insurance costs of $221 thousand, offset by lower wage expenses of $208 thousand due to fewer employees in 2009 as well as lower incentive compensation of $250 thousand. Furniture and equipment expense decreased $127 thousand due to declining depreciation and amortization expense as useful lives were exhausted in certain asset classes. Occupancy expenses increased $39 thousand. Excluding mortgage segment operations, the accelerated contract payment and acquisition related expenses, noninterest expense increased approximately $139 thousand, or 0.8%.
On a linked quarter basis, noninterest expense increased $799 thousand, or 3.8%, to $21.9 million for the three months ended December 31, 2009. Other operating expense increased $742 thousand. Of this increase, $420 thousand related to the above accelerated contract payment and $118 thousand in additional legal fees related to continuing problem loan workouts. Costs related to the pending acquisition of First Market Bank increased $247 thousand to $554 thousand in the fourth quarter compared to $307 thousand in the third quarter. Other costs contributing to the increase were higher salaries and benefits expense of $56 thousand, primarily related to higher mortgage segment commissions, offset by lower wage expenses due to fewer employees and lower incentive compensation expenses. Furniture and fixture expenses increased $42 thousand, primarily in repairs and other related services while occupancy expenses declined $41 thousand. Excluding mortgage segment operations, the accelerated contract payment and acquisition related expenses, noninterest expense decreased $147 thousand, or 0.9%.
For the year ended December 31, 2009, noninterest expense increased $5.7 million, or 7.1 %, to $85.3 million compared to $79.6 million for the year ended December 31, 2008. Other operating expenses increased $5.8 million. Of this increase, FDIC insurance assessment premiums accounted for $3.4 million and were comprised of a special insurance assessment of $1.2 million during the second quarter and an increase in the regular insurance assessment of $2.2 million. Costs associated with the pending acquisition of First Market Bank were $1.5 million in 2009. Other costs contributing to the increase were higher professional fees of $1.1 million which included legal expenses of $665 thousand relating to the Company's problem loan workouts and collection activities and as mentioned above, and accelerated contract payment of $420 thousand. Costs related to other real estate owned and loan expenses increased to $1.6 million from $754 thousand last year. Marketing and advertising costs increased $125 thousand primarily related to the Company's Loyalty Banking(SM) and other campaigns. Salary and benefits costs increased $189 thousand, related to higher mortgage segment commissions of $2.6 million, partially offset by lower salary expenses of $942 thousand, profit sharing expense of $809 thousand and incentive compensation of $959 thousand. In addition, furniture and equipment expenses declined $415 thousand, or 8.3%, primarily related to declining depreciation and amortization expense and rental costs. Occupancy expenses increased $91 thousand, or 1.3%. Excluding mortgage segment operations, increased FDIC special insurance assessment, the accelerated contract payment discussed above, acquisition related expenses and prior year conversion costs, noninterest expense increased approximately $388 thousand, or 0.5 %.
During the first quarter of 2009, to replenish the FDIC's deposit insurance fund, a final rule to impose a special insurance assessment of 5 basis points calculated on each bank's total assets minus Tier 1 capital was approved. The special insurance assessment was billed on June 30, payable on September 30 and recorded as a second quarter expense. During the second quarter of 2009, the Company expensed $1.2 million related to the FDIC special insurance assessment. The special insurance assessment was in addition to the regular quarterly risk-based assessment. The assessment base for regular quarterly insurance assessments was not changed. On September 29, 2009, the FDIC adopted a rule to require institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The FDIC also adopted a uniform three-basis point increase in assessment rates effective January 1, 2011, and extended the restoration period from seven to eight years. The Company made a prepayment of $12.6 million during the fourth quarter, of which $3.3 million is expected to be expensed over the next 12 months.
For the year ended December 31, 2009, acquisition costs associated with the pending acquisition of First Market Bank, were $1.5 million and are reported as a component of "Other operating expenses" within the Company's "Condensed Consolidated Statements of Income." These costs were predominantly legal and due diligence costs. The Company expects to incur additional acquisition costs both prior to and after the close date. On October 26, 2009, the Company held a special meeting of its shareholders and received shareholder approvals for its acquisition of First Market Bank and for changing its corporate name to Union First Market Bankshares Corporation. On January 14, 2010, the Company received regulatory approval from the Federal Reserve Bank of Richmond to move forward with its acquisition of First Market Bank and the transaction is expected to close on February 1, 2010.
