Union Bankshares Reports Second Quarter Results

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Jul 22, 2014, 07:15 ET

RICHMOND, Va., July 22, 2014 /PRNewswire/ -- Union Bankshares Corporation (the "Company" or "Union") (NASDAQ: UBSH) today reported net income of $14.8 million and earnings per share of $0.32 for its second quarter ended June 30, 2014. Excluding after-tax acquisition-related expenses of $3.0 million, operating earnings⁽¹⁾ for the quarter were $17.8 million and operating earnings per share⁽¹⁾ was $0.38. The quarterly results represent an increase of $992,000, or 5.9%, in operating earnings from the prior quarter. Operating earnings per share of $0.38 for the current quarter increased $0.02, or 5.6%, from the quarter ended March 31, 2014. Net income for the six months ended June 30, 2014 was $22.6 million and earnings per share was $0.48. For the six months ended June 30, 2014, operating earnings were $34.7 million and operating earnings per share was $0.74.

"Our second quarter operating results continued to demonstrate the considerable earnings capacity we predicted the combination of Union and StellarOne would produce as the largest community banking institution headquartered in Virginia," said G. William Beale, president and chief executive officer of Union Bankshares Corporation. "During the quarter, we successfully integrated StellarOne into Union and embarked on a broad-based advertising campaign to introduce the Union brand to the markets formerly served by StellarOne and to further leverage our value proposition in Union's legacy markets. As a result, we are now well positioned to deliver a best-in-class customer experience, offer superior financial services and solutions, provide a rewarding experience for our teammates and generate top-tier financial performance for our shareholders."

Select highlights for the second quarter include:

Operating earnings⁽¹⁾for the community bank segment, which excludes after-tax acquisition-related expenses of $3.0 million, were $18.4 million, or $0.40 per share for the second quarter compared to $18.2 million, or $0.39 per share for the first quarter.
The mortgage segment reported a net loss of $602,000, or $0.01 per share, for the second quarter and a net loss of $2.0 million, or $0.04 per share, for the six months ended June 30, 2014.
Operating Return on Average Tangible Common Equity⁽¹⁾ ("ROTCE") was 11.10% for the quarter ended June, 2014 compared to operating ROTCE⁽¹⁾ of 10.33% for the first quarter. The operating ROTCE⁽¹⁾ of the community bank segment was 11.59% for the second quarter.
Operating Return on Average Assets⁽¹⁾ ("ROA") was 0.98% for the quarter ended June 30, 2014 compared to operating ROA⁽¹⁾ of 0.94% for the first quarter. The operating ROA⁽¹⁾ of the community bank segment was 1.02% for the second quarter.
Operating efficiency ratio⁽¹⁾declined to 66.4% for the current quarter from 68.4% in the prior quarter. The operating efficiency ratio for the community bank segment was 63.9% for the second quarter.
On January 31, 2014, the Company's Board of Directors authorized a share repurchase program to purchase up to $65.0 million worth of the Company's common stock on the open market or in privately negotiated transactions. The repurchase program is authorized through December 31, 2015. As of July 18, 2014, approximately 1.5 million common shares had been repurchased and approximately $27.3 million remained available under the repurchase program.

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

NET INTEREST INCOME

Tax-equivalent net interest income was $65.8 million, an increase of $112,000 from the first quarter of 2014, while average interest-earning assets increased $28.5 million. The increase in average interest-earning assets was offset by a decline in the second quarter tax-equivalent net interest margin of 5 bps to 4.09% compared to 4.14% in the previous quarter. Core tax-equivalent net interest margin (which excludes the 15 bps impact of acquisition accounting accretion) decreased by 5 basis points from 3.99% in the previous quarter to 3.94%. The decrease in the core tax-equivalent net interest margin was principally due to a decrease in earning asset yields (-6 bps), outpacing the decline in cost of funds (+1 bps). The decline in earning asset yields was primarily driven by reinvestment of excess cash flows at lower rates during the quarter.

The Company continues to believe that net interest margin will decline modestly over the next several quarters as decreases in 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. The first and second quarter 2014 and remaining estimated discount/premium and net accretion impact are reflected in the following table (dollars in thousands):


	Loan Accretion		Certificates of Deposit		Borrowings		Total

For the quarter ended March 31, 2014	$	(546)	$	2,921	$	75	$	2,450
For the quarter ended June 30, 2014		(219)		2,460		75		2,316
For the remaining six months of 2014		158		3,534		150		3,842
For the years ending:
2015		1,701		1,843		175		3,719
2016		2,619		-		271		2,890
2017		3,057		-		170		3,227
2018		2,695		-		(143)		2,552
2019		2,152		-		(286)		1,866
Thereafter		13,178		-		(5,923)		7,255

ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the second quarter, the Company continued to have improvement in asset quality when compared to the prior year period, as year-to-date charge-off and provision levels and nonperforming assets were lower. The Company experienced increases in nonperforming assets from the prior quarter due to previously impaired loans put on nonaccrual status in the current quarter and closed bank premises related to the StellarOne acquisition that were moved to OREO; foreclosed property balances declined from the prior quarter. Net charge-offs were higher due to the net loan recovery recorded in the prior quarter. The magnitude of any change in the real estate market and its impact on the Company is still largely dependent upon continued recovery of residential housing and commercial real estate and the pace at which the local economies in the Company's operating markets improve. All metrics discussed below exclude loans acquired with deteriorated credit quality ("PCI") aggregating $131.1 million (net of fair value mark).

