UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File No. 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1598552
(State of Incorporation) (I.R.S. Employer Identification No.)
211 North Main Street
P.O. Box 446
Bowling Green, Virginia 22427
(Address of principal executive offices)
(804) 633-5031
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON
STOCK, $4 PAR VALUE
Union Bankshares Corporation (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
As of September 30, 1996, Union Bankshares Corporation had 3,562,849
shares of Common Stock outstanding.
UNION BANKSHARES CORPORATION
FORM 10-Q
September 30, 1996
INDEX
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995........................................... 1
Consolidated Statements of Income for the
three and nine months ended September 30, 1996 and 1995.......... 2
Consolidated Statements of Cash Flows for the
three and nine months ended September 30, 1996 and 1995.......... 3
Notes to Consolidated Financial Statements............................ 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 5-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................... 12
Signatures.................................................................. 12
Index to Exhibits........................................................... 13
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30, December 31,
1996 1995
---- ----
ASSETS
- --------
Cash and cash equivalents:
Cash and due from banks $ 17,876 $ 15,253
Interest-bearing deposits in other banks 1,264 124
Federal funds sold 5,734 2,650
------------ --------------
Total cash and cash equivalents 24,874 18,027
------------ --------------
Securities available for sale, at fair value 132,611 126,401
Investments securities,
fair value of $7,140 and $9,533, respectively 6,228 15,132
------------ --------------
Total securities 138,839 141,533
------------ --------------
Loans, net of unearned income 351,376 327,132
Less allowance for loan losses (note 2) 4,309 4,060
------------ --------------
Net loans 347,067 323,072
------------ --------------
Bank premises and equpiment, net 13,881 10,203
Other real estate owned 4,059 3,620
Other assets 11,725 8,919
------------ --------------
Total assets $ 540,445 $ 505,374
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 62,971 $ 49,905
Interest-bearing deposits:
Savings accounts 58,723 55,889
NOW accounts 43,387 43,046
Money market accounts 53,519 56,147
Time deposits of $100,000 and over 43,244 46,506
Other time deposits 177,558 164,262
------------ --------------
Total interest-bearing deposits 376,431 365,850
------------ --------------
Total deposits 439,402 415,755
------------ --------------
Short-term borrowings 28,850 31,108
Long-term borrowings 11,125 1,275
Other liabilities 3,886 3,553
------------ --------------
Total liabilities 483,263 451,691
------------ --------------
Stockholders' equity:
Common stock, $4 par value. Authorized 12,000,000 shares;
issued and outstanding, 3,567,049 shares 14,251 14,248
Surplus 84 66
Retained earnings 43,414 38,722
Unrealized gains (losses) on securities available for sale, net of taxes (567) 647
------------ --------------
Total stockholders' equity 57,182 53,683
----------- --------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 540,445 $ 505,374
============ ==============
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(Dollars in thousands)
Quarter ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Interest income:
Interest and fees on loans $ 8,216 $ 7,591 $ 24,046 $ 21,819
Interest on securities:
U.S. Treasury securities 225 265 320 372
Obligations of U.S. Government
agencies and corporations 686 841 2,476 2,907
Obligations of states and political 869 841 2,707 2,438
Other securities 342 124 631 364
Interest on Federal funds sold 95 97 239 257
Interest on interest-bearing deposits 23 11 27 27
------ ----- ------ ------
Total interest income 10,456 9,770 30,446 28,184
------ ------ ------ ------
Interest expense:
Interest on deposits 4,395 4,249 13,047 11,980
Interest on other borrowings 583 386 1,450 1,054
------ ------ ------ ------
Total interest expense 4,978 4,635 14,497 13,034
------ ------ ------ ------
Net interest income 5,478 5,135 15,949 15,150
Provision for loan losses (note 2) 242 249 563 727
------ ------ ------ ------
Net interest income after provision
for loan losses 5,236 4,886 15,386 14,423
------ ------ ------ ------
Other income:
Service fees 628 525 1,904 1,482
Gains (losses) on sale of securities 6 19 (97) (28)
Gains (losses) on sales of other real
estate owned and bank premises, net 4 (6) 68 (11)
Other operating income 113 124 649 350
------ ------ ------ ------
Total other income 751 662 2,524 1,793
------ ------ ------ ------
Other expenses:
Salaries and benefits 1,919 1,763 5,579 5,115
Occupancy expenses 197 194 637 538
Furniture and equipment expenses 327 245 788 731
FDIC assessments 3 (20) 5 370
Other operating expenses 1,250 902 3,441 2,814
------ ------ ------ ------
Total other expenses 3,696 3,084 10,450 9,568
------ ------ ------ ------
Income before income taxes 2,291 2,464 7,460 6,648
Income tax expense 547 625 1,663 1,578
------ ------ ------ ------
Net income $ 1,744 $ 1,839 $ 5,797 $ 5,070
====== ====== ====== ======
Net income per share of common stock $ 0.49 $ 0.52 $ 1.63 $ 1.43
