Union Bankshares Corporation today reported net income of $19.3 million

OREANDA-NEWS. Union Bankshares Corporation (the “Company” or “Union”) (NASDAQ:UBSH) today reported net income of $19.3 million and earnings per share of $0.44 for its second quarter ended June 30, 2016.  The quarterly results represent an increase of $2.4 million, or 14.0%, in net income and an increase of $0.06, or 15.8%, in earnings per share from the first quarter.  For the six months ended June 30, 2016, net income was $36.3 million and earnings per share was $0.82, an increase of 16.9% and 18.8%, respectively, compared to the results from the six months ended June 30, 2015.

Union also declared a quarterly dividend of $0.19 per share payable on August 19, 2016 to shareholders of record as of August 5, 2016.

“Union’s second quarter results clearly demonstrate the steady progress we are making toward our strategic growth and profitability objectives,” said G. William Beale, president and chief executive officer of Union Bankshares Corporation.  “During the quarter we achieved double digit annualized loan, deposit and net income growth, increased mortgage loan production levels and profitability, completed our acquisition of Old Dominion Capital Management and also opened a commercial loan production office in Charlotte, North Carolina.

I believe, now more than ever, that Union is well positioned to generate sustainable, profitable growth, achieve top tier financial performance and deliver the above average returns our shareholders expect on their investment.”

Select highlights for the second quarter include:

• Return on Average Tangible Common Equity (“ROTCE”) was 11.60% for the quarter ended June 30, 2016 compared to ROTCE of 10.13% for the prior quarter and 9.20% for the second quarter of 2015.  Return on Average Assets (“ROA”) was 0.98% for the quarter ended June 30, 2016 compared to ROA of 0.88% for the prior quarter and 0.83% for the second quarter of 2015.
• Net income for the community bank segment was $18.8 million, or $0.43 per share, for the second quarter, compared to $16.9 million, or $0.38 per share, for the first quarter.  Net income for the community bank segment for the six months ended June 30, 2016 was $35.7 million, or $0.81 per share.
• The mortgage segment reported net income of $539,000 for the second quarter, compared to net income of $54,000 in the first quarter.  Net income for the mortgage segment for the six months ended June 30, 2016 was $593,000, or $0.01 per share.
• On May 31, 2016, Union Bank & Trust (the “Bank”), the subsidiary bank of the Company, completed its acquisition of Old Dominion Capital Management, Inc. (“ODCM”), a Charlottesville, Virginia based registered investment advisor with nearly $300 million in assets under management.
• As previously announced, the Company closed five branches and opened a new stand-alone branch during the quarter as part of its continuing efforts to become more efficient.  The Company plans to close an additional five in-store branches in the Richmond market on September 30, 2016.
• Loans held for investment grew $160.6 million, or 11.1% (annualized), from March 31, 2016 and increased $457.5 million, or 8.3%, from June 30, 2015, adjusting for the sale of the credit card portfolio in the third quarter of 2015.  Average loans increased $153.0 million, or 10.7% (annualized), from the prior quarter and increased $441.4 million, or 8.1%, from the same quarter in the prior year, adjusting for the sale of the credit card portfolio in the third quarter of 2015.
• Period-end deposits increased $149.8 million, or 10.1% (annualized), from March 31, 2016 and grew $311.4 million, or 5.4%, from June 30, 2015.  Average deposits increased $126.1 million, or 8.6% (annualized), from the prior quarter and increased $315.6 million, or 5.5%, from the prior year.

NET INTEREST INCOME

Tax-equivalent net interest income was $68.2 million, an increase of $2.0 million from the first quarter, primarily driven by higher earning asset balances.  The second quarter tax-equivalent net interest margin increased 2 basis points to 3.84% from 3.82% in the previous quarter driven by higher levels of acquisition-related net accretion income.  Core tax-equivalent net interest margin (which excludes the 8 and 6 basis point impact of acquisition accounting accretion in the current and prior quarter, respectively) remained constant at 3.76% compared to the previous quarter.

The Company’s fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  During the second quarter, net accretion related to acquisition accounting increased $256,000, or 22.3%, from the prior quarter to $1.4 million for the quarter ended June 30, 2016.  The first and second quarters of 2016 and remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

			Loan Accretion					Borrowings Accretion (Amortization)							Total
For the quarter ended March 31, 2016			$	1,084				$		62					$	1,146
For the quarter ended June 30, 2016			1,259						143						1,402
For the remaining six months of 2016			2,195						190						2,385
For the years ending:
2017			4,285						170						4,455
2018			3,815						(143			)			3,672
2019			3,018						(286			)			2,732
2020			2,477						(301			)			2,176
2021			2,112						(316			)			1,796
Thereafter			8,766						(5,306			)			3,460

ASSET QUALITY/LOAN LOSS PROVISION

Overview
During the second quarter, the Company experienced declines in past due and nonaccrual loan levels, other real estate owned (“OREO”) balances, and net charge-off levels from the prior quarter.  Nonperforming assets and past due loans were also down from the prior year.   The loan loss provision declined from the prior quarter due to lower charge-off levels and improving asset quality metrics.   The allowance for loan loss increased from the prior quarter due to loan growth in the current quarter.