Nonperforming Assets ("NPAs")
At June 30, 2014, nonperforming assets totaled $61.6 million, a decline of $582,000, or 0.9%, from a year ago and an increase of $11.4 million, or 22.7%, from March 31, 2014. In addition, NPAs as a percentage of total outstanding loans declined 89 basis points from 2.07% a year earlier and increased 23 basis points from 0.95% last quarter to 1.18% in the current quarter. The following table shows a summary of asset quality balances at the quarter ended (dollars in thousands):


	June 30,		March 31,		December 31,		September 30,		June 30,
	2014		2014		2013		2013		2013
Nonaccrual loans, excluding PCI loans	$	23,099	$	14,722	$	15,035	$	19,941	$	27,022
Foreclosed properties		33,739		35,487		34,116		35,576		35,020
Real estate investment		4,755		-		-		133		133
Total nonperforming assets	$	61,593	$	50,209	$	49,151	$	55,650	$	62,175

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


	June 30,		March 31,		December 31,		September 30,		June 30,
	2014		2014		2013		2013		2013
Beginning Balance	$	14,722	$	15,035	$	19,941	$	27,022	$	23,033
Net customer payments		(1,088)		(959)		(1,908)		(5,574)		(3,196)
Additions		11,087		1,362		3,077		3,020		7,934
Charge-offs		(137)		(152)		(4,336)		(1,669)		(476)
Loans returning to accruing status		(523)		-		(1,018)		(1,068)		-
Transfers to OREO		(962)		(564)		(721)		(1,790)		(273)
Ending Balance	$	23,099	$	14,722	$	15,035	$	19,941	$	27,022

The net increase in nonaccrual loan levels in the current quarter is primarily related to three credit relationships; the related loans were previously identified as impaired and evaluated for specific reserves in prior quarters.

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


	June 30,		March 31,		December 31,		September 30,		June 30,
	2014		2014		2013		2013		2013
Beginning Balance	$	35,487	$	34,116	$	35,709	$	35,153	$	35,878
Additions		7,671		5,404		1,326		2,841		1,768
Capitalized Improvements		59		-		101		266		164
Valuation Adjustments		(817)		(256)		(300)		(491)		-
Proceeds from sales		(3,913)		(3,800)		(2,483)		(1,773)		(2,436)
Gains (losses) from sales		7		23		(237)		(287)		(221)
Ending Balance	$	38,494	$	35,487	$	34,116	$	35,709	$	35,153

Of the $7.7 million in additions to OREO in the current quarter, $6.1 million related to acquired bank premises no longer used in operations.

Past Due Loans
At June 30, 2014, loans past due 90 days or more and accruing interest totaled $6.9 million, or 0.13% of total loans, compared to $6.3 million, or 0.21%, a year ago and $7.2 million, or 0.14%, at March 31, 2014.

Charge-offs
For the quarter ended June 30, 2014, net charge-offs were $1.0 million, or 0.08% on an annualized basis, compared to $1.1 million, or 0.14%, for the same quarter last year and net loan recoveries of $772,000, or (0.06%), for the first quarter of 2014. For the six months ended June 30, 2014, net charge-offs were $256,000, or 0.01% on an annualized basis, compared to $3.6 million, or 0.24%, for the same period in the prior year.

Provision
The provision for loan losses for the current quarter was $1.5 million, an increase of $500,000 from the same quarter a year ago and an increase of $1.5 million from the previous quarter. The increase in provision for loan losses in the current quarter compared to the prior periods was driven by increases in specific reserves on impaired loans and the impact of the net loan recoveries in the first quarter.

Allowance for Loan Losses
The allowance for loan losses ("ALL") increased $472,000 from March 31, 2014 to $31.4 million at June 30, 2014. The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 1.11% at June 30, 2014, a decrease from 1.29% at June 30, 2013 and an increase from 1.09% from the prior quarter. The allowance for loan losses as a percentage of the total loan portfolio was 0.60% at June 30, 2014, 1.14% at June 30, 2013, and 0.59% at March 31, 2014. The increase in the allowance-related ratios from prior quarter was primarily attributable to increases in specific reserves on impaired loans. In acquisition accounting, there is no carryover of previously established allowance for loan losses.

The nonaccrual loan coverage ratio was 135.8% at June 30, 2014, compared to 127.1% from the same quarter last year 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 $2.5 million, or 17.6%, to $16.7 million from $14.2 million in the prior quarter. Customer-related noninterest income increased $1.1 million, primarily due to increases in service charges on deposit accounts, debit card interchange income, letter of credit fees, and income from wealth management services. Gains on sales of securities increased $397,000 from the prior quarter, while losses on sales of bank premises decreased $162,000. Gains on sales of mortgage loans, net of commissions, increased $733,000, or 31.9%, from the prior quarter, primarily related to increased mortgage loan originations. Mortgage loan originations increased by $46.0 million, or 30.9%, in the current quarter to $195.1 million from $149.1 million in the first quarter. Of the loan originations in the current quarter, 24.4% were refinances, which was a decrease from 30.4% in the prior quarter.

NONINTEREST EXPENSE

Noninterest expense decreased $8.3 million, or 12.3%, to $59.5 million from $67.8 million when compared to the prior quarter. Excluding acquisition-related costs, which were $4.7 million and $13.2 million in the current and previous quarters, respectively, noninterest expense remained stable with only a slight increase of $201,000, or 0.37%, from the prior quarter. Increases in OREO and credit-related expenses of $793,000, marketing expenses of $627,000, and professional fees of $387,000 were partially offset by decreases in salary and benefit expenses of $1.6 million. The increase in OREO and credit-related costs is related to valuation adjustments required in the current quarter based on recent valuations of legacy OREO. The Company's operating efficiency ratio declined to 66.4% from 68.4% in the first quarter.