BALANCE SHEET
At December 31, 2009, total assets increased slightly to $2.59 billion from $2.55 billion at December 31, 2008. Net loans decreased $4.9 million, or 0.3%, compared to December 31, 2008. On a linked quarter basis, net loans decreased $8.4 million from September 30, 2009. The Company's mortgage segment increased loans held for sale by $12.2 million and $24.9 million, from September 30, 2009 and December 31, 2008, respectively, related to higher origination volume. As of December 31, 2009, total cash and cash equivalents were $45.9 million, a decrease of $102.6 million from $148.5 million at December 31, 2008. Total cash and equivalents at December 31, 2009, included proceeds of approximately $58.8 million from the Company's third quarter follow-on equity raise, net of underwriting costs, legal and accounting fees. During the fourth quarter 2009, the Company redeemed the Preferred Stock issued to the U. S. Treasury by repaying $59 million received in December 2008 under the Capital Purchase Program. In addition, the Company also eliminated its brokered certificates of deposit, which totaled $66.7 million at December 31, 2008. The decline in total cash and cash equivalents from December 31, 2008 resulted from redeploying cash into higher yielding investment securities. Deposits decreased $10.6 million, or 0.6%, from a year ago primarily due to decreases in both regular and brokered certificates of deposit, partially offset by increases in money market accounts.
Total borrowings, including repurchase agreements, increased $32.5 million to $366.1 million at December 31, 2009, from a year ago, principally as a result of a net increase in wholesale funding. The Company's equity to assets ratios were 10.90% and 10.73% at December 31, 2009 and 2008, respectively. The Company's tangible common equity to assets ratio was 8.64% and 6.10% at December 31, 2009 and 2008, respectively.
The Company completed a follow-on equity raise on September 16, 2009, which generated cash and capital of approximately $58.8 million, net of underwriting discounts, commissions and estimated offering expenses from the issuance of 4,725,000 shares of common stock at a price of $13.25 per share. It is anticipated that the proceeds of this offering will be used for general corporate purposes, including organic and opportunistic acquisition-based growth.
In November 2009, the Company redeemed the Treasury's investment of Fixed Rate Cumulative Perpetual Preferred Stock, Series A by repaying, with accumulated dividends, the $59 million it received in December 2008. Additionally, in December 2009, the Company entered into a Warrant Repurchase Letter Agreement with the U. S. Treasury to repurchase a warrant to purchase 211,318 shares of the Company's common stock that was issued to the connection with the Company's sale to the Treasury of Fixed Rate Cumulative Perpetual Preferred Stock. As a result of the Warrant repurchase, the Company has no securities issued or outstanding to the Treasury and is no longer participating in the Treasury's Capital Purchase Program.
Management remains focused on maintaining strong levels of liquidity and capital during this challenging environment and believes its sound risk management practices in underwriting and lending will enable the Company to weather successfully this period of economic uncertainty.
SEGMENT INFORMATION
Mortgage Segment
On a linked quarter basis, mortgage segment net income increased $196 thousand, or 66.2%, to $492 thousand from $296 thousand in the third quarter of 2009. Originations increased $40.8 million from $144.3 million to $185.1 million, or 28.3%, from the most recent quarter, resulting in an increase in loan revenue of $503 thousand, or 13.4%. Loan originations increased as a result of strong existing home sales influenced by the homebuyer tax credit and surging refinance volume attributed to historically low interest rates. The addition of new branch offices also generated increased loan origination volume. Other operating expenses decreased $26 thousand due to a reduction in loan related losses. Salary and benefit expenses increased $303 thousand related to commission expenses on increased loan volume and included personnel related to the addition of new office locations, one in Towson, Maryland and one in Raleigh, North Carolina late in the third quarter of 2009. Occupancy expenses decreased $8 thousand and furniture and equipment expenses increased $9 thousand.
