Union Bankshares Reports First Quarter Results

RICHMOND, Va., April 20, 2015 /PRNewswire/ -- Union Bankshares Corporation (the "Company" or "Union") (NASDAQ: UBSH) today reported net income of $15.7 million and earnings per share of $0.35 for its first quarter ended March 31, 2015.  The quarterly results represent an increase of $736,000, or 4.9%, in net income and an increase of $0.02, or 6.1%, in earnings per share from the fourth quarter of 2014; excluding after-tax acquisition-related expenses of $563,000 in the prior quarter, the quarterly results represent an increase of $173,000 in operating earnings(1) and an increase of $0.01 in operating earnings per share(1).

"Union's first quarter results demonstrated steady progress toward our growth objectives now that the StellarOne integration is fully behind us," said G. William Beale, president and chief executive officer of Union Bankshares Corporation, "Commercial loans grew at a 7.5% annualized rate during the quarter as our lending teams continued the strong loan production momentum they generated in the fourth quarter.  Asset quality continued to improve with non-performing loans and OREO, including former branch sites, declining during the quarter.  As part of our continuing effort to become more efficient, we completed an in-depth branch analysis across our footprint and will close seven branches, 5% of current branch levels, by the end of August.  Going forward, we remain focused on leveraging the franchise for sustainable growth in order to deliver top-tier financial performance for our shareholders over the long-term."

Select highlights for the first quarter include:

• Net income for the community bank segment, was $16.0 million, or $0.36 per share, for the first quarter compared to $15.9 million, or $0.35 per share, for the fourth quarter of 2014.  Operating earnings(1) for the community bank segment, which excludes after-tax acquisition-related expenses of $563,000, were $16.4 million, or $0.36 per share, for the fourth quarter of 2014.
• The mortgage segment reported a net loss of $267,000, or $0.01 per share, for the first quarter, an improvement from a net loss of $889,000, or $0.02 per share, for the fourth quarter of 2014.
• The Return on Average Tangible Common Equity ("ROTCE") was 9.67% and 9.11% for the quarters ended March 31, 2015 and December 31, 2014, respectively.  Operating ROTCE(1) for the quarter ended December 31, 2014 was 9.46%.
• The Return on Average Assets ("ROA") was 0.86% and 0.82% for the quarters ended March 31, 2015 and December 31, 2014, respectively.  Operating ROA(1) for the quarter ended December 31, 2014 was 0.85%.
• Average loan balances increased $140.5 million, or 10.8% on an annualized basis, from December 31, 2014.  Ending loan balances increased $41.8 million, or 3.1% on an annualized basis, from December 31, 2014. 
• Asset quality improved due to reductions in past due and nonaccrual loan and other real estate owned ("OREO") balances as well as lower levels of charge-offs and provision for loan losses.

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

NET INTEREST INCOME

Tax-equivalent net interest income was $64.1 million, a decrease of $940,000 from the fourth quarter of 2014, primarily driven by the impact of the lower day count in the first quarter and lower net accretion related to acquisition accounting.  The first quarter tax-equivalent net interest margin decreased 6 basis points to 3.95% from 4.01% in the previous quarter.  Core tax-equivalent net interest margin (which excludes the 11 basis points impact of acquisition accounting accretion) decreased by 4 basis points from 3.88% in the previous quarter to 3.84%.  The decrease in the core tax-equivalent net interest margin was principally due to the 6 basis point decline in interest-earning asset yields outpacing the 2 basis point reduction in cost of funds.  The decline in interest-earning asset yields was primarily driven by lower loan yields, as new and renewed loans were originated and re-priced at lower rates.

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

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  During the first quarter, net accretion related to acquisition accounting declined by $326,000 from the prior quarter to $1.9 million.  The fourth quarter of 2014, first quarter of 2015, and remaining estimated discount/premium and net accretion impact are reflected in the following table (dollars in thousands):

 

 

ASSET QUALITY/LOAN LOSS PROVISION

Overview

During the first quarter, the Company experienced declines in past due loan and OREO balances from the prior quarter and the prior year and declines in nonaccrual loan balances from the prior quarter.  The decline in OREO balances was mostly attributable to sales of closed bank premises and foreclosed residential real estate property during the quarter.  The loan loss provision decreased from the prior quarter due to decreases in net charge-offs and lower specific reserves on impaired loans.  The allowance for loan losses to total loans ratios (both unadjusted and adjusted for acquisition accounting) were down from both the prior quarter and the prior year. 