BALANCE SHEET

At June 30, 2014, total assets were $7.3 billion, an increase of $3.1 billion from December 31, 2013, reflecting the impact of the StellarOne acquisition, and an increase of $12.4 million, or 0.17%, from March 31, 2014.

At June 30, 2014, loans net of unearned income were $5.2 billion, a decrease of $41.1 million from March 31, 2014, while average loans declined $33.2 million, or 2.5% (annualized). On a proforma basis, including StellarOne loan balances, period end loan balances grew $93.8 million, or 1.8%, when compared to June 30, 2013.

At June 30, 2014, total deposits were $5.7 billion, an increase of $48.4 million from March 31, 2014, while average deposits increased $47.1 million, or 3.3% (annualized). On a proforma basis, including StellarOne deposit balances, period end deposit balance remained flat when compared to June 30, 2013.

The Company's capital ratios continued to be considered "well capitalized" for regulatory purposes. The Company's estimated ratios of total capital to risk-weighted assets and Tier 1 capital to risk-weighted assets as of June 30, 2014 were 13.57% and 12.94%, respectively. As of December 31, 2013, the Company's ratio of total capital to risk-weighted assets and Tier 1 capital to risk-weighted assets were 14.17% and 13.05%, respectively, and were 13.70% and 13.02%, respectively, as of March 31, 2014. The Company's common equity to asset ratios at June 30, 2014, March 31, 2014 and December 31, 2013 were 13.37%, 13.47%, and 10.49%, respectively, while its tangible common equity to tangible assets ratio was 9.23%, 9.29% and 8.94% at June 30, 2014, March 31, 2014 and December 31, 2013, respectively.

COMMUNITY BANK SEGMENT INFORMATION

The community bank segment reported net income of $15.4 million for the second quarter, an increase of $6.2 million, or 67.4%, from $9.2 million in the first quarter. Excluding after-tax acquisition-related expenses of $3.0 million and $9.0 million in the current and prior quarters, respectively, operating earnings increased $214,000 from the prior quarter to $18.4 million. As previously discussed, the provision for loan losses increased $1.5 million from the prior quarter due to increases in specific reserves on impaired loans and net loan recoveries recorded in the prior quarter. Net interest income was $63.4 million, a slight decrease of $125,000 from the first quarter.

Noninterest income increased $1.7 million from $12.1 million in the prior quarter to $13.8 million. Customer-related noninterest income increased $1.1 million, primarily due to increases in service charges on deposit accounts, debit card interchange income, letter of credit fees, and income from wealth management services. Gains on sales of securities increased $397,000 from the prior quarter, while losses on sales of bank premises decreased $162,000.

Noninterest expense decreased $7.9 million from $63.2 million to $55.3 million. Excluding acquisition-related costs, which were $4.7 million and $13.2 million in the current quarter and previous quarter, respectively, noninterest expense increased $614,000, or 1.2%, compared to the prior quarter. Increases in OREO and credit-related expenses of $793,000, marketing expenses of $629,000, and professional fees of $369,000 were partially offset by decreases in salary and benefit expenses of $1.1 million. The increase in OREO and credit-related costs is related to valuation adjustments required in the current quarter based on recent valuations of legacy OREO. The community banking segment's operating efficiency ratio declined to 63.9% in the second quarter from 64.6% in the prior quarter.

MORTGAGE SEGMENT INFORMATION

The mortgage segment reported a net loss of $602,000 for the second quarter, an improvement of $778,000, or 56.4%, from a net loss of $1.4 million in the first quarter. Gains on sales of mortgage loans, net of commissions, increased $733,000, or 31.9%, primarily related to increased mortgage loan originations. Mortgage loan originations increased by $46.0 million, or 30.9%, in the current quarter to $195.1 million from $149.1 million in the first quarter. Of the loan originations in the current quarter, 24.4% were refinances, which was a decrease from 30.4% in the prior quarter. Noninterest expenses decreased $414,000, or 8.8%, from $4.7 million in the prior quarter to $4.3 million, related to declines in salaries, as a result of management's efforts to recalibrate its cost structure to align with the overall lower 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 First Market Bank, which has 131 branches and 200 ATMs 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, July 22, 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 74084820. A replay archive of the conference call will be available beginning July 22nd at http://investors.bankatunion.com.

NON-GAAP MEASURES

In reporting the results of June 30, 2014, 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 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, the stock and bond markets, accounting standards or interpretations of existing standards, technology, consumer spending and savings habits, and mergers and acquisitions, including integration risk in connection with the Company's acquisition of StellarOne such as potential deposit attrition, higher than expected costs, customer loss and business disruption, including, without limitation, potential difficulties in maintaining relationships with key personnel, and other integration related-matters. More information is available on the Company's website, http://investors.bankatunion.com and on the SEC's website, www.sec.gov. 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.


