Union Bankshares Reports Third Quarter Results

RICHMOND, Va., Oct. 20, 2015 /PRNewswire/ -- Union Bankshares Corporation (the "Company" or "Union") (NASDAQ: UBSH) today reported net income of $18.2 million and earnings per share of $0.40 for its third quarter ended September 30, 2015.  The quarterly results represent an increase of $2.9 million, or 18.7%, in net income and an increase of $0.06, or 17.6%, in earnings per share from the second quarter.  For the nine months ended September 30, 2015, net income was $49.3 million and earnings per share was $1.09.

"Despite economic headwinds, heightened competition and margin compression, Union continued to make sustainable progress toward our top tier financial performance objectives, through the combination of net loan, core deposit and household growth and our efforts to improve efficiency, " said G. William Beale, president and chief executive officer for Union Bankshares Corporation.  "In addition, our wealth management area continued to add clients during the quarter and Union Mortgage Group reported a profit for the second consecutive quarter.

During the quarter, the company made the decision to sell its credit card portfolio and enter into an outsourced partnership solution with Elan Financial Services.   By partnering with Elan, Union will be able to provide consumers with access to a more competitive suite of products and services which allows us more opportunities to deepen relationships with our customer base.

As we move into the fourth quarter and look forward to 2016, our focus is on deepening relationships with our customer base through a holistic approach involving all of our business lines.  We are also working to enhance and upgrade our infrastructure to support initiatives that will result in an increased rate of organic growth while improving operating efficiency across the Company."

Select highlights for the third quarter include:

• Net income for the community bank segment was $18.2 million, or $0.40 per share, for the third quarter, compared to $15.3 million, or $0.34 per share, for the second quarter.  Net income for the community bank segment for the nine months ended September 30, 2015 was $49.4 million, or $1.09 per share.
• The mortgage segment reported net income of $59,000 for the third quarter, a slight decline from net income of $95,000 for the second quarter.  The mortgage segment reported a net loss of $113,000 for the nine months ended September 30, 2015 compared to a net loss of $2.6 million for the nine months ended September 30, 2014.
• During the third quarter, the Company moved its credit card loan portfolio, totaling $26.4 million at September 30, 2015, from loans held for investment to loans held for sale, resulting from management's decision to sell the credit card loans to Elan. 
• Excluding credit cards from the prior period loan portfolio, loans held for investment grew $59.6 million, or 4.3% (annualized), from June 30, 2015 and increased $396.5 million, or 7.7%, from September 30, 2014.  Average loans increased $77.0 million, or 5.7% (annualized) during the quarter.
• Period-end deposits increased $34.4 million, or 2.4% (annualized), from June 30, 2015 and increased $184.8 million, or 3.3%, from September 30, 2014.  Average deposits increased $104.2 million, or 7.3% (annualized), during the quarter.
• As previously announced, the Company closed seven branches, or 5% of its branch network, during the quarter as part of its continuing efforts to become more efficient.

NET INTEREST INCOME

Tax-equivalent net interest income was $65.7 million, a decrease of $376,000 from the second quarter, primarily driven by lower earning asset yields.  The third quarter tax-equivalent net interest margin decreased 11 basis points to 3.86% from 3.97% in the previous quarter.  Core tax-equivalent net interest margin (which excludes the 9 basis point impact of acquisition accounting accretion) declined by 9 basis points to 3.77% from 3.86% in the previous quarter.  The decrease in the core tax-equivalent net interest margin was principally due to the 10 basis point decline in interest-earning asset yields outpacing the 1 basis point reduction in cost of funds.  The decline in interest-earning asset yields was primarily driven by lower loan yields on new and renewed loans and lower levels of loan fees recorded in the current quarter.

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 any further 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 third quarter, net accretion related to acquisition accounting declined by $198,000 from the prior quarter to $1.6 million as of September 30, 2015.  The second and third quarters of 2015 and remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

 

 

ASSET QUALITY/LOAN LOSS PROVISION

OverviewDuring the third quarter, the Company experienced declines in past due and nonaccrual loan levels and other real estate owned ("OREO") balances from the prior year.  Past due loans decreased from the prior quarter while nonaccrual loans increased from the prior quarter, as loans were moved from past due status to nonaccrual status during the current quarter.  The combined past due and nonaccrual loan balances decreased $2.5 million, or 5.8%, from the previous quarter.  The loan loss provision decreased from the prior quarter due to lower levels of net charge-offs and continued improvements in asset quality.  The allowance for loan losses to total loans ratios (both unadjusted and adjusted for acquisition accounting) were consistent with the prior quarter and down from the prior year. 

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired loans ("PCI") totaling $78.6 million (net of fair value mark).