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired loans ("PCI") totaling $91.3 million (net of fair value mark).

Nonperforming Assets ("NPAs")

At March 31, 2015, nonperforming assets totaled $42.8 million, a decrease of $7.4 million, or 14.7%, from a year ago and a decline of $4.6 million, or 9.6%, from December 31, 2014.  In addition, NPAs as a percentage of total outstanding loans declined 16 basis points from 0.95% a year earlier and 10 basis points from 0.89% last quarter to 0.79% in the current quarter.    The following table shows a summary of asset quality balances at the quarter ended (dollars in thousands):

 

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

 

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

 

During the first quarter of 2015, the majority of sales of OREO were related to closed bank premises and residential real estate.

Past Due Loans

Past due loans still accruing interest totaled $42.7 million, or 0.79% of total loans, at March 31, 2015 compared to $49.7 million, or 0.94%, a year ago and $48.1 million, or 0.90%, at December 31, 2014.  At March 31, 2015, loans past due 90 days or more and accruing interest totaled $7.9 million, or 0.15% of total loans, compared to $7.2 million, or 0.14%, a year ago and $10.0 million, or 0.19%, at December 31, 2014. 

Net Charge-offs

For the quarter ended March 31, 2015, net charge-offs were $3.2 million, or 0.24% on an annualized basis, compared to a net recovery of $772,000, or (0.06%), for the same quarter last year and $4.2 million, or 0.31%, for the fourth quarter of 2014.  Of the $3.2 million in loans charged off in the first quarter, $2.9 million, or 90.1%, related to impaired loans specifically reserved for in the prior period. 

Provision

The provision for loan losses for the current quarter was $1.8 million, an increase of $1.8 million compared to the same quarter a year ago and a decrease of $2.8 million from the previous quarter.  The decrease in provision for loan losses in the current quarter compared to the prior quarter was driven by declines in net charge-offs, lower specific reserves on impaired loans, and improving asset quality metrics.

Allowance for Loan Losses

The allowance for loan losses ("ALL") decreased $1.4 million from December 31, 2014 to $31.0 million at March 31, 2015.  The decline in ALL was primarily driven by lower levels of specific reserves required on impaired loans.  The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 1.03% at March 31, 2015, a decrease from 1.08% from the prior quarter and from 1.09% at March 31, 2014.  The allowance for loan losses as a percentage of the total loan portfolio was 0.57% at March 31, 2015, 0.61% at December 31, 2014, and 0.59% at March 31, 2014.  In acquisition accounting, there is no carryover of previously established allowance for loan losses, as acquired loans are recorded at fair value.

The nonaccrual loan coverage ratio was 178.2% at March 31, 2015, compared to 168.2% at December 31, 2014 and 209.9% at March 31, 2014.  The current level of the allowance for loan losses reflects specific reserves related to nonperforming loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers important in assessing the adequacy of the allowance for loan losses. 

NONINTEREST INCOME

Noninterest income increased to $15.1 million from $14.9 million in the prior quarter. Gains on sales of mortgage loans, net of commissions, increased $597,000 or 33.5%, from the prior quarter, driven by unrealized gains on interest rate lock commitments and improved gain on sale margins on mortgage loan originations, despite a seasonal decline in mortgage loan originations.  Mortgage loan originations declined by $16.5 million, or 10.6%, in the current quarter to $138.7 million from $155.2 million in the fourth quarter of 2014.  Of the loan originations in the current quarter, 47.3% were refinances, which was an increase from 37.8% in the prior quarter.  This increase in noninterest income was partially offset by lower service charges on deposit accounts, interchange fees, and gross brokerage commissions.

NONINTEREST EXPENSE

 Noninterest expense increased $1.3 million, or 2.5%, to $53.8 million from $52.5 million when compared to the prior quarter.  The increase in noninterest expense is primarily driven by a $2.2 million increase in salaries and benefits expense related to seasonal increases in payroll taxes, increased group insurance, and higher incentive compensation costs.  OREO and credit-related expenses increased $1.3 million predominantly related to lower gains on sales of OREO in the current quarter.  Partially offsetting these increases, acquisition-related costs decreased $821,000, furniture and equipment expenses decreased $504,000, professional fees declined $349,000 and other losses decreased $323,000 primarily due to reductions in fraud-related losses.