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
KEY FINANCIAL RESULTS
(in thousands, except share data)
	Three Months Ended						Six Months Ended
	06/30/14		03/31/14		06/30/13		06/30/14		06/30/13
Results of Operations
Interest and dividend income	$	68,634	$	68,208	$	42,686	$	136,842	$	85,973
Interest expense		4,919		4,450		5,283		9,369		10,816
Net interest income		63,715		63,758		37,403		127,473		75,157
Provision for loan losses		1,500		-		1,000		1,500		3,050
Net interest income after provision for loan losses		62,215		63,758		36,403		125,973		72,107
Noninterest income		16,704		14,200		11,299		30,904		21,133
Noninterest expenses		59,475		67,781		34,283		127,256		67,783
Income before income taxes		19,444		10,177		13,419		29,621		25,457
Income tax expense		4,664		2,362		3,956		7,026		7,011
Net income	$	14,780	$	7,815	$	9,463	$	22,595	$	18,446

Interest earned on earning assets (FTE)		70,735		70,154		43,981		140,907		88,524
Net interest income (FTE)		65,816		65,704		38,698		131,538		77,708
Core deposit intangible amortization		2,455		2,616		921		5,071		1,957

Net income - community bank segment	$	15,382	$	9,195	$	9,169	$	24,577	$	17,973
Net income - mortgage segment		(602)		(1,380)		294		(1,982)		473

Key Ratios
Earnings per common share, diluted	$	0.32	$	0.17	$	0.38	$	0.49	$	0.74
Return on average assets (ROA)		0.81%		0.44%		0.94%		0.63%		0.92%
Return on average equity (ROE)		6.06%		3.18%		8.73%		4.61%		8.53%
Return on average tangible common equity (ROTCE)		9.20%		4.80%		10.51%		6.99%		10.27%
Efficiency ratio (FTE)		72.07%		84.83%		68.57%		78.34%		68.58%
Efficiency ratio - community bank segment (FTE)		69.75%		81.56%		66.13%		75.58%		66.19%
Efficiency ratio - mortgage bank segment (FTE)		128.53%		186.04%		91.11%		153.31%		92.10%
Net interest margin (FTE)		4.09%		4.14%		4.18%		4.11%		4.21%
Net interest margin, core (FTE)⁽¹⁾		3.94%		3.99%		4.14%		3.97%		4.16%
Yields on earning assets (FTE)		4.39%		4.42%		4.75%		4.41%		4.79%
Cost of interest-bearing liabilities (FTE)		0.39%		0.34%		0.73%		0.37%		0.74%
Cost of funds		0.30%		0.28%		0.57%		0.30%		0.58%

Key operating Ratios - excluding merger costs (non-GAAP) ⁽³⁾
*Consolidated*
Operating net income	$	17,823	$	16,831	$	10,382	$	34,654	$	19,365
Operating diluted earnings per share	$	0.38	$	0.36	$	0.42	$	0.74	$	0.78
Operating return on average assets		0.98%		0.94%		1.03%		0.96%		0.96%
Operating return on average equity		7.30%		6.84%		9.58%		7.07%		8.95%
Operating return on average tangible common equity		11.10%		10.33%		11.54%		10.71%		10.78%
Operating efficiency ratio (FTE)		66.43%		68.35%		66.73%		67.36%		67.65%

*Community Bank Segment*
Operating net income	$	18,425	$	18,211	$	10,088	$	36,636	$	18,892
Operating diluted earnings per share	$	0.40	$	0.39	$	0.41	$	0.79	$	0.76
Operating return on average assets		1.02%		1.02%		1.01%		1.02%		0.95%
Operating return on average equity		7.60%		7.52%		9.52%		7.56%		8.92%
Operating return on average tangible common equity		11.59%		11.44%		11.51%		11.52%		10.80%
Operating efficiency ratio (FTE)		63.88%		64.57%		64.09%		64.22%		65.17%


	Three Months Ended						Six Months Ended
	06/30/14		03/31/14		06/30/13		06/30/14		06/30/13

Capital Ratios
Tier 1 risk-based capital ratio ⁽⁵⁾		12.94%		13.02%		13.08%		12.94%		13.08%
Total risk-based capital ratio⁽⁵⁾		13.57%		13.70%		14.37%		13.57%		14.37%
Leverage ratio (Tier 1 capital to average assets) ⁽⁵⁾		10.48%		10.66%		10.45%		10.48%		10.45%
Common equity to total assets		13.37%		13.47%		10.56%		13.37%		10.56%
Tangible common equity to tangible assets		9.23%		9.29%		8.92%		9.23%		8.92%

Per Share Data
Earnings per common share, basic	$	0.32	$	0.17	$	0.38	$	0.49	$	0.74
Earnings per common share, diluted		0.32		0.17		0.38		0.48		0.74
Cash dividends paid per common share		0.14		0.14		0.13		0.28		0.26
Market value per share		25.65		25.42		20.59		25.65		20.59
Book value per common share		21.40		21.15		17.32		21.40		17.32
Tangible book value per common share		14.10		13.92		14.36		14.10		14.36
Price to earnings ratio, diluted		19.98		36.87		13.51		26.50		13.80
Price to book value per common share ratio		1.20		1.20		1.19		1.20		1.19
Price to tangible common share ratio		1.82		1.83		1.43		1.82		1.43
Weighted average common shares outstanding, basic		46,194,880		46,977,416		24,721,771		46,583,975		24,891,655
Weighted average common shares outstanding, diluted		46,296,870		47,080,661		24,802,231		46,686,592		24,961,431
Common shares outstanding at end of period		45,874,662		46,677,821		24,880,403		45,874,662		24,880,403