====== ====== ====== ======
Cash dividends per share of common stock $ - $ - $ 0.30 $ 0.28
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
2
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands)
1996 1995
---- ----
Operating activities:
Net income $ 5,797 $ 5,070
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 645 684
Amortization of intangibles 27 45
Provision for loan losses 563 727
Losses on sales of securities available for sale 66 58
Loss on sale of bank premises and other real estate owned 1 11
(Increase) decrease in other assets 538 68
Decrease (increase) in other liabilities (333) 338
------------ ------------
Net cash and cash equivalents provided
by operating activities 7,304 7,001
------------ ------------
Investing activities:
Net decrease (increase) in securities 2,760 (6,515)
Net increase in loans (24,558) (24,936)
Acquisition of bank premises and equipment (3,740) (1,817)
Proceeds from sales of bank premises and other real estate owned 106 286
------------ ------------
Net cash and cash equivalents used in
investing activities (25,432) (32,982)
------------ ------------
Financing activities:
Net increase (decrease) in non-interest-bearing deposits 13,066 (506)
Net increase in interest-bearing deposits 10,581 23,978
Net increase in short-term borrowings (2,258) 8,039
Repayment of long-term borrowings (150) (150)
Cash dividends paid (858) (917)
Issuance of shares under option plan - -
------------ ------------
Net cash and cash equivalents provided by
financing activities 20,381 30,455
------------ ------------
Increase in cash and cash equivalents 2,253 4,474
Cash and cash equivalents at beginning of period 15,623 19,416
------------ ------------
Cash and cash equivalents at end of period $ 17,876 $ 23,890
============ ============
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996
1. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Union
Bankshares Corporation and its subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in
consolidation.
The information contained in the financial statements is unaudited and
does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of the interim periods presented have been
made. Operating results for the three- and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1995 Annual Report to Stockholders. Certain previously reported
amounts have been reclassified to conform to current period presentation.
2. ALLOWANCE FOR LOAN LOSSES
The following summarizes activity in the allowance for loan losses for the
nine months ended September 30, (in thousands):
1996 1995
---- ----
Balance, January 1 $ 4,060 $4,112
Provisions charged to operations 563 727
Recoveries credited to allowance 363 172
Loans charged off (677) (617)
------- ------
Balance, September 30 $ 4,309 $4,394
======= ======
3. EARNINGS PER SHARE
Earnings per share outstanding has been computed by dividing net income by
the weighted average number of shares outstanding for the period. Weighted
average shares used for the computation were 3,567,049 and 3,543,901 for
the three months ended September 30, 1996 and 1995, respectively and
3,563,953 and 3,540,993 for the nine months ended September 30, 1996 and
1995, respectively.
4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Union Bankshares Corporation (the "Company") is a multi-bank holding
company organized under Virginia law which provides financial services through
its wholly-owned subsidiaries, Union Bank & Trust Company, Northern Neck State
Bank, King George State Bank and Union Investment Services, Inc. The three
subsidiary banks, Union Bank & Trust Company, Northern Neck State Bank and King
George State Bank, are full service retail commercial banks offering a wide
range of banking and related financial services, including demand and time
deposits, as well as commercial, industrial, residential construction,
residential mortgage and consumer loans. Union Investment Services, Inc., is a
full service discount brokerage company which offers a full range of investment
services, and sells mutual funds, bonds and stocks.
The Company's primary trade area stretches from Fredericksburg, south to
Hanover County and east to the Northern Neck area of Virginia. The Corporate
Headquarters are located in Bowling Green, Virginia. Through its banking
subsidiaries, the Company operates 17 branches in its primary trade area. In
September 1996, Union Bank & Trust Company opened its second in-store branches
in a FasMart convenience store in Spotsylvania County. In addition in October
1996, Northern Neck State Bank opened a branch located in a WalMart Superstore
in Tappahannock, Virginia. Management feels in-store branching supplements its
existing branch network, providing increased accessibility for its customers and
a competitive advantage for the Company.
On September 1, 1996, the Company consumated its previously-announced
affiliation with King George State Bank, Inc. King George State Bank is a $50
million bank located in King George, Virginia adjacent to and encompassing
certain of the markets currently served by the Company. The Company exchanged
5.5 shares of its common stock for each outstanding share of King George State
Bank, Inc. stock. This transaction has been accounted for as a pooling of
interest with prior period financial results adjusted accordingly.