All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired loans (“PCI”) totaling $67.2 million (net of fair value mark of $15.9 million).

Nonperforming Assets (“NPAs”)
At June 30, 2016, NPAs totaled $24.2 million, a decrease of $7.5 million, or 23.6%, from June 30, 2015 and a decline of $3.1 million, or 11.3%, from March 31, 2016.  In addition, NPAs as a percentage of total outstanding loans declined 17 basis points from 0.58% a year earlier and decreased 6 basis points from 0.47% last quarter to 0.41% 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,
			2016				2016				2015				2015				2015
Nonaccrual loans, excluding PCI loans			$	10,861			$	13,092			$	11,936			$	12,966			$	9,521
Foreclosed properties			10,076				10,941				11,994				18,789				18,917
Former bank premises			3,305				3,305				3,305				3,305				3,305
Total nonperforming assets			$	24,242			$	27,338			$	27,235			$	35,060			$	31,743

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,
			2016				2016				2015				2015				2015
Beginning Balance			$	13,092			$	11,936			$	12,966			$	9,521			$	17,385
Net customer payments			(2,859		)		(1,204		)		(1,493		)		(1,104		)		(4,647		)
Additions			2,568				5,150				2,344				5,213				581
Charge-offs			(1,096		)		(1,446		)		(1,245		)		(541		)		(2,171		)
Loans returning to accruing status			(396		)		(932		)		(402		)		(123		)		(919		)
Transfers to OREO			(448		)		(412		)		(234		)		—				(708		)
Ending Balance			$	10,861			$	13,092			$	11,936			$	12,966			$	9,521

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,
			2016				2016				2015				2015				2015
Beginning Balance			$	14,246			$	15,299			$	22,094			$	22,222			$	25,434
Additions of foreclosed property			501				456				234				1,082				904
Additions of former bank premises			—				—				1,822				—				—
Capitalized improvements			—				—				—				9				243
Valuation adjustments			(274		)		(126		)		(4,229		)		(473		)		(710		)
Proceeds from sales			(1,086		)		(1,390		)		(4,961		)		(767		)		(3,511		)
Gains (losses) from sales			(6		)		7				339				21				(138		)
Ending Balance			$	13,381			$	14,246			$	15,299			$	22,094			$	22,222

During the second quarter, the majority of sales of OREO were related to residential real estate.

Past Due Loans
Past due loans still accruing interest totaled $25.3 million, or 0.43% of total loans, at June 30, 2016 compared to $33.5 million, or 0.61%, a year ago and $35.1 million, or 0.61%, at March 31, 2016.  At June 30, 2016, loans past due 90 days or more and accruing interest totaled $3.5 million, or 0.06% of total loans, compared to $10.9 million, or 0.20%, a year ago and $5.7 million, or 0.10%, at March 31, 2016.

Net Charge-offs
For the second quarter, net charge-offs were $1.6 million, or 0.11% on an annualized basis, compared to $2.2 million, or 0.16%, for the same quarter last year and $2.2 million, or 0.15%, for the prior quarter.  For the six months ended June 30, 2016, net charge-offs were $3.8 million, or 0.13% on an annualized basis, compared to $5.3 million, or 0.20%, for the same period last year.

Provision
The provision for loan losses for the current quarter was $2.3 million, a decline of $1.2 million compared to the same quarter a year ago and a decrease of $204,000 compared to the previous quarter.  The decline in provision for loan losses in the current quarter compared to the prior periods was primarily driven by lower charge-off levels and improving asset quality metrics.

Allowance for Loan Losses
The allowance for loan losses (“ALL”) increased $675,000 from March 31, 2016 to $35.1 million at June 30, 2016 primarily due to loan growth during the quarter.  The allowance for loan losses as a percentage of the total loan portfolio was 0.59% at June 30, 2016, 0.60% at March 31, 2016, and 0.59% at June 30, 2015.  The ALL as a percentage of the total loan portfolio, adjusted for purchase accounting (non-GAAP), was 0.92% at June 30, 2016, a decrease from 0.95% from the prior quarter and a decrease from 1.02% from the quarter ended June 30, 2015.  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 322.9% at June 30, 2016, compared to 262.8% at March 31, 2016 and 339.7% at June 30, 2015.  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 $2.1 million, or 13.1%, to $18.0 million for the quarter ended June 30, 2016 from $15.9 million in the prior quarter, primarily driven by higher mortgage banking income of $826,000, higher customer-related fee income of $477,000, increases in loan-related interest rate swap fees of $428,000, and higher insurance-related income of $226,000.  Increases in customer-related fee income were primarily driven by higher fiduciary and asset management fees, resulting from the acquisition of ODCM, as well as higher debit card interchange fees.

Mortgage banking income increased $826,000, or 38.5%, to $3.0 million in the second quarter compared to $2.1 million in the first quarter, related to increased mortgage loan originations.  Mortgage loan originations increased by $41.9 million, or 42.6%, in the current quarter to $140.1 million from $98.2 million in the first quarter.  Of the mortgage loan originations in the current quarter, 33.6% were refinances, which was a decline from 38.0% in the prior quarter.