Financial Condition
Assets	$	7,307,080	$	7,294,637	$	4,056,557	$	7,307,080	$	4,056,557
Loans, net of unearned income		5,233,069		5,274,198		3,000,855		5,233,069		3,000,855
Earning Assets		6,460,753		6,469,151		3,722,199		6,460,753		3,722,199
Goodwill		296,876		296,876		59,400		296,876		59,400
Core deposit intangibles, net		36,479		38,935		13,821		36,479		13,821
Deposits		5,734,563		5,686,131		3,265,963		5,734,563		3,265,963
Stockholders' equity		976,969		982,513		428,429		976,969		428,429
Tangible common equity		643,614		646,702		355,208		643,614		355,208

Averages
Assets	$	7,274,730	$	7,249,746	$	4,037,696	$	7,262,307	$	4,047,372
Loans, net of unearned income		5,246,710		5,279,924		2,975,200		5,263,225		2,970,584
Loans held for sale		52,895		49,767		117,467		51,340		137,008
Securities		1,133,807		1,076,479		609,592		1,105,301		604,953
Earning assets		6,460,798		6,432,326		3,713,392		6,446,641		3,724,597
Deposits		5,693,096		5,645,961		3,265,128		5,669,658		3,274,728
Certificates of deposit		1,411,665		1,463,076		979,011		1,437,229		1,010,283
Interest-bearing deposits		4,543,661		4,686,438		2,608,408		4,551,416		2,631,535
Borrowings		550,514		549,663		299,115		550,091		300,223
Interest-bearing liabilities		5,094,175		5,236,101		2,907,523		5,101,507		2,931,758
Stockholders' equity		978,894		997,868		434,640		988,329		436,301
Tangible common equity		644,056		660,543		360,974		652,254		362,157


	Three Months Ended						Six Months Ended
	06/30/14		03/31/14		06/30/13		06/30/14		06/30/13
Asset Quality
Allowance for Loan Losses (ALL)
Beginning balance	$	30,907	$	30,135	$	34,415	$	30,135	$	34,916
Add: Recoveries		512		1,659		721		2,171		1,555
Less: Charge-offs		1,540		887		1,803		2,427		5,188
Add: Provision for loan losses		1,500		-		1,000		1,500		3,050
Ending balance	$	31,379	$	30,907	$	34,333	$	31,379	$	34,333

ALL / total outstanding loans		0.60%		0.59%		1.14%		0.60%		1.14%
ALL / total outstanding loans, adjusted for acquisition accounting ⁽²⁾		1.11%		1.09%		1.29%		1.11%		1.29%
Net charge-offs / total outstanding loans		0.08%		-0.06%		0.14%		0.01%		0.24%
Provision / total outstanding loans		0.11%		0.00%		0.13%		0.06%		0.20%
Nonperforming Assets
Commercial	$	17,489	$	11,362	$	23,013	$	17,489	$	23,013
Consumer		5,610		3,360		4,009		5,610		4,009
Nonaccrual loans		23,099		14,722		27,022		23,099		27,022

Other real estate owned		38,494		35,487		35,153		38,494		35,153
Total nonperforming assets (NPAs)		61,593		50,209		62,175		61,593		62,175

Commercial		649		3,485		1,353		649		1,353
Consumer		6,221		3,720		4,938		6,221		4,938
Loans ≥ 90 days and still accruing		6,870		7,205		6,291		6,870		6,291

Total nonperforming assets and loans ≥ 90 days	$	68,463	$	57,414	$	68,466	$	68,463	$	68,466
NPAs / total outstanding loans		1.18%		0.95%		2.07%		1.18%		2.07%
NPAs / total assets		0.84%		0.69%		1.53%		0.84%		1.53%
ALL / nonperforming loans		135.84%		209.94%		127.06%		135.84%		127.06%
ALL / nonperforming assets		50.95%		61.56%		55.22%		50.95%		55.22%

Past Due Detail
Commercial	$	3,369	$	2,599	$	1,093	$	3,369	$	1,093
Consumer		4,861		4,511		3,729		4,861		3,729
Loans 60-89 days past due	$	8,230	$	7,110	$	4,822	$	8,230	$	4,822
Commercial	$	5,518	$	12,381	$	7,392	$	5,518	$	7,392
Consumer		22,623		23,018		11,215		22,623		11,215
Loans 30-59 days past due	$	28,141	$	35,399	$	18,607	$	28,141	$	18,607
Commercial	$	114,893	$	120,291	$	3,039	$	114,893	$	3,039
Consumer		16,214		18,140		934		16,214		934
Purchased impaired	$	131,107	$	138,431	$	3,973	$	131,107	$	3,973

Troubled Debt Restructurings
Performing	$	30,561	$	37,195	$	39,826	$	30,561	$	39,826
Nonperforming		3,610		7,090		13,210		3,610		13,210
Total troubled debt restructurings	$	34,171	$	44,285	$	53,036	$	34,171	$	53,036

Mortgage Origination Volume
Refinance Volume	$	47,640	$	45,322	$	114,502	$	92,962	$	255,750
Construction Volume		39,441		32,103		34,425		71,544		60,613
Purchase Volume		108,039		71,635		149,257		179,674		249,982
Total Mortgage loan originations	$	195,120	$	149,060	$	298,184	$	344,181	$	566,345
% of originations that are refinances		24.42%		30.41%		38.40%		27.01%		45.20%

Other Data
End of period full-time employees		1,511		1,628		1,044		1,511		1,044
Number of full-service branches		131		144		90		131		90
Number of full automatic transaction machines (ATMs)		200		210		155		200		155