For the three months ended December 31, 2009, the mortgage segment net income increased $586 thousand to $492 thousand from a loss of $94 thousand for the same quarter in 2008. Originations increased $100.4 million to $185.1 million, or 118.6%, from the same period last year, resulting in an increase in loan revenue of $2.1 million, or 98.3%. The addition of new offices also supplemented loan origination growth. Total noninterest expenses increased $1.5 million. Salaries and benefits increased $1.4 million primarily related to commission expenses on increased loan volume. Other operating expenses increased $96 thousand principally due to increased underwriting fees related to loan origination volume, insurance and facility costs related to new offices and marketing costs. Occupancy expenses declined $30 thousand principally due to the relocation and revision of lease terms for certain leased office locations. Furniture and equipment expense increased $20 thousand, which included costs related to the addition of new office locations and employees.
For the year ended December 31, 2009, mortgage segment net income increased $2.4 million from $39 thousand to $2.4 million for the same period in 2008. Originations increased $279 million to $703.7 million, or 65.7%, from the same period last year, resulting in an increase in loan revenue of $5.5 million, or 49.6%. Salaries and benefits increased $2.8 million principally due to commission expenses related to increased loan originations. Occupancy costs decreased $194 thousand and furniture and equipment costs decreased $66 thousand due to the nonrenewal of certain leased office locations and lower equipment rental expense, partially offset by the addition of two new office locations. Other operating expenses increased $168 million, principally due to increased underwriting fees related to loan volume and marketing costs.
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 (41 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, Williamsburg, Newport News, Grafton and Charlottesville); Northern Neck State Bank (9 locations in the counties of Richmond, Westmoreland, Essex, Northumberland and Lancaster); and Rappahannock National Bank (6 locations in Washington, Front Royal, Middleburg, and Warrenton). Union Bank and Trust Company's loan production office in Manassas was open through the first quarter of 2009 but was closed in early April 2009. 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. Union Bank and Trust Company also owns a non-controlling interest in Johnson Mortgage Company, LLC.
On March 30, 2009, the Company and First Market Bank announced the signing of an agreement, as amended on June 19, 2009, pursuant to which First Market Bank will merge with the Company in an all stock transaction valued at approximately $105.4 million. First Market Bank, a privately held federally chartered savings bank with over $1.3 billion in assets, operates 38 branches throughout central Virginia with 31 locations in the greater Richmond metropolitan area. Upon completion of the transaction, expected to occur on February 1, 2010, the Company will become the largest Virginia based community banking organization with approximately 94 branch locations and total assets of approximately $4.0 billion. On January 14, 2010, the Company announced that it received regulatory approval from the Federal Reserve Bank of Richmond to move forward with its acquisition of First Market Bank.
Additional information is available on the Company's website at 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
12/31/09 12/31/08 09/30/09
-------- -------- --------
Results of
Operations
-----------
Interest and
dividend income $32,744 $32,905 $32,502
Interest expense 10,163 14,239 11,685
------ ------ ------
Net interest income 22,581 18,666 20,817
Provision for loan
losses 5,744 3,077 4,517
----- ----- -----
Net interest income
after provision