NONINTEREST EXPENSE

Noninterest expense increased $979,000, or 1.8%, to $55.3 million for the quarter ended June 30, 2016 from $54.3 million in the prior quarter.  Professional fees increased $559,000 due to higher project-related consulting expenses.  Salary and benefit expenses increased $471,000 primarily related to the full-quarter impact of annual merit adjustments in the second quarter and increases related to the ODCM acquisition and the new Charlotte Loan Production Office. OREO and credit-related costs were $325,000 higher due to increases in valuation adjustments, OREO expenses, and seasonal real estate tax expenses on foreclosed properties in the second quarter.  These increases were partially offset by the $300,000 in branch closure costs recorded in the first quarter.

BALANCE SHEET

At June 30, 2016, total assets were $8.1 billion, an increase of $268.0 million from March 31, 2016 and an increase of $602.9 million from June 30, 2015.  The increase in assets was mostly related to loan growth.

At June 30, 2016, loans held for investment were $5.9 billion, an increase of $160.6 million, or 11.1% (annualized), from March 31, 2016, while average loans increased $153.0 million, or 10.7% (annualized), from the prior quarter.  Adjusted for the sale of the credit card portfolio that occurred in the third quarter of 2015, loans held for investment increased $457.5 million, or 8.3%, from June 30, 2015, while quarterly average loans increased $441.4 million, or 8.1%, from the prior year.

At June 30, 2016, total deposits were $6.1 billion, an increase of $149.8 million, or 10.1% (annualized), from March 31, 2016, while average deposits increased $126.1 million, or 8.6% (annualized), from the prior quarter. Total deposits grew $311.4 million, or 5.4%, from June 30, 2015, while average deposits increased $315.6 million, or 5.5%, from the prior year.

At June 30, 2016, March 31, 2016, and June 30, 2015, respectively, the Company had a common equity Tier 1 capital ratio of 9.92%, 10.25%, and 10.87%; a Tier 1 capital ratio of 11.25%, 11.63%, and 12.31%; a total capital ratio of 11.77%, 12.16%, and 12.83%; and a leverage ratio of 10.01%, 10.25%, and 10.82%.

The Company’s common equity to asset ratios at June 30, 2016, March 31, 2016, and June 30, 2015 were 12.21%, 12.52%, and 13.18%, respectively, while its tangible common equity to tangible assets ratio was 8.59%, 8.86%, and 9.30%, respectively.  The decrease in capital ratios from prior periods is primarily due to share repurchases and asset growth.

During the second quarter, the Company declared and paid cash dividends of $0.19 per common share, consistent with the dividend paid in the prior quarter and an increase of $0.02, or 11.8%, compared to the same quarter in the prior year.

On February 25, 2016, the Company’s Board of Directors authorized a share repurchase program to purchase up to $25.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions.  The Company repurchased approximately 272,000 shares during the quarter ended June 30, 2016 and had approximately $15.5 million available for repurchase under the current program.

ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ:UBSH) is the holding company for Union Bank & Trust, which has 120 banking offices and 200 ATMs located throughout Virginia. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products, Old Dominion Capital Management, Inc., which provides investment advisory services, and Union Insurance Group, LLC, which offers various lines of insurance products.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
KEY FINANCIAL RESULTS
(Dollars in thousands, except share data)
(FTE - "Fully Taxable Equivalent")
			Three Months Ended												Six Months Ended
			6/30/16				3/31/16				6/30/15				6/30/16				6/30/15
Results of Operations
Interest and dividend income			$	72,781			$	70,749			$	69,854			$	143,530			$	137,455
Interest expense			7,005				7,018				6,038				14,023				11,670
Net interest income			65,776				63,731				63,816				129,507				125,785
Provision for credit losses			2,300				2,604				3,749				4,904				5,499
Net interest income after provision for credit losses			63,476				61,127				60,067				124,603				120,286
Noninterest income			17,993				15,914				16,212				33,907				31,266
Noninterest expenses			55,251				54,272				55,241				109,523				109,081
Income before income taxes			26,218				22,769				21,038				48,987				42,471
Income tax expense			6,881				5,808				5,690				12,689				11,422
Net income			$	19,337			$	16,961			$	15,348			$	36,298			$	31,049
Interest earned on earning assets (FTE)			$	75,232			$	73,238			$	72,145			$	148,471			$	141,907
Net interest income (FTE)			68,227				66,220				66,107				134,448				130,237
Core deposit intangible amortization			1,745				1,880				2,138				3,625				4,361
Net income - community bank segment			$	18,798			$	16,907			$	15,253			$	35,705			$	31,221
Net income (loss) - mortgage segment			539				54				95				593				(172		)
Key Ratios
Earnings per common share, diluted			$	0.44			$	0.38			$	0.34			$	0.82			$	0.69
Return on average assets (ROA)			0.98		%		0.88		%		0.83		%		0.93		%		0.84		%
Return on average equity (ROE)			7.88		%		6.89		%		6.21		%		7.39		%		6.34		%
Return on average tangible common equity (ROTCE)			11.60		%		10.13		%		9.20		%		10.86		%		9.43		%
Efficiency ratio (FTE)			64.08		%		66.08		%		67.11		%		65.06		%		67.54		%
Efficiency ratio - community bank segment (FTE)			63.77		%		65.27		%		66.07		%		64.51		%		66.25		%
Efficiency ratio - mortgage bank segment (FTE)			75.31		%		93.36		%		94.21		%		83.30		%		103.90		%
Net interest margin (FTE)			3.84		%		3.82		%		3.97		%		3.83		%		3.96		%
Yields on earning assets (FTE)			4.23		%		4.23		%		4.33		%		4.23		%		4.32		%
Cost of interest-bearing liabilities (FTE)			0.51		%		0.52		%		0.47		%		0.52		%		0.46		%
Cost of funds (FTE)			0.39		%		0.41		%		0.36		%		0.40		%		0.36		%
Net interest margin, core (FTE) (1)			3.76		%		3.76		%		3.86		%		3.76		%		3.85		%
Yields on earning assets (FTE), core (1)			4.16		%		4.16		%		4.27		%		4.16		%		4.27		%
Cost of interest-bearing liabilities (FTE), core (1)			0.52		%		0.53		%		0.53		%		0.52		%		0.54		%
Cost of funds (FTE), core (1)			0.40		%		0.40		%		0.41		%		0.40		%		0.42		%
Per Share Data
Earnings per common share, basic			$	0.44			$	0.38			$	0.34			$	0.82			$	0.69
Earnings per common share, diluted			0.44				0.38				0.34				0.82				0.69
Cash dividends paid per common share			0.19				0.19				0.17				0.38				0.32
Market value per share			24.71				24.63				23.24				24.71				23.24
Book value per common share			22.87				22.55				22.02				22.87				22.02
Tangible book value per common share			15.44				15.31				14.87				15.44				14.87
Price to earnings ratio, diluted			13.96				16.12				17.04				14.98				16.70
Price to book value per common share ratio			1.08				1.09				1.06				1.08				1.06
Price to tangible common share ratio			1.60				1.61				1.56				1.60				1.56
Weighted average common shares outstanding, basic			43,746,583				44,251,276				45,128,698				43,998,929				45,117,396
Weighted average common shares outstanding, diluted			43,824,183				44,327,229				45,209,814				44,075,706				45,198,727
Common shares outstanding at end of period			43,619,867				43,854,381				45,112,893				43,619,867				45,112,893

			Three Months Ended												Six Months Ended
			6/30/16				3/31/16				6/30/15				6/30/16				6/30/15
Capital Ratios
Common equity Tier 1 capital ratio (2)			9.92		%		10.25		%		10.87		%		9.92		%		10.87		%
Tier 1 capital ratio (2)			11.25		%		11.63		%		12.31		%		11.25		%		12.31		%
Total capital ratio (2)			11.77		%		12.16		%		12.83		%		11.77		%		12.83		%
Leverage ratio (Tier 1 capital to average assets) (2)			10.01		%		10.25		%		10.82		%		10.01		%		10.82		%
Common equity to total assets			12.21		%		12.52		%		13.18		%		12.21		%		13.18		%
Tangible common equity to tangible assets			8.59		%		8.86		%		9.30		%		8.59		%		9.30		%
Financial Condition
Assets			$	8,100,561			$	7,832,611			$	7,497,706			$	8,100,561			$	7,497,706
Loans held for investment			5,941,098				5,780,502				5,510,385				5,941,098				5,510,385
Earning Assets			7,282,137				7,045,552				6,717,137				7,282,137				6,717,137
Goodwill			297,659				293,522				293,522				297,659				293,522
Core deposit intangibles, net			19,685				21,430				27,394				19,685				27,394
Deposits			6,095,826				5,945,982				5,784,474				6,095,826				5,784,474
Stockholders' equity			989,201				980,978				988,134				989,201				988,134
Tangible common equity (3)			668,093				666,026				667,218				668,093				667,218
Loans held for investment, net of deferred fees and costs
Construction and land development			$	765,997			$	776,698			$	671,234			$	765,997			$	671,234
Commercial real estate - owner occupied			831,880				849,202				874,582				831,880				874,582
Commercial real estate - non-owner occupied			1,370,745				1,296,251				1,217,646				1,370,745				1,217,646
Multifamily real estate			337,723				323,270				316,474				337,723				316,474
Commercial & Industrial			469,054				453,208				426,193				469,054				426,193
Residential 1-4 Family			992,457				978,478				991,592				992,457				991,592
Auto			244,575				241,737				216,420				244,575				216,420
HELOC			519,196				517,122				512,123				519,196				512,123
Consumer and all other			409,471				344,536				284,121				409,471				284,121
Total loans held for investment			$	5,941,098			$	5,780,502			$	5,510,385			$	5,941,098			$	5,510,385
Deposits
NOW accounts			$	1,563,297			$	1,504,227			$	1,378,129			$	1,563,297			$	1,378,129
Money market accounts			1,366,451				1,323,192				1,303,792				1,366,451				1,303,792
Savings accounts			598,622				589,542				565,584				598,622				565,584
Time deposits of $100,000 and over			521,138				508,153				547,492				521,138				547,492
Other time deposits			653,584				657,625				699,801				653,584				699,801
Total interest-bearing deposits			$	4,703,092			$	4,582,739			$	4,494,798			$	4,703,092			$	4,494,798
Demand deposits			1,392,734				1,363,243				1,289,676				1,392,734				1,289,676
Total deposits			$	6,095,826			$	5,945,982			$	5,784,474			$	6,095,826			$	5,784,474
Averages
Assets			$	7,949,576			$	7,764,830			$	7,459,446			$	7,857,203			$	7,411,332
Loans held for investment			5,863,007				5,709,998				5,448,126				5,786,502				5,404,643
Loans held for sale			30,698				27,304				43,307				29,001				40,901
Securities			1,202,772				1,187,150				1,143,343				1,194,961				1,143,487
Earning assets			7,153,627				6,968,988				6,676,440				7,061,307				6,626,704
Deposits			6,025,545				5,899,404				5,709,963				5,962,475				5,675,134
Certificates of deposit			1,164,561				1,171,972				1,233,904				1,168,267				1,251,531
Interest-bearing deposits			4,642,899				4,562,856				4,431,087				4,602,878				4,423,933
Borrowings			881,027				816,943				703,223				848,984				691,348
Interest-bearing liabilities			5,523,926				5,379,799				5,134,310				5,451,862				5,115,281
Stockholders' equity			987,147				989,414				991,093				988,281				986,844
Tangible common equity (3)			670,503				673,562				669,139				672,033				663,814