Nonperforming Assets ("NPAs")At September 30, 2015, nonperforming assets totaled $35.1 million, a decrease of $23.0 million, or 39.6%, from September 30, 2014 and an increase of $3.3 million, or 10.4%, from June 30, 2015.  In addition, NPAs as a percentage of total outstanding loans declined 49 basis points from 1.12% a year earlier and increased 5 basis points from 0.58% last quarter to 0.63% 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):

 

 

During the third quarter, the additions to nonaccrual loans were comprised of several smaller credit relationships.

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

 

 

During the third quarter, the majority of both additions and sales of OREO were related to residential real estate.

Past Due LoansPast due loans still accruing interest totaled $27.5 million, or 0.50% of total loans, at September 30, 2015 compared to $58.4 million, or 1.13%, a year ago and $33.5 million, or 0.61%, at June 30, 2015.  At September 30, 2015, loans past due 90 days or more and accruing interest totaled $5.2 million, or 0.09% of total loans, compared to $16.1 million, or 0.31%, a year ago and $10.9 million, or 0.20%, at June 30, 2015. 

Net Charge-offs For the third quarter, net charge-offs were $1.0 million, or 0.07% on an annualized basis, compared to $1.1 million, or 0.08%, for the same quarter last year and $2.2 million, or 0.16%, for the second quarter of 2015.  For the nine months ended September 30, 2015, net charge-offs were $6.4 million, or 0.15% on an annualized basis, compared to $1.3 million, or 0.03%, for the same period in the prior year.

ProvisionThe provision for loan losses for the current quarter was $2.0 million, an increase of $162,000 compared to the same quarter a year ago and a decrease of $1.6 million compared to the previous quarter.  The decrease in provision for loan losses in the current quarter compared to the prior quarter was driven by reduced levels of charge-offs during the current quarter, lower quarterly loan growth, and continued improvements in asset quality.  Additionally, a $100,000 provision was recognized during the current quarter for unfunded loan commitments, resulting in a total provision for credit losses of $2.1 million for the quarter.

Allowance for Loan Losses The allowance for loan losses ("ALL") increased $925,000 from June 30, 2015 to $33.3 million at September 30, 2015 primarily due to loan growth during the quarter.  The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 1.01% at September 30, 2015, a decrease from 1.02% from the prior quarter and a decrease from 1.12% from the quarter ended September 30, 2014.  The allowance for loan losses as a percentage of the total loan portfolio was 0.60% at September 30, 2015, 0.59% at June 30, 2015, and 0.62% at September 30, 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 256.6% at September 30, 2015, compared to 339.7% at June 30, 2015 and 158.3% at September 30, 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 $513,000, or 3.2%, to $16.7 million as of September 30, 2015 from $16.2 million in the prior quarter. Customer-related fee income increased $275,000, primarily driven by higher overdraft fees.  Gains on sales of mortgage loans, net of commissions, increased $56,000, or 2.2%, from the prior quarter, related to improved gain on sale margins as well as increased mortgage loan originations.  Included in gain on sales of mortgage loans were unrealized losses on mortgage banking derivatives of $136,000 in the current quarter.  Mortgage loan originations increased by $7.8 million, or 5.5%, in the current quarter to $148.1 million from $140.3 million in the second quarter.  Of the loan originations in the current quarter, 32.3% were refinances, which was an increase from 30.9% in the prior quarter.  Other noninterest income increased $163,000, as other operating income increased $792,000 primarily due to gains on the resolution of a problem credit, which was partially offset by lower gains on sales of securities of $329,000 from the prior quarter as well as $300,000 in other-than-temporary impairment recognized in the current quarter on a municipal security in the available-for-sale portfolio.

NONINTEREST EXPENSE

Noninterest expense decreased $1.9 million, or 3.5%, to $53.3 million as of September 30, 2015 from $55.2 million when compared to the prior quarter.  Excluding the nonrecurring branch closure costs of $1.3 million in the prior quarter, noninterest expense decreased $637,000, or 1.2%, from the prior quarter.  OREO and credit-related costs decreased $702,000 related to lower legal-related fees, real estate taxes, and valuation adjustments as well as net gains on sales of OREO in the current quarter compared to net losses in the prior quarter.  Marketing expenses decreased $591,000 related to the timing of advertising campaigns.  These decreases were partially offset by increased technology expenses of $333,000 primarily due to higher data processing fees and higher professional and consulting fees of $322,000.

BALANCE SHEET

At September 30, 2015, total assets were $7.6 billion, an increase of $96.6 million from June 30, 2015 and an increase of $400.4 million from September 30, 2014.  The increase in assets was mostly related to loan growth.