for loan losses 16,837 15,589 16,300
Noninterest income 8,445 6,438 7,911
Noninterest
expenses 21,904 19,560 21,105
------ ------ ------
Income before
income taxes 3,378 2,467 3,106
Income tax expense 529 193 301
--- --- ---
Net income $2,849 $2,274 $2,805
====== ====== ======
Interest earned on
loans (FTE) $28,855 $29,401 $28,484
Interest earned on
securities (FTE) 4,821 4,325 4,934
Interest earned on
earning assets
(FTE) 33,688 33,822 33,427
Net interest income
(FTE) 23,525 19,583 21,742
Interest expense on
certificates of
deposit 6,802 8,860 7,647
Interest expense on
interest-bearing
deposits 8,229 11,202 9,331
Core deposit
intangible
amortization 481 481 481
Net income -
community bank
segment $2,358 $2,366 $2,509
Net income (loss) -
mortgage segment 492 (94) 296
Key Ratios
----------
Return on average
assets (ROA) 0.44% 0.37% 0.43%
Return on average
equity (ROE) 3.61% 4.08% 3.88%
Efficiency ratio 70.60% 77.92% 73.46%
Efficiency ratio -
community bank
segment 68.33% 75.05% 71.02%
Net interest margin
(FTE) 3.97% 3.52% 3.69%
Yields on earning
assets (FTE) 5.69% 6.08% 5.68%
Cost of interest-
bearing
liabilities (FTE) 2.08% 2.90% 2.37%
Noninterest expense
less noninterest
income /average
assets 2.08% 2.12% 2.04%
Per Share Data
--------------
Earnings per common
share, basic $0.02 $0.17 $0.13
Earnings per common
share, diluted 0.02 0.17 0.13
Cash dividends paid
per common share 0.060 0.185 0.060
Market value per
share 12.39 24.80 12.45
Book value per
tangible common
share 15.34 16.03 15.47
Tangible common
book value per
common share 11.85 11.17 11.95
Price to earnings
ratio, diluted 156.15 36.67 24.14
Price to book value
per common share
ratio 0.81 1.55 0.80
Price to tangible
common share ratio 1.05 2.22 1.04
Weighted average
common shares
outstanding, basic 18,327,987 13,512,755 15,123,935
Weighted average
common shares
outstanding,
diluted 18,369,746 13,626,783 15,165,105
Common shares
outstanding at end
of period 18,419,567 13,570,970 18,335,266
Financial Condition
-------------------
Assets $2,587,272 $2,551,932 $2,583,284
Loans, net of
unearned income 1,874,224 1,874,088 1,885,075
Earning Assets 2,336,281 2,217,135 2,360,752
Goodwill 56,474 56,474 56,474
Core deposit
intangibles, net 7,690 9,613 8,171
Deposits 1,916,364 1,926,999 1,965,568
Stockholders'
equity 282,088 273,798 340,231
Tangible common
equity 217,924 151,577 219,130
Three Months Ended
------------------
12/31/09 12/31/08 09/30/09
-------- -------- --------
Averages
--------
Assets $2,568,743 $2,468,198 $2,566,838
Loans, net of
unearned income 1,880,505 1,865,992 1,872,906
Loans held for sale 47,354 18,134 48,126
Securities 402,033 296,137 398,991
Earning assets 2,349,085 2,212,479 2,333,648
Deposits 1,942,940 1,858,847 1,984,639
Certificates of
deposit 904,549 972,888 940,340
Interest-bearing
deposits 1,645,685 1,585,641 1,682,432
Borrowings 292,984 369,802 275,542
Interest-bearing
liabilities 1,938,669 1,955,443 1,957,974
Stockholders'
equity 313,369 221,737 286,870
Tangible common
equity 219,511 147,488 165,594
Asset Quality
-------------
Allowance for Loan
Losses
------------------
Beginning balance
of allowance for
loan losses $32,930 $24,420 $29,639
Add: Allowance from
acquired banks - - -
Add: Recoveries 126 113 750
Less: Charge-offs 8,316 2,114 1,976
Add: Provision for
loan losses 5,744 3,077 4,517
----- ----- -----
Ending balance of
allowance for loan
losses $30,484 $25,496 $32,930
------- ------- -------
Allowance for loan
losses /total
outstanding loans 1.63% 1.36% 1.75%
Nonperforming
Assets
-------------
Nonaccrual loans $22,348 $14,412 $29,653
Other real estate
and foreclosed
properties 22,509 7,140 13,783
------ ----- ------
Total nonperforming
assets 44,857 21,552 43,436
Loans > 90 days and
still accruing 7,296 3,082 11,236
----- ----- ------
Total nonperforming
assets and loans >
90 days and still $52,153 $24,634 $54,672
accruing ------- ------- -------
Nonperforming
assets /total
outstanding loans 2.39% 1.15% 2.30%