			Three Months Ended												Six Months Ended
			6/30/16				3/31/16				6/30/15				6/30/16				6/30/15
Asset Quality
Allowance for Loan Losses (ALL)
Beginning balance			$	34,399			$	34,047			$	30,977			$	34,047			$	32,384
Add: Recoveries			660				828				1,023				1,488				1,695
Less: Charge-offs			2,285				2,980				3,205				5,265				7,034
Add: Provision for loan losses			2,300				2,504				3,549				4,804				5,299
Ending balance			$	35,074			$	34,399			$	32,344			$	35,074			$	32,344
ALL / total outstanding loans			0.59		%		0.60		%		0.59		%		0.59		%		0.59		%
ALL / total outstanding loans, adjusted for acquisition accounting (4)			0.92		%		0.95		%		1.02		%		0.92		%		1.02		%
Net charge-offs / total outstanding loans			0.11		%		0.15		%		0.16		%		0.13		%		0.20		%
Provision / total outstanding loans			0.16		%		0.18		%		0.26		%		0.16		%		0.19		%
Total PCI Loans			$	67,170			$	70,105			$	87,841			$	67,170			$	87,841
Nonperforming Assets
Construction and land development			$	1,604			$	2,156			$	2,402			$	1,604			$	2,402
Commercial real estate - owner occupied			1,661				2,816				3,624				1,661				3,624
Commercial real estate - non-owner occupied			—				—				200				—				200
Commercial & Industrial			263				810				564				263				564
Residential 1-4 Family			5,448				5,696				2,128				5,448				2,128
Auto			140				162				—				140				—
HELOC			1,495				973				493				1,495				493
Consumer and all other			250				479				110				250				110
Nonaccrual loans			$	10,861			$	13,092			$	9,521			$	10,861			$	9,521
Other real estate owned			13,381				14,246				22,222				13,381				22,222
Total nonperforming assets (NPAs)			$	24,242			$	27,338			$	31,743			$	24,242			$	31,743
Construction and land development			$	116			$	544			$	1,447			$	116			$	1,447
Commercial real estate - owner occupied			439				196				705				439				705
Commercial real estate - non-owner occupied			723				723				142				723				142
Multifamily real estate			—				—				656				—				656
Commercial & Industrial			117				422				494				117				494
Residential 1-4 Family			1,302				2,247				5,530				1,302				5,530
Auto			144				53				222				144				222
HELOC			642				1,315				1,289				642				1,289
Consumer and all other			50				223				418				50				418
Loans ? 90 days and still accruing			$	3,533			$	5,723			$	10,903			$	3,533			$	10,903
Total NPAs and loans ? 90 days			$	27,775			$	33,061			$	42,646			$	27,775			$	42,646
NPAs / total outstanding loans			0.41		%		0.47		%		0.58		%		0.41		%		0.58		%
NPAs / total assets			0.30		%		0.35		%		0.42		%		0.30		%		0.42		%
ALL / nonperforming loans			322.94		%		262.75		%		339.71		%		322.94		%		339.71		%
ALL / nonperforming assets			144.68		%		125.83		%		101.89		%		144.68		%		101.89		%
Troubled Debt Restructurings
Performing			$	11,885			$	11,486			$	19,880			$	11,885			$	19,880
Nonperforming			1,658				1,470				2,244				1,658				2,244
Total troubled debt restructurings			$	13,543			$	12,956			$	22,124			$	13,543			$	22,124