Management's discussion and analysis is presented to aid the reader in
understanding and evaluating the financial condition and results of operations
of Union Bankshares Corporation and subsidiaries (the "Company"). The analysis
focuses on the Consolidated Financial Statements, the footnotes thereto, and the
other financial data herein. Highlighted in the discussion are material changes
from prior reporting periods and any identifiable trends affecting the Company.
Amounts are rounded for presentation purposes, while the percentages presented
are computed based on unrounded amounts.
Results of Operations
Net income for the third quarter of 1996 was $1.7 million, down slightly
from $1.8 million for the same period in 1995. Earnings per share amounted to
$.49 in the third quarter of 1996 as compared to to $.52 in the third quarter of
5
1995. The Company's annualized return on assets for the third quarter of 1996
was 1.31% as compared to 1.46% a year ago. The Company's annualized return on
equity totaled 12.39% and 14.06% for the three months ended September 30, 1996
and 1995, respectively.
Net income for the first nine months of 1996 totaled $5.8 million, up
14.3% from the same period in 1995. Earnings per share increased from $1.43 in
the first nine months of 1995 to $1.63 in 1996. The Company's annualized return
on assets for the first nine months of 1996 was 1.47% as compared to 1.46% a
year ago. The Company's annualized return on equity totaled 13.96% and 14.66%
for the nine months ended September 30, 1996 and 1995, respectively. Despite
strong asset and capital growth, these performance ratios remain strong
performance ratios by industry and peer standards.
Net income for the first nine months of 1996 reflects the continued
competition for funds in the industry and increases in certain growth-related
and infrastructure costs. Management expects increasing returns on these
infrastructure costs through the development of new products and delivery
systems. Such developments include "supermarket" branching, telephone banking,
check cards, a credit card agency program and enhanced mortgage lending.
Net Interest Income
Net interest income on a tax-equivalent basis for the third quarter of
1996 increased by 7.9% to $5.9 million from $5.5 million for the same period a
year ago. By managing its interest rate spread and increasing the volume of
earning assets over interest-bearing liabilities, the Company has been able to
maintain a strong net interest margin. Average earning assets during the third
quarter of 1996 increased by $36.6 million to $494.9 million from the third
quarter of 1995, while average interest-bearing liabilities grew by $33.5
million to $421.6 million over this same period. This additional growth in net
earning assets was accomplished principally through continued strong loan demand
over the last year. The industry has generally experienced steady, but slower,
loan demand which, combined with increased competition for deposits, has led to
a compression of interest margins. The Company's yield on average earning assets
was down slightly at 8.74% from 8.76% a year ago, while its cost of average
interest-bearing liabilities also decreased slightly from 4.74 % to 4.68%.
6
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates
(Taxable Equivalent Basis)
Three Months Ended September 30,
----------------------------------------------
1996
----------------------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
------------------ ------------ ----------
(Dollars in thousands)
Assets:
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . $ 65,692 $ 1,089 6.58%
Tax-exempt(1) . . . . . . . . . . . . . . . . 71,695 1,483 8.21%
------------------ ------------
Total securities . . . . . . . . . . . . . 137,387 2,572 7.43%
Loans, net. . . . . . . . . . . . . . . . . . . . . . 348,841 8,210 9.34%
Federal funds sold . . . . . . . . . . . . . . . . 7,482 103 5.46%
Interest-bearing deposits - -
in other banks . . . . . . . . . . . . . . . . . 1,187 15 5.01%
------------------ ------------
Total earning assets . . . . . . . . 494,897 10,900 8.74%
Allowance for loan losses . . . . . . . . . . (4,387)
Total non-earning assets . . . . . . . . . 44,812
------------------
Total assets . . . . . . . . . . . . . . . . . . . $ 535,322
==================
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . 48,418 302 2.47%
Regular savings . . . . . . . . . . . . . . . 56,738 511 3.57%
Money market savings . . . . . . . . . . 53,857 439 3.23%
Certificates of deposit:
$100,000 and over . . . . . . . . . . . . . . 50,893 652 5.08%
Under $100,000 . . . . . . . . . . . . . . . 171,707 2,483 5.74%
------------------ ------------
Total interest-bearing
deposits . . . . . . . . . . . . . . . . 381,613 4,387 4.56%
Other borrowings . . . . . . . . . . . . . . . . . 39,986 581 5.76%
------------------ ------------
Total interest-bearing
liabilities . . . . . . . . . . . . . . . 421,599 4,968 4.68%
------------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . . . . . . . 54,732
Other liabilities . . . . . . . . . . . . . . . . 4,391
------------------
Total liabilities . . . . . . . . . . . . . 480,722
Stockholders' equity . . . . . . . . . . . . . . 54,600
------------------
Total liabilities and
stockholders' equity . . . . . . . . . . . $ 535,322
==================
Net interest income . . . . . . . . . . . . . . $5,932
============
Interest rate spread . . . . . . . . . . . . . . . 4.06%
Interest expense as a percent
of average earning assets . . . . . . . . . 3.98%
Yield on earning assets . . . . . . . . . . . . . . . 4.76%
(1) Income and yields are reported on a taxable equivalent basis.