Allowance for loan
losses /
nonperforming
loans 136.41% 176.91% 111.05%
Allowance for loan
losses /
nonperforming
assets 67.96% 118.30% 75.81%
Other Data
----------
Mortgage loan
originations $185,088 $84,682 $144,258
% of originations
that are
refinances 36.80% 35.64% 30.88%
End of period full-
time employees 662 670 665
Number of full-
service branches 56 59 58
Number of community
banks
(subsidiaries) 3 3 3
Number of full
automatic
transaction
machines (ATM's) 126 152 125
Alternative
Performance
Measures
------------
Cash basis
earnings(1)
Net income $2,849 $2,274 $2,805
Plus: Core deposit
intangible
amortization, net
of tax 313 313 313
--- --- ---
Cash basis
operating earnings $3,162 $2,587 $3,118
------ ------ ------
Average assets $2,568,743 $2,468,198 $2,566,838
Less: Average
goodwill 56,474 56,474 56,474
Less: Average core
deposit
intangibles 7,921 9,846 8,405
----- ----- -----
Average tangible
assets $2,504,349 $2,401,878 $2,501,959
---------- ---------- ----------
Average equity $313,369 $221,737 $286,870
Less: Average
goodwill 56,474 56,474 56,474
Less: Average core
deposit
intangibles 7,921 9,846 8,405
Less: Average
preferred equity 29,463 7,929 56,397
------ ----- ------
Average tangible
common equity $219,511 $147,488 $165,594
-------- -------- --------
Cash basis earnings
per share, diluted $0.17 $0.19 $0.21
Cash basis return
on average
tangible assets 0.50% 0.43% 0.49%
Cash basis return
on average
tangible common
equity 5.71% 6.98% 7.47%
Year Ended
12/31/09 12/31/08
-------- --------
Results of Operations
---------------------
Interest and dividend income $128,587 $135,095
Interest expense 48,771 57,222
------ ------
Net interest income 79,816 77,873
Provision for loan losses 18,246 10,020
------ ------
Net interest income after provision
for loan losses 61,570 67,853
Noninterest income 32,967 30,555
Noninterest expenses 85,287 79,636
------ ------
Income before income taxes 9,250 18,772
Income tax expense 890 4,258
--- -----
Net income $8,360 $14,514
====== =======
Interest earned on loans (FTE) $113,070 $121,284
Interest earned on securities (FTE) 19,112 17,065
Interest earned on earning assets
(FTE) 132,318 138,520
Net interest income (FTE) 83,546 81,298
Interest expense on certificates of
deposit 30,849 36,654
Interest expense on interest-bearing
deposits 39,452 44,298
Core deposit intangible amortization 1,924 1,937
Net income - community bank segment $5,921 $14,474
Net income (loss) - mortgage segment 2,440 39
Key Ratios
----------
Return on average assets (ROA) 0.32% 0.61%
Return on average equity (ROE) 2.90% 6.70%
Efficiency ratio 75.62% 73.45%
Efficiency ratio -community bank
segment 75.00% 70.39%
Net interest margin (FTE) 3.55% 3.79%
Yields on earning assets (FTE) 5.62% 6.46%
Cost of interest-bearing liabilities
(FTE) 2.46% 3.06%
Noninterest expense less noninterest
income /average assets 2.03% 2.06%
Per Share Data
--------------
Earnings per common share, basic $0.22 $1.08
Earnings per common share, diluted 0.22 1.07
Cash dividends paid per common share 0.300 0.740
Market value per share 12.39 24.80
Book value per tangible common share 15.34 16.03
Tangible common book value per common
share 11.85 11.17
Price to earnings ratio, diluted 56.32 23.18
Price to book value per common share
ratio 0.81 1.55
Price to tangible common share ratio 1.05 2.22
Weighted average common shares
outstanding, basic 15,160,619 13,477,760
Weighted average common shares
outstanding, diluted 15,201,993 13,542,948
Common shares outstanding at end of
period 18,419,567 13,570,970
Financial Condition
-------------------
Assets $2,587,272 $2,551,932
Loans, net of unearned income 1,874,224 1,874,088
Earning Assets 2,336,281 2,217,135
Goodwill 56,474 56,474
Core deposit intangibles, net 7,690 9,613
Deposits 1,916,364 1,926,999
Stockholders' equity 282,088 273,798
Tangible common equity 217,924 151,577
Year Ended
----------
12/31/09 12/31/08
-------- --------
Averages