	Three Months Ended						Six Months Ended
	06/30/14		03/31/14		06/30/13		06/30/14		06/30/13
Alternative Performance Measures (non-GAAP)
Operating Earnings ⁽³⁾
Net Income (GAAP)	$	14,780	$	7,815	$	9,463	$	22,595	$	18,446
Plus: Merger and conversion related expense, after tax		3,043		9,016		919		12,059		919
Net operating earnings (loss) (non-GAAP)	$	17,823	$	16,831	$	10,382	$	34,654	$	19,365

Operating earnings per share - Basic	$	0.38	$	0.36	$	0.42	$	0.74	$	0.78
Operating earnings per share - Diluted		0.38		0.36		0.42		0.74		0.78

Operating ROA		0.98%		0.94%		1.03%		0.96%		0.96%
Operating ROE		7.30%		6.84%		9.58%		7.07%		8.95%
Operating ROTCE		11.10%		10.33%		11.54%		10.71%		10.78%

Community Bank Segment Operating Earnings ⁽³⁾
Net Income (GAAP)	$	15,382	$	9,195	$	9,169	$	24,577	$	17,973
Plus: Merger and conversion related expense, after tax		3,043		9,016		919		12,059		919
Net operating earnings (loss) (non-GAAP)	$	18,425	$	18,211	$	10,088	$	36,636	$	18,892

Operating earnings per share - Basic	$	0.40	$	0.39	$	0.41	$	0.79	$	0.76
Operating earnings per share - Diluted		0.40		0.39		0.41		0.79		0.76

Operating ROA		1.02%		1.02%		1.01%		1.02%		0.95%
Operating ROE		7.60%		7.52%		9.52%		7.56%		8.92%
Operating ROTCE		11.59%		11.44%		11.51%		11.52%		10.80%

Operating Efficiency Ratio FTE ⁽³⁾
Net Interest Income (GAAP)	$	63,715	$	63,758	$	37,403	$	127,473	$	75,157
FTE adjustment		2,101		1,946		1,295		4,065		2,551
Net Interest Income (FTE)	$	65,816		65,704		38,698		131,538		77,708
Noninterest Income (GAAP)		16,704		14,200		11,299		30,904		21,133
Noninterest Expense (GAAP)	$	59,475	$	67,781	$	34,283	$	127,256	$	67,783
Merger and conversion related expense		4,661		13,168		919		17,829		919
Noninterest Expense (Non-GAAP)	$	54,814	$	54,613	$	33,364	$	109,427	$	66,864

Operating Efficiency Ratio FTE (non-GAAP)		66.43%		68.35%		66.73%		67.36%		67.65%

Community Bank Segment Operating Efficiency Ratio FTE ⁽³⁾
Net Interest Income (GAAP)	$	63,401	$	63,526	$	36,960	$	126,927	$	74,147
FTE adjustment		2,102		1,947		1,294		4,064		2,553
Net Interest Income (FTE)	$	65,503		65,473		38,254		130,991		76,700
Noninterest Income (GAAP)		13,846		12,071		6,798		25,917		12,945
Noninterest Expense (GAAP)	$	55,349	$	63,242	$	29,793	$	118,591	$	59,338
Merger and conversion related expense		4,661		13,168		919		17,829		919
Noninterest Expense (Non-GAAP)	$	50,688	$	50,074	$	28,874	$	100,762	$	58,419

Operating Efficiency Ratio FTE (non-GAAP)		63.88%		64.57%		64.09%		64.22%		65.17%

Tangible Common Equity ⁽⁴⁾
Ending equity	$	976,969	$	982,513	$	428,429	$	976,969	$	428,429
Less: Ending goodwill		296,876		296,876		59,400		296,876		59,400
Less: Ending core deposit intangibles		36,479		38,935		13,821		36,479		13,821
Ending tangible common equity	$	643,614	$	646,702	$	355,208	$	643,614	$	355,208

Average equity	$	978,894	$	997,868	$	434,640	$	988,329	$	436,301
Less: Average trademark intangible		-		-		-		-		3
Less: Average goodwill		296,876		296,876		59,400		296,876		59,400
Less: Average core deposit intangibles		37,962		40,449		14,266		39,199		14,741
Average tangible common equity	$	644,056	$	660,543	$	360,974	$	652,254	$	362,157



	Three Months Ended						Six Months Ended
	06/30/14		03/31/14		06/30/13		06/30/14		06/30/13
ALL to loans, adjusted for acquisition accounting (non-GAAP)⁽²⁾
Allowance for loan losses	$	31,379	$	30,907	$	34,333	$	31,379	$	34,333
Remaining credit mark on purchased performing loans		25,632		25,515		4,251		25,632		4,251
Adjusted allowance for loan losses		57,011		56,422		38,584		57,011		38,584

Loans, net of unearned income		5,233,069		5,274,198		3,000,855		5,233,069		3,000,855
Remaining credit mark on purchased performing loans		25,632		25,515		4,251		25,632		4,251
Less: Purchased credit impaired loans, net of credit mark		131,107		138,431		3,973		131,107		3,973
Adjusted loans, net of unearned income	$	5,127,594	$	5,161,282	$	3,001,133	$	5,127,594	$	3,001,133

ALL / gross loans, adjusted for acquisition accounting		1.11%		1.09%		1.29%		1.11%		1.29%



(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 allowance for loan losses, adjusted for acquisition accounting (non-GAAP) ratio includes an adjustment for the credit mark on purchased performing loans. The purchased performing loans are reported net of the related credit mark in loans, net of unearned income, on the Company's Consolidated Balance Sheet; therefore, the credit mark is added back to the balance to represent the total loan portfolio. The adjusted allowance for loan losses, including the credit mark, represents the total reserve on the Company's loan portfolio. The PCI loans, net of the respective credit mark, are removed from the loans, net of unearned income, as these 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, adjusted for acquisition accounting ratio 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 credit 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.