At September 30, 2015, loans held for investment were $5.5 billion, an increase of $33.2 million from June 30, 2015.  During the third quarter, the Company moved its credit card portfolio, totaling $26.4 million at September 30, 2015, from loans held for investment to loans held for sale, resulting from management's decision to sell the loans in the near future.  Excluding credit cards from the prior period loan portfolio, loans held for investment grew $59.6 million, or 4.3% (annualized), from June 30, 2015.  Average loans increased $77.0 million, or 5.7% (annualized) from the prior quarter.  Excluding credit cards from the prior period loan portfolio, loans held for investment increased $396.4 million, or 7.7 %, from September 30, 2014.

At September 30, 2015, total deposits were $5.8 billion, an increase of $34.4 million, or 2.4% (annualized) from June 30, 2015, while average deposits increased $104.2 million, or 7.3% (annualized) from June 30, 2015.  Total deposits increased $184.8 million, or 3.3%, from September 30, 2014.

At September 30 and June 30, 2015, respectively, the Company had a common equity Tier 1 capital ratio of 10.75% and 10.87%, a Tier 1 capital ratio of 12.16% and 12.31%, a total capital ratio of 12.69% and 12.83%, and a leverage ratio of 10.77% and 10.82%. 

The Company's common equity to asset ratios at September 30, 2015, June 30, 2015, and September 30, 2014 were 13.10%, 13.18%, and 13.58%, respectively, while its tangible common equity to tangible assets ratio was 9.29%, 9.30%, and 9.41% at September 30, 2015, June 30, 2015, and September 30, 2014, respectively. 

During the third quarter, the Company declared and paid cash dividends of $0.17 per common share, consistent with the dividend paid in the prior quarter.

COMMUNITY BANK SEGMENT INFORMATION

The community bank segment reported net income of $18.2 million for the third quarter, an increase of $2.9 million, or 19.0%, from $15.3 million in the second quarter.  Net interest income was $63.1 million, a decrease of $366,000 from the second quarter principally due to lower earning asset yields and a decline of $198,000 in accretion of purchase accounting adjustments.  The provision for loan losses decreased $1.6 million from the prior quarter due to reduced charge-off levels, lower quarterly loan growth, and continued improvements in asset quality.

Noninterest income increased $764,000 to $14.3 million in the current quarter compared to $13.5 million in the prior quarter.  Customer-related fee income increased $275,000, primarily driven by higher overdraft fees.  Other noninterest income increased $493,000, as other operating income increased $1.1 million primarily due to gains on the resolution of a problem credit, which was partially offset by lower gains on sales of securities of $329,000 from the prior quarter as well as $300,000 in other-than-temporary impairment recognized in the current quarter on a municipal security in the available-for-sale portfolio.

Noninterest expense decreased $1.7 million from $52.4 million in the prior quarter to $50.7 million in the current quarter.  Excluding the nonrecurring branch closure costs of $1.3 million in the prior quarter, noninterest expense decreased $411,000, or 0.8%, from the prior quarter.  OREO and credit-related costs decreased $702,000 related to lower legal-related fees, real estate taxes, and valuation adjustments as well as net gains on sales of OREO in the current quarter compared to net losses in the prior quarter.  Marketing expenses decreased $588,000 related to the timing of advertising campaigns.  These decreases were partially offset by increased salaries and benefits of $370,000 related to increased equity based incentive compensation, technology expenses of $341,000 primarily due to higher data processing fees, and higher professional fees of $359,000 related to increased consulting fees.

MORTGAGE SEGMENT INFORMATION

The mortgage segment reported net income of $59,000 for the third quarter, a slight decline from net income of $95,000 in the second quarter. Noninterest income decreased $252,000 during the quarter due to adjustments to required indemnification reserves during the second quarter.  Gains on sales of mortgage loans, net of commissions, increased $56,000, or 2.2%, from the prior quarter, related to improved gain on sale margins as well as increased mortgage loan originations.  Included in gains on sales of mortgage loans were unrealized losses on mortgage banking derivatives of $136,000 in the current quarter.  Mortgage loan originations increased by $7.8 million, or 5.5%, in the current quarter to $148.1 million from $140.3 million in the second quarter.  Of the loan originations in the current quarter, 32.3% were refinances, which was an increase from 30.9% in the prior quarter.  Noninterest expenses declined $226,000, or 7.4%, compared to the prior quarter primarily due to lower salaries and benefits expenses, rental expenses, underwriting fees, and other loan-related fees due to management's continued focus on controlling costs. 

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ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ: UBSH) is the holding company for Union Bank & Trust, which has 124 banking offices and nearly 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.

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

Union Bankshares Corporation will hold a conference call on Tuesday, October 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 57712544.

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 2014 results and related metrics have been restated to conform to this presentation.

NON-GAAP MEASURES

In reporting the results of the quarter ended September 30, 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 press release 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, stock and bond markets, accounting standards or interpretations of existing standards, 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.

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Union Bankshares Corporation