BALANCE SHEET

At March 31, 2015, total assets were $7.4 billion, an increase of $29.9 million from December 31, 2014 and an increase of $94.1 million from March 31, 2014.  The increase in assets was mostly related to loan growth.

At March 31, 2015, loans net of unearned income were $5.4 billion, an increase of $41.8 million, or 3.1% (annualized), from December 31, 2014, while average loans increased $140.5 million, or 10.8% (annualized).  Loans increased $113.6 million, or 2.2%, from March 31, 2014, while average loans increased $80.8 million, or 1.5%.

At March 31, 2015, total deposits were $5.7 billion, an increase of $31.5 million, or 2.2% (annualized) from December 31, 2014, while average deposits declined $20.9 million, or 1.5% (annualized).  Deposits decreased $15.9 million, or 0.3%, from March 31, 2014, while average deposits declined $6.0 million, or 0.1%.

In July 2013, the Board of Governors of the Federal Reserve System issued a final rule that makes technical changes to its market risk capital rule to align it with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act.  Effective January 1, 2015, the final rules required the Company to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement).  These are the initial capital requirements, which will be phased in over a four-year period; the next phase does not take effect until January 1, 2016.  The capital requirements contained in the final rule also include changes in the risk weights of assets to better reflect credit risk and other risk exposures. 

At March 31, 2015, the Company had a common equity Tier 1 capital ratio of 10.72%, a Tier 1 capital ratio of 12.19%, a total capital ratio of 12.70%, and a leverage ratio of 10.64%. 

The Company's common equity to asset ratios at March 31, 2015, December 31, 2014, and March 31, 2014 were 13.36%, 13.28%, and 13.47%, respectively, while its tangible common equity to tangible assets ratio was 9.40%, 9.27%, and 9.29% at March 31, 2015, December 31, 2014, and March 31, 2014, respectively. 

COMMUNITY BANK SEGMENT INFORMATION

The community bank segment reported net income of $16.0 million for the first quarter, an increase of $114,000, or 0.7%, from $15.9 million in the fourth quarter of 2014.  Excluding after-tax acquisition-related expenses of $563,000 in the prior quarter, operating earnings decreased $449,000 from $16.4 million in the fourth quarter of 2014.  As previously discussed, the provision for loan losses declined $2.8 million from the prior quarter due to decreased net charge-off levels, lower specific reserves on impaired loans, and continued improvement in asset quality metrics.  Net interest income was $61.7 million, a decrease of $1.1 million from the fourth quarter of 2014 principally due to the impact of the lower day count in the current quarter and lower net accretion related to acquisition accounting.  

Noninterest income remained consistent at $12.8 million in the current quarter compared to $12.9 million in the prior quarter.  

Noninterest expense increased $1.9 million from $49.1 million in the prior quarter to $51.0 million in the current quarter.  The increase in noninterest expense is primarily driven by a $2.6 million increase in salaries and benefits expense related to seasonal increases in payroll taxes, increased group insurance, and higher incentive compensation costs.  OREO and credit-related expenses increased $1.3 million, predominantly related to lower gains on sales of OREO of $1.2 million in the current quarter.  Partially offsetting these increases, acquisition-related costs decreased $821,000, furniture and equipment expenses decreased $493,000, professional fees declined $292,000 and other losses decreased $245,000 primarily due to reductions in fraud-related losses.

MORTGAGE SEGMENT INFORMATION

The mortgage segment reported a net loss of $267,000 for the first quarter, an improvement of $622,000 from a net loss of $889,000 in the fourth quarter of 2014. Noninterest income increased $216,000 during the quarter due to higher gains on sales of mortgage loans, net of commissions, partially offset by nonrecurring income of $334,000 recorded in the fourth quarter.  Gains on sales of mortgage loans, net of commissions, increased $597,000, related to unrealized gains on interest rate lock commitments and improved gain on sale margins on mortgage loan originations, despite a seasonal decline in mortgage loan originations. Mortgage loan originations declined by $16.5 million, or 10.6%, in the current quarter to $138.7 million from $155.2 million in the fourth quarter of 2014.  Of the loan originations in the current quarter, 47.3% were refinances, which was an increase from 37.8% in the prior quarter.  Noninterest expenses decreased $641,000, or 17.4%, from the prior quarter and by $1.7 million from the prior year's first quarter to $3.0 million, as a result of management's continued efforts to streamline the mortgage segment's processes and cost structure to align with mortgage origination levels it has been experiencing over the last several quarters. 