(3) 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 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.

(4) 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.

(5) June 30, 2014 ratios are estimates and subject to change pending the filing of the FR Y9-C. All other periods presented as filed.


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
	June 30,		December 31,
	2014		2013
ASSETS	(Unaudited)		(Audited)
Cash and cash equivalents:
Cash and due from banks	$	136,799	$	66,090
Interest-bearing deposits in other banks		21,769		6,781
Money market investments		1		1
Federal funds sold		311		151
Total cash and cash equivalents		158,880		73,023

Securities available for sale, at fair value		1,094,777		677,348
Restricted stock, at cost		47,204		26,036

Loans held for sale, net		63,622		53,185

Loans, net of unearned income		5,233,069		3,039,368
Less allowance for loan losses		31,379		30,135
Net loans		5,201,690		3,009,233

Bank premises and equipment, net		145,662		82,815
Other real estate owned, net of valuation allowance		38,494		34,116
Core deposit intangibles, net		36,479		11,980
Goodwill		296,876		59,400
Other assets		223,396		149,435
Total assets	$	7,307,080	$	4,176,571

LIABILITIES
Noninterest-bearing demand deposits		1,198,919		691,674
Interest-bearing deposits		4,535,644		2,545,168
Total deposits		5,734,563		3,236,842

Securities sold under agreements to repurchase		42,276		52,455
Other short-term borrowings		200,000		211,500
Long-term borrowings		298,786		199,359
Other liabilities		54,486		38,176
Total liabilities		6,330,111		3,738,332

Commitments and contingencies

STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000 and 36,000,000, respectively; issued and outstanding, 45,874,662 shares and 24,976,434 shares, respectively.		60,731		33,020
Surplus		659,179		170,770
Retained earnings		246,178		236,639
Accumulated other comprehensive income (loss)		10,881		(2,190)
Total stockholders' equity		976,969		438,239

Total liabilities and stockholders' equity	$	7,307,080	$	4,176,571


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2014		2013		2014		2013
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest and dividend income:
Interest and fees on loans	$	61,386	$	38,687	$	122,655	$	77,912
Interest on Federal funds sold		-		-		-		1
Interest on deposits in other banks		9		6		21		11
Interest and dividends on securities:
Taxable		3,860		1,939		7,508		4,008
Nontaxable		3,379		2,054		6,658		4,041
Total interest and dividend income		68,634		42,686		136,842		85,973

Interest expense:
Interest on deposits		2,550		3,701		4,806		7,663
Interest on federal funds purchased		23		21		46		36
Interest on short-term borrowings		146		54		265		108
Interest on long-term borrowings		2,200		1,507		4,252		3,009
Total interest expense		4,919		5,283		9,369		10,816

Net interest income		63,715		37,403		127,473		75,157
Provision for loan losses		1,500		1,000		1,500		3,050
Net interest income after provision for loan losses		62,215		36,403		125,973		72,107

Noninterest income:
Service charges on deposit accounts		4,525		2,346		8,822		4,618
Other service charges, commissions and fees		5,412		3,222		10,083		6,029
Gains (losses) on securities transactions, net		426		53		455		42
Gains on sales of mortgage loans, net of commissions		3,030		4,668		5,328		8,520
Losses on sales of bank premises		(71)		(34)		(304)		(330)
Other operating income		3,382		1,044		6,520		2,254
Total noninterest income		16,704		11,299		30,904		21,133

Noninterest expenses:
Salaries and benefits		28,040		17,912		57,666		35,878
Occupancy expenses		5,102		2,764		10,282		5,619
Furniture and equipment expenses		2,637		1,741		5,505		3,585
Communications expense		1,351		675		2,450		1,372
Technology and data processing		2,792		2,021		5,866		3,765
Professional services		1,442		663		2,497		1,387
Marketing and advertising expense		1,692		1,108		2,757		2,160
FDIC assessment premiums and other insurance		1,593		756		2,986		1,546
OREO and credit-related expenses		2,244		984		3,694		1,558
Amortization of intangible assets		2,455		921		5,071		1,990
Acquisition and conversion costs		4,661		919		17,829		919
Other expenses		5,466		3,819		10,653		8,004
Total noninterest expenses		59,475		34,283		127,256		67,783

Income before income taxes		19,444		13,419		29,621		25,457
Income tax expense		4,664		3,956		7,026		7,011
Net income	$	14,780	$	9,463	$	22,595	$	18,446
Earnings per common share, basic	$	0.32	$	0.38	$	0.49	$	0.74
Earnings per common share, diluted	$	0.32	$	0.38	$	0.48	$	0.74


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Dollars in thousands)
	Community Bank		Mortgage		Eliminations		Consolidated
Three Months Ended June 30, 2014
Net interest income	$	63,401	$	314	$	-	$	63,715
Provision for loan losses		1,500		-		-		1,500
Net interest income after provision for loan losses		61,901		314		-		62,215
Noninterest income		13,846		3,028		(170)		16,704
Noninterest expenses		55,349		4,296		(170)		59,475
Income (loss) before income taxes		20,398		(954)		-		19,444
Income tax expense (benefit)		5,016		(352)		-		4,664
Net income (loss)	$	15,382	$	(602)	$	-	$	14,780
Plus: Merger and conversion related expense, after tax		3,043		-		-		3,043
Net operating earnings (loss) (non-GAAP)	$	18,425	$	(602)	$	-	$	17,823
Total assets	$	7,305,078	$	77,299	$	(75,297)	$	7,307,080