			Three Months Ended												Six Months Ended
			6/30/16				3/31/16				6/30/15				6/30/16				6/30/15
Past Due Detail
Construction and land development			$	402			$	2,676			$	248			$	402			$	248
Commercial real estate - owner occupied			912				1,787				169				912				169
Commercial real estate - non-owner occupied			267				24				1,427				267				1,427
Multifamily real estate			—				155				1,909				—				1,909
Commercial & Industrial			2,464				985				1,256				2,464				1,256
Residential 1-4 Family			5,476				13,711				3,854				5,476				3,854
Auto			1,282				1,519				1,663				1,282				1,663
HELOC			1,347				1,870				2,515				1,347				2,515
Consumer and all other			1,364				736				2,106				1,364				2,106
Loans 30-59 days past due			$	13,514			$	23,463			$	15,147			$	13,514			$	15,147
Construction and land development			$	1,177			$	724			$	326			$	1,177			$	326
Commercial real estate - owner occupied			—				963				341				—				341
Commercial real estate - non-owner occupied			—				276				1,199				—				1,199
Commercial & Industrial			62				284				284				62				284
Residential 1-4 Family			5,033				1,111				4,410				5,033				4,410
Auto			377				126				234				377				234
HELOC			1,228				388				387				1,228				387
Consumer and all other			412				1,996				263				412				263
Loans 60-89 days past due			$	8,289			$	5,868			$	7,444			$	8,289			$	7,444
Alternative Performance Measures (non-GAAP)
Tangible Common Equity (3)
Ending equity			$	989,201			$	980,978			$	988,134			$	989,201			$	988,134
Less: Ending goodwill			297,659				293,522				293,522				297,659				293,522
Less: Ending core deposit intangibles			19,685				21,430				27,394				19,685				27,394
Less: Ending other amortizable intangibles			3,764				—				—				3,764				—
Ending tangible common equity (non-GAAP)			$	668,093			$	666,026			$	667,218			$	668,093			$	667,218
Average equity			$	987,147			$	989,414			$	991,093			$	988,281			$	986,844
Less: Average goodwill			294,886				293,522				293,522				294,204				293,522
Less: Average core deposit intangibles			20,517				22,330				28,432				21,424				29,508
Less: Average other amortizable intangibles			1,241				—				—				620				—
Average tangible common equity (non-GAAP)			$	670,503			$	673,562			$	669,139			$	672,033			$	663,814
ALL to loans, adjusted for acquisition accounting (non-GAAP)(4)
Allowance for loan losses			$	35,074			$	34,399			$	32,344			$	35,074			$	32,344
Remaining fair value mark on purchased performing loans			19,092				19,994				23,010				19,092				23,010
Adjusted allowance for loan losses			$	54,166			$	54,393			$	55,354			$	54,166			$	55,354
Loans, net of deferred fees			$	5,941,098			$	5,780,502			$	5,510,385			$	5,941,098			$	5,510,385
Remaining fair value mark on purchased performing loans			19,092				19,994				23,010				19,092				23,010
Less: Purchased credit impaired loans, net of fair value mark			67,170				70,105				87,841				67,170				87,841
Adjusted loans, net of deferred fees			$	5,893,020			$	5,730,391			$	5,445,554			$	5,893,020			$	5,445,554
ALL / gross loans, adjusted for acquisition accounting			0.92		%		0.95		%		1.02		%		0.92		%		1.02		%

			Three Months Ended												Six Months Ended
			6/30/16				3/31/16				6/30/15				6/30/16				6/30/15
Mortgage Origination Volume
Refinance Volume			$	47,033			$	37,304			$	43,385			$	84,337			$	108,934
Construction Volume			21,751				14,894				20,946				36,645				40,498
Purchase Volume			71,297				46,013				75,971				117,310				129,584
Total Mortgage loan originations			$	140,081			$	98,211			$	140,302			$	238,292			$	279,016
% of originations that are refinances			33.6		%		38.0		%		30.9		%		35.4		%		39.0		%
Other Data
End of period full-time employees			1,423				1,400				1,443				1,423				1,443
Number of full-service branches			120				124				131				120				131
Number of full automatic transaction machines (ATMs)			200				201				199				200				199

(1)  The core metrics, FTE, exclude the impact of acquisition accounting accretion and amortization adjustments in net interest income.

(2) All ratios at June 30, 2016 are estimates and subject to change pending the Company’s filing of its FR Y9-C. All other periods are presented as filed.

(3) 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.

(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 deferred fees, 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 deferred fees, 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.