Yield on total assets . . . . . . . . . . . . . . . . . 4.40%
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates
(Taxable Equivalent Basis)
Three Months Ended September 30,
(continued)
-------------------------------------------------
1995
------------------------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
------------- ----------------- -----------
(Dollars in thousands)
Assets:
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . $ 74,985 $ 1,198 6.34%
Tax-exempt(1) . . . . . . . . . . . . . . . . 62,114 1,234 7.88%
------------- -----------------
Total securities . . . . . . . . . . . . . 137,099 2,432 7.04%
Loans, net. . . . . . . . . . . . . . . . . . . . . . 315,593 7,595 9.55%
Federal funds sold . . . . . . . . . . . . . . . . 5,347 97 7.20%
Interest-bearing deposits -
in other banks . . . . . . . . . . . . . . . . . 274 8 11.58%
------------- -----------------
Total earning assets . . . . . . . . 458,313 10,132 8.77%
Allowance for loan losses . . . . . . . . . . (4,454)
Total non-earning assets . . . . . . . . . 35,935
-------------
Total assets . . . . . . . . . . . . . . . . . . . $ 489,794
=============
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . 43,179 288 2.65%
Regular savings . . . . . . . . . . . . . . . 56,304 525 3.70%
Money market savings . . . . . . . . . . 57,163 482 3.35%
Certificates of deposit:
$100,000 and over . . . . . . . . . . . . . . 42,000 608 5.74%
Under $100,000 . . . . . . . . . . . . . . . 161,978 2,346 5.75%
------------- -----------------
Total interest-bearing
deposits . . . . . . . . . . . . . . . . 360,624 4,249 4.67%
Other borrowings . . . . . . . . . . . . . . . . . 27,446 386 5.58%
------------- -----------------
Total interest-bearing
liabilities . . . . . . . . . . . . . . . 388,070 4,635 4.74%
-----------------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . . . . . . . 48,179
Other liabilities . . . . . . . . . . . . . . . . 4,094
-------------
Total liabilities . . . . . . . . . . . . . 440,343
Stockholders' equity . . . . . . . . . . . . . . 49,451
-------------
Total liabilities and
stockholders' equity . . . . . . . . . . . $ 489,794
=============
Net interest income . . . . . . . . . . . . . . $ 5,497
=================
Interest rate spread . . . . . . . . . . . . . . . 4.03%
Interest expense as a percent
of average earning assets . . . . . . . . . 4.01%
Yield on earning assets . . . . . . . . . . . . . . . 4.76%
(1) Income and yields are reported on a taxable equivalent basis.
Yield on total assets . . . . . . . . . . . . . . . . . 4.45%
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates
(Taxable Equivalent Basis)
Three Months Ended September 30,
(continued)
-------------------------------------------------------------
1994
-------------------------------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
------------------ ----------------- ------------
Assets:
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . $ 70,166 $ 1,075 6.08%
Tax-exempt(1) . . . . . . . . . . . . . . . . 60,585 1,172 7.67%
------------- -----------------
Total securities . . . . . . . . . . . . . 130,751 2,247 6.82%
Loans, net. . . . . . . . . . . . . . . . . . . . . . 272,365 6,105 8.89%
Federal funds sold . . . . . . . . . . . . . . . . 3,784 47 4.93%
Interest-bearing deposits
in other banks . . . . . . . . . . . . . . . . . 666 5 2.98%
------------------ -----------------
Total earning assets . . . . . . . . 407,566 8,404 8.18%
Allowance for loan losses . . . . . . . . . . (3,918)
Total non-earning assets . . . . . . . . . 31,219
------------------
Total assets . . . . . . . . . . . . . . . . . . . $ 434,867
==================
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . 47,347 280 2.35%
Regular savings . . . . . . . . . . . . . . . 56,947 276 1.92%
Money market savings . . . . . . . . . . 50,630 523 4.10%
Certificates of deposit: - -
$100,000 and over . . . . . . . . . . . . . . 29,214 312 4.24%
Under $100,000 . . . . . . . . . . . . . . . 131,309 1,709 5.16%
------------------ -----------------
Total interest-bearing
deposits . . . . . . . . . . . . . . . . 315,447 3,100 3.90%
Other borrowings . . . . . . . . . . . . . . . . . 16,443 172 4.15%
------------------ -----------------
Total interest-bearing
liabilities . . . . . . . . . . . . . . . 331,890 3,272 3.91%
-----------------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . . . . . . . 53,986
Other liabilities . . . . . . . . . . . . . . . . 3,755
------------------
Total liabilities . . . . . . . . . . . . . 389,631
Stockholders' equity . . . . . . . . . . . . . . 45,236
------------------
Total liabilities and
stockholders' equity . . . . . . . . . . . $ 434,867
==================
Net interest income . . . . . . . . . . . . . . $ 5,132
=================
Interest rate spread . . . . . . . . . . . . . . . 4.27%
Interest expense as a percent
of average earning assets . . . . . . . . . 3.19%
Yield on earning assets . . . . . . . . . . . . . . . 5.00%
(1) Income and yields are reported on a taxable equivalent basis.