ABOUT UNION BANKSHARES CORPORATION

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

The Company announced that, effective February 16, 2015, it had changed its subsidiary bank's name from "Union First Market Bank" to "Union Bank & Trust."

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

Union Bankshares Corporation will hold a conference call on Monday, April 20th, at 9:00 a.m. Eastern Time during which management will review earnings and performance trends.  Callers wishing to participate may call toll-free by dialing (877) 668-4908.  The conference ID number is 22746695.

ADOPTION OF NEW ACCOUNTING STANDARDS

The Company adopted ASU 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects" as of January 1, 2015.  As permitted by the guidance, the Company adopted the proportional amortization method of accounting for Qualified Affordable Housing Projects.  The proportional amortization method amortizes the cost of the investment over the period in which the Company will receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income taxes attributable to continuing operations.  Historically, these investments were accounted for under the equity method of accounting and the passive losses related to the investments were recognized within noninterest expense.  The Company adopted this guidance in the first quarter of 2015 with retrospective application as required by the ASU.  Prior period results and related metrics have been restated to conform to this presentation.

NON-GAAP MEASURES

In reporting the results of the quarter ended March 31, 2015, the Company has provided supplemental performance measures on an operating or tangible basis.  Operating measures exclude acquisition costs unrelated to the Company's normal operations.  The Company believes these measures are useful to investors as they exclude non-operating adjustments resulting from acquisition activity and allow investors to see the combined economic results of the organization.  Tangible common equity is used in the calculation of certain capital and per share ratios. The Company believes tangible common equity and the related ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

These measures are a supplement to GAAP used to prepare the Company's financial statements and should not be viewed as a substitute for GAAP measures.  In addition, the Company's non-GAAP measures may not be comparable to non-GAAP measures of other companies. 

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact.  Such statements are often characterized by the use of qualified words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate," "intend," "will," or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events.  Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance, or achievements expressed or implied by such forward-looking statements.  Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic and bank industry conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, accounting standards or interpretations of existing standards, technology, consumer spending and savings habits, mergers and acquisitions, technology and consumer spending and saving habits.  More information is available on the Company's website, http://investors.bankatunion.com. The information on the Company's website is not a part of this press release. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.

 

 

 

 

 

 

 

 

 

 

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

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

(3) Beginning January 1, 2015, the Company calculates its regulatory capital under the Basel III Standardized Approach.  The Company calculated regulatory capital measures for periods prior to 2015 under previous regulatory requirements.  All ratios at March 31, 2015 are estimates and subject to change pending the Company's filing of its FR Y9-C. All other periods presented as filed.

(4) The allowance for loan losses ratio, adjusted for acquisition accounting (non-GAAP), includes an adjustment for the fair value mark on purchased performing loans. The purchased performing loans are reported net of the related fair value mark in loans, net of unearned income, on the Company's Consolidated Balance Sheet; therefore, the fair value mark is added back to the balance to represent the total loan portfolio. The adjusted allowance for loan losses, including the fair value mark, represents the total reserve on the Company's loan portfolio. The PCI loans, net of the respective fair value mark, are removed from the loans, net of unearned income, as these PCI loans are not covered by the allowance established by the Company unless changes in expected cash flows indicate that one of the PCI loan pools are impaired, at which time an allowance for PCI loans will be established. GAAP requires the acquired allowance for loan losses not be carried over in an acquisition or merger. The Company believes the presentation of the allowance for loan losses ratio, adjusted for acquisition accounting, is useful to investors because the acquired loans were purchased at a market discount with no allowance for loan losses carried over to the Company, and the fair value mark on the purchased performing loans represents the allowance associated with those purchased loans. The Company believes that this measure is a better reflection of the reserves on the Company's loan portfolio.

(5) Tangible common equity is used in the calculation of certain capital and per share ratios.  The Company believes tangible common equity and the related ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

 

 

 

 

 

 

 

 

 

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SOURCE Union Bankshares Corporation