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
			June 30,				December 31,				June 30,
			2016				2015				2015
ASSETS
Cash and cash equivalents:
Cash and due from banks			$	128,896			$	111,323			$	109,480
Interest-bearing deposits in other banks			87,887				29,670				26,334
Federal funds sold			251				1,667				1,019
Total cash and cash equivalents			217,034				142,660				136,833
Securities available for sale, at fair value			949,663				903,292				888,362
Securities held to maturity, at carrying value			202,917				205,374				201,072
Restricted stock, at cost			62,206				51,828				50,171
Loans held for sale			38,114				36,030				39,450
Loans held for investment, net of deferred fees and costs			5,941,098				5,671,462				5,510,385
Less allowance for loan losses			35,074				34,047				32,344
Net loans held for investment			5,906,024				5,637,415				5,478,041
Premises and equipment, net			124,032				126,028				132,681
Other real estate owned, net of valuation allowance			13,381				15,299				22,222
Core deposit intangibles, net			19,685				23,310				27,394
Goodwill			297,659				293,522				293,522
Bank owned life insurance			176,413				173,687				141,284
Other assets			93,433				84,846				86,674
Total assets			$	8,100,561			$	7,693,291			$	7,497,706
LIABILITIES
Noninterest-bearing demand deposits			$	1,392,734			$	1,372,937			$	1,289,676
Interest-bearing deposits			4,703,092				4,590,999				4,494,798
Total deposits			6,095,826				5,963,936				5,784,474
Securities sold under agreements to repurchase			121,262				84,977				119,680
Other short-term borrowings			557,000				304,000				261,000
Long-term borrowings			274,547				291,198				300,294
Other liabilities			62,725				53,813				44,124
Total liabilities			7,111,360				6,697,924				6,509,572
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,619,867 shares, 44,785,674 shares, and 45,112,893 shares, respectively.			57,537				59,159				59,672
Additional paid-in capital			605,018				631,822				640,936
Retained earnings			317,747				298,134				278,297
Accumulated other comprehensive income			8,899				6,252				9,229
Total stockholders' equity			989,201				995,367				988,134
Total liabilities and stockholders' equity			$	8,100,561			$	7,693,291			$	7,497,706

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
			Three Months Ended												Six Months Ended
			June 30,				March 31,				June 30,				June 30,				June 30,
			2016				2016				2015				2016				2015
Interest and dividend income:
Interest and fees on loans			$	64,747			$	62,947			$	62,604			$	127,694			$	123,057
Interest on deposits in other banks			65				47				24				112				41
Interest and dividends on securities:
Taxable			4,510				4,316				3,860				8,826				7,667
Nontaxable			3,459				3,439				3,366				6,898				6,690
Total interest and dividend income			72,781				70,749				69,854				143,530				137,455
Interest expense:
Interest on deposits			4,197				4,195				3,680				8,393				7,000
Interest on federal funds purchased			2				2				4				3				5
Interest on short-term borrowings			708				621				255				1,329				505
Interest on long-term borrowings			2,098				2,200				2,099				4,298				4,160
Total interest expense			7,005				7,018				6,038				14,023				11,670
Net interest income			65,776				63,731				63,816				129,507				125,785
Provision for credit losses			2,300				2,604				3,749				4,904				5,499
Net interest income after provision for credit losses			63,476				61,127				60,067				124,603				120,286
Noninterest income:
Service charges on deposit accounts			4,754				4,734				4,622				9,488				8,835
Other service charges and fees			4,418				4,156				4,051				8,574				7,634
Fiduciary and asset management fees			2,333				2,138				2,312				4,471				4,531
Mortgage banking income, net			2,972				2,146				2,574				5,117				4,952
Gains on securities transactions, net			3				143				404				146				597
Bank owned life insurance income			1,361				1,372				1,134				2,734				2,269
Other operating income			2,152				1,225				1,115				3,377				2,448
Total noninterest income			17,993				15,914				16,212				33,907				31,266
Noninterest expenses:
Salaries and benefits			28,519				28,048				25,561				56,567				53,052
Occupancy expenses			4,809				4,976				5,173				9,785				10,305
Furniture and equipment expenses			2,595				2,636				2,989				5,232				5,803
Printing, postage, and supplies			1,280				1,139				1,408				2,419				2,779
Communications expense			927				1,089				1,143				2,016				2,322
Technology and data processing			3,608				3,814				3,216				7,422				6,471
Professional services			2,548				1,989				1,669				4,537				3,017
Marketing and advertising expense			1,924				1,938				2,372				3,863				4,060
FDIC assessment premiums and other insurance			1,379				1,362				1,280				2,741				2,679
Other taxes			1,607				1,618				1,554				3,225				3,105
Loan-related expenses			855				599				687				1,454				1,371
OREO and credit-related expenses			894				569				1,965				1,463				3,152
Amortization of intangible assets			1,745				1,880				2,138				3,625				4,361
Training and other personnel costs			905				744				912				1,649				1,633
Other expenses			1,656				1,871				3,174				3,525				4,971
Total noninterest expenses			55,251				54,272				55,241				109,523				109,081
Income before income taxes			26,218				22,769				21,038				48,987				42,471
Income tax expense			6,881				5,808				5,690				12,689				11,422
Net income			$	19,337			$	16,961			$	15,348			$	36,298			$	31,049
Basic earnings per common share			$	0.44			$	0.38			$	0.34			$	0.82			$	0.69
Diluted earnings per common share			$	0.44			$	0.38			$	0.34			$	0.82			$	0.69