--------
Assets $2,578,808 $2,379,403
Loans, net of unearned income 1,873,606 1,817,755
Loans held for sale 46,454 24,320
Securities 379,754 289,248
Earning assets 2,353,854 2,143,646
Deposits 1,969,534 1,765,833
Certificates of deposit 948,830 935,398
Interest-bearing deposits 1,679,765 1,493,069
Borrowings 300,739 377,601
Interest-bearing liabilities 1,980,504 1,870,670
Stockholders' equity 288,243 216,622
Tangible common equity 173,618 147,587
Asset Quality
-------------
Allowance for Loan Losses
-------------------------
Beginning balance of allowance for
loan losses $25,496 $19,336
Add: Allowance from acquired banks - -
Add: Recoveries 1,150 340
Less: Charge-offs 14,408 4,200
Add: Provision for loan losses 18,246 10,020
------ ------
Ending balance of allowance for loan
losses $30,484 $25,496
------- -------
Allowance for loan losses /total
outstanding loans 1.63% 1.36%
Nonperforming Assets
--------------------
Nonaccrual loans $22,348 $14,412
Other real estate and foreclosed
properties 22,509 7,140
------ -----
Total nonperforming assets 44,857 21,552
Loans > 90 days and still accruing 7,296 3,082
----- -----
Total nonperforming assets and loans >
90 days and still $52,153 $24,634
accruing ------- -------
Nonperforming assets /total
outstanding loans 2.39% 1.15%
Allowance for loan losses /
nonperforming loans 136.41% 176.91%
Allowance for loan losses /
nonperforming assets 67.96% 118.30%
Other Data
----------
Mortgage loan originations $703,744 $424,601
% of originations that are refinances 49.50% 38.48%
End of period full-time employees 662 670
Number of full-service branches 56 59
Number of community banks
(subsidiaries) 3 3
Number of full automatic transaction
machines (ATM's) 126 152
Alternative Performance Measures
--------------------------------
Cash basis earnings(1)
Net income $8,360 $14,514
Plus: Core deposit intangible
amortization, net of tax 1,251 1,259
----- -----
Cash basis operating earnings $9,611 $15,773
------ -------
Average assets $2,578,808 $2,379,403
Less: Average goodwill 56,474 56,474
Less: Average core deposit intangibles 8,639 10,568
Average tangible assets $2,513,695 $2,312,361
---------- ----------
Average equity $288,243 $216,622
Less: Average goodwill 56,474 56,474
Less: Average core deposit intangibles 8,639 10,568
Less: Average preferred equity 49,512 1,993
Average tangible common equity $173,618 $147,587
-------- --------
Cash basis earnings per share, diluted $0.63 $1.16
Cash basis return on average tangible
assets 0.38% 0.68%
Cash basis return on average tangible
common equity 5.54% 10.69%
(1)Cash basis earnings -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.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
2009 2008
---- ----
ASSETS
------
Cash and cash equivalents:
Cash and due from banks $38,725 $144,625
Interest-bearing deposits in other banks 4,106 903
Money market investments 127 122
Other interest-bearing deposits 2,598 2,598
Federal funds sold 355 289
--- ---
Total cash and cash equivalents 45,911 148,537
------ -------
Securities available for sale, at fair value 400,591 309,711
------- -------
Loans held for sale 54,280 29,424
------ ------
Loans, net of unearned income 1,874,224 1,874,088
Less allowance for loan losses 30,484 25,496
------ ------
Net loans 1,843,740 1,848,592
--------- ---------
Bank premises and equipment, net 78,722 77,425
Other real estate owned 22,509 7,140
Core deposit intangibles, net 7,690 9,613
Goodwill 56,474 56,474
Other assets 77,355 65,016
------ ------
Total assets $2,587,272 $2,551,932
========== ==========
LIABILITIES
-----------
Noninterest-bearing demand deposits $294,222 $274,829
Interest-bearing deposits:
NOW accounts 215,327 201,317
Money market accounts 446,980 361,138
Savings accounts 102,852 93,559
Time deposits of $100,000 and over 407,894 452,297
Brokered certificates of deposit - 66,709
Other time deposits 449,089 477,150
------- -------
Total interest-bearing deposits