Three Months Ended June 30, 2013
Net interest income	$	36,960	$	443	$	-	$	37,403
Provision for loan losses		1,000		-		-		1,000
Net interest income after provision for loan losses		35,960		443		-		36,403
Noninterest income		6,798		4,668		(167)		11,299
Noninterest expenses		29,793		4,657		(167)		34,283
Income before income taxes		12,965		454		-		13,419
Income tax expense		3,796		160		-		3,956
Net income	$	9,169	$	294	$	-	$	9,463
Plus: Merger and conversion related expense, after tax		919		-		-		919
Net operating earnings (loss) (non-GAAP)	$	10,088	$	294	$	-	$	10,382
Total assets	$	4,045,163	$	121,392	$	(109,998)	$	4,056,557

Six Months Ended June 30, 2014
Net interest income	$	126,927	$	546	$	-	$	127,473
Provision for loan losses		1,500		-		-		1,500
Net interest income after provision for loan losses		125,427		546		-		125,973
Noninterest income		25,917		5,328		(341)		30,904
Noninterest expenses		118,591		9,006		(341)		127,256
Income before income taxes		32,753		(3,132)		-		29,621
Income tax expense		8,176		(1,150)		-		7,026
Net income	$	24,577	$	(1,982)	$	-	$	22,595
Plus: Merger and conversion related expense, after tax		12,059		-		-		12,059
Net operating earnings (loss) (non-GAAP)	$	36,636	$	(1,982)	$	-	$	34,654
Total assets	$	7,305,078	$	77,299	$	(75,297)	$	7,307,080

Six Months Ended June 30, 2013
Net interest income	$	74,147	$	1,010	$	-	$	75,157
Provision for loan losses		3,050		-		-		3,050
Net interest income after provision for loan losses		71,097		1,010		-		72,107
Noninterest income		12,945		8,522		(334)		21,133
Noninterest expenses		59,338		8,779		(334)		67,783
Income before income taxes		24,704		753		-		25,457
Income tax expense		6,731		280		-		7,011
Net income	$	17,973	$	473	$	-	$	18,446
Plus: Merger and conversion related expense, after tax		919		-		-		919
Net operating earnings (loss) (non-GAAP)	$	18,892	$	473	$	-	$	19,365
Total assets	$	4,045,163	$	121,392	$	(109,998)	$	4,056,557


AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)

	For the quarter ended
	June 30, 2014					March 31, 2014
	Average Balance		Interest Income / Expense		Yield / Rate (1)	Average Balance		Interest Income / Expense		Yield / Rate (1)
		(Dollars in thousands)
Assets:
Securities:
Taxable	$	727,829	$	3,860	2.13%	$	683,620	$	3,648	2.16%
Tax-exempt		405,978		5,198	5.14%		392,859		5,044	5.21%
Total securities		1,133,807		9,058	3.20%		1,076,479		8,692	3.27%
Loans, net (2) (3)		5,246,710		61,125	4.67%		5,279,924		61,033	4.69%
Loans held for sale		52,895		543	4.12%		49,767		417	3.40%
Federal funds sold		522		-	0.17%		268		-	0.17%
Money market investments		1		-	0.00%		1		-	0.00%
Interest-bearing deposits in other banks		26,863		9	0.13%		25,887		12	0.19%
Total earning assets		6,460,798		70,735	4.39%		6,432,326		70,154	4.42%
Allowance for loan losses		(30,822)					(30,925)
Total non-earning assets		844,754					848,345
Total assets	$	7,274,730				$	7,249,746

Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	2,574,630		1,150	0.18%	$	2,674,485		1,138	0.17%
Regular savings		557,366		264	0.19%		548,877		247	0.18%
Time deposits (4)		1,411,665		1,136	0.32%		1,463,076		871	0.24%
Total interest-bearing deposits		4,543,661		2,550	0.23%		4,686,438		2,256	0.20%
Other borrowings (5)		550,514		2,369	1.73%		549,663		2,194	1.62%
Total interest-bearing liabilities		5,094,175		4,919	0.39%		5,236,101		4,450	0.34%

Noninterest-bearing liabilities:
Demand deposits		1,149,435					959,523
Other liabilities		52,226					56,254
Total liabilities		6,295,836					6,251,878
Stockholders' equity		978,894					997,868
Total liabilities and stockholders' equity	$	7,274,730				$	7,249,746

Net interest income			$	65,816				$	65,704

Interest rate spread (6)					4.00%					4.08%
Interest expense as a percent of average earning assets					0.30%					0.28%
Net interest margin (7)					4.09%					4.14%

(1) Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.
(2) Nonaccrual loans are included in average loans outstanding.
(3) Interest income on loans includes $219 thousand and $546 thousand for the three month periods ended June 30, 2014 and March 31, 2014 in accretion of the fair market value adjustments related to the acquisitions.
(4) Interest expense on certificates of deposits includes $2.5 million and $2.9 million for the three month periods ended June 30, 2014 and March 31, 2014, respectively, in accretion of the fair market value adjustments related to the acquisitions.
(5) Interest expense on borrowings includes $75 thousand for both the three month periods ended June 30, 2014 and March 31, 2014, respectively, in amortization of the fair market value adjustments related to acquisitions.
(6) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.
(7) Core net interest margin excludes purchase accounting adjustments and was 3.94% and 3.99% for the three months ended June 30, 2014 and March 31, 2014.