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SEGMENT FINANCIAL INFORMATION
(Dollars in thousands)
	Community Bank				Mortgage				Eliminations				Consolidated
Three Months Ended June 30, 2016
Net interest income	$	65,478			$	298			$	—			$	65,776
Provision for credit losses	2,260				40				—				2,300
Net interest income after provision for credit losses	63,218				258				—				63,476
Noninterest income	14,940				3,207				(154		)		17,993
Noninterest expenses	52,766				2,639				(154		)		55,251
Income before income taxes	25,392				826				—				26,218
Income tax expense	6,594				287				—				6,881
Net income	$	18,798			$	539			$	—			$	19,337
Total assets	$	8,094,176			$	75,802			$	(69,417	)		$	8,100,561
Three Months Ended March 31, 2016
Net interest income	$	63,425			$	306			$	—			$	63,731
Provision for credit losses	2,500				104				—				2,604
Net interest income after provision for credit losses	60,925				202				—				61,127
Noninterest income	13,608				2,477				(171		)		15,914
Noninterest expenses	51,844				2,599				(171		)		54,272
Income before income taxes	22,689				80				—				22,769
Income tax expense	5,782				26				—				5,808
Net income	$	16,907			$	54			$	—			$	16,961
Total assets	$	7,825,652			$	55,069			$	(48,110	)		$	7,832,611
Three Months Ended June 30, 2015
Net interest income	$	63,441			$	375			$	—			$	63,816
Provision for credit losses	3,700				49				—				3,749
Net interest income after provision for credit losses	59,741				326				—				60,067
Noninterest income	13,523				2,860				(171		)		16,212
Noninterest expenses	52,365				3,047				(171		)		55,241
Income before income taxes	20,899				139				—				21,038
Income tax expense	5,646				44				—				5,690
Net income	$	15,253			$	95			$	—			$	15,348
Total assets	$	7,495,564			$	55,563			$	(53,421	)		$	7,497,706
Six Months Ended June 30, 2016
Net interest income	$	128,903			$	604			$	—			$	129,507
Provision for credit losses	4,760				144				—				4,904
Net interest income after provision for credit losses	124,143				460				—				124,603
Noninterest income	28,548				5,684				(325		)		33,907
Noninterest expenses	104,610				5,238				(325		)		109,523
Income before income taxes	48,081				906				—				48,987
Income tax expense	12,376				313				—				12,689
Net income	$	35,705			$	593			$	—			$	36,298
Total assets	$	8,094,176			$	75,802			$	(69,417	)		$	8,100,561
Six Months Ended June 30, 2015
Net interest income	$	125,164			$	621			$	—			$	125,785
Provision for credit losses	5,450				49				—				5,499
Net interest income after provision for credit losses	119,714				572				—				120,286
Noninterest income	26,371				5,236				(341		)		31,266
Noninterest expenses	103,337				6,085				(341		)		109,081
Income (loss) before income taxes	42,748				(277		)		—				42,471
Income tax expense (benefit)	11,527				(105		)		—				11,422
Net income (loss)	$	31,221			$	(172	)		$	—			$	31,049
Total assets	$	7,495,564			$	55,563			$	(53,421	)		$	7,497,706

AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (TAXABLE EQUIVALENT BASIS)
	For the Quarter Ended
	June 30, 2016												March 31, 2016
	Average Balance				Interest Income / Expense				Yield / Rate (1)				Average Balance				Interest Income / Expense				Yield / Rate (1)
Assets:
Securities:
Taxable	$	755,655			$	4,510			2.40	%			$	743,724			$	4,316			2.33	%
Tax-exempt	447,117				5,321				4.79	%			443,426				5,291				4.80	%
Total securities	1,202,772				9,831				3.29	%			1,187,150				9,607				3.25	%
Loans, net (2) (3)	5,863,007				65,115				4.47	%			5,709,998				63,326				4.46	%
Other earning assets	87,848				286				1.31	%			71,840				305				1.71	%
Total earning assets	7,153,627				$	75,232			4.23	%			6,968,988				$	73,238			4.23	%
Allowance for loan losses	(35,282		)										(35,034		)
Total non-earning assets	831,231												830,876
Total assets	$	7,949,576											$	7,764,830
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	2,882,468			$	1,448			0.20	%			$	2,809,961			$	1,393			0.20	%
Regular savings	595,870				224				0.15	%			580,923				217				0.15	%
Time deposits	1,164,561				2,525				0.87	%			1,171,972				2,585				0.89	%
Total interest-bearing deposits	4,642,899				4,197				0.36	%			4,562,856				4,195				0.37	%
Other borrowings (4)	881,027				2,808				1.28	%			816,943				2,823				1.39	%
Total interest-bearing liabilities	5,523,926				$	7,005			0.51	%			5,379,799				$	7,018			0.52	%
Noninterest-bearing liabilities:
Demand deposits	1,382,646												1,336,548
Other liabilities	55,857												59,069
Total liabilities	6,962,429												6,775,416
Stockholders' equity	987,147												989,414
Total liabilities and stockholders' equity	$	7,949,576											$	7,764,830
Net interest income					$	68,227											$	66,220
Interest rate spread (5)									3.72	%											3.71	%
Cost of funds									0.39	%											0.41	%
Net interest margin (6)									3.84	%											3.82	%
(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 $1.3 million and $1.1 million for the three months ended June 30, 2016 and March 31, 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.
(4) Interest expense on borrowings includes $143,000 and $62,000 for the three months ended June 30, 2016 and March 31, 2016, respectively, in accretion of the fair market value adjustments related to acquisitions.
(5) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.
(6) Core net interest margin excludes purchase accounting adjustments and was 3.76% for both the three months ended June 30, 2016 and March 31, 2016.