Yield on total assets . . . . . . . . . . . . . . . . . 4.68%
The following table presents the Company's interest sensitivity position at
September 30, 1996. This one-day position, which is continually changing, is not
necessarily indicative of the Company's position at any other time.
Interest Sensitivity Analysis
September 30, 1996
-----------------------------------------------------------------
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
------------- ---------- ---------- ---------- ----------
(In thousands)
Earning Assets:
Loans, net of unearned income (3) . $ 104,782 $ 50,497 $ 130,226 $ 65,713 $ 351,218
Investment securities . . . . . . . 100 624 4,614 890 6,228
Securities available for sale . . . 4,544 6,917 40,044 81,106 132,611
Federal funds sold . . . . . . . . . 5,734 -- -- -- 5,734
Other short-term investments . . . . 1,264 -- -- -- 1,264
--------- --------- --------- --------- ---------
Total earning assets . . . . . . . . 116,424 58,038 174,884 147,709 497,055
--------- --------- --------- --------- ---------
Interest-Bearing Liabilities:
Interest checking (2) . . . . . . . -- 624 49,008 -- 49,632
Regular savings (2) . . . . . . . . -- 7,015 51,708 -- 58,723
Money market savings . . . . . . . . 47,519 259 1,038 6,000 54,816
Certificates of deposit: -- -- -- --
$100,000 and over . . . . . . . 12,916 19,234 17,846 -- 49,996
Under $100,000 . . . . . . . . . 24,642 81,794 64,371 -- 170,807
Short-term borrowings . . . . . . . 18,541 10,309 -- -- 28,850
Long-term borrowings . . . . . . . . -- 150 10,600 375 11,125
------- --------- --------- --------- ---------
Total interest-bearing
liabilities . . . . . . . . . . 103,618 119,385 194,571 6,375 423,949
---------
Period gap . . . . . . . . . . . . . 12,806 (61,347) (19,687) 141,334
Cumulative gap . . . . . . . . . . . $ 12,806 $ (48,541) $ (68,228) $ 73,106 $ 73,106
========= ========= ========= ========= =========
Ratio of cumulative gap to
total earning assets . . . . . . 2.58% -9.77% -13.73% 14.71%
========= ========= ========= =========
(1) The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.
(2) The Company has found that interest-bearing checking deposits and regular
savings deposits are not sensitive to changes in related market rates and
therefore, it has placed them predominantly in the "1-5 Years" column.
(3) Excludes non-accrual loans
Provision for Possible Loan Losses
The provision for possible loan losses totaled $242,000 for the third
quarter of 1996, down slightly from $249,000 for the thrid quarter of 1995.
Provisions for the first nine months of 1996 and 1995 totaled $563,000 and
$727,000, respectively. These provisions reflect recoveries of $363,000 on loans
previously charged off, including approximately $230,000 related to a single
real estate loan. It is also reflective of the performance of the loan portfolio
and management's assessment of the credit risk in the portfolio. (See Asset
Quality)
Non-Interest Income
Non-interest income for the third quarter of 1996 totaled $751,000, up
from $662,000 a year ago. Non-interest income for the first nine months of 1996
totaled $2.5 million, up from $1.8 million in 1995. This increase is due
principally to the increases in income from service fees on deposit accounts,
increased brokerage commissions and additional fee income on mortgage loans
originated for the secondary market. Fees generated by the Company's brokerage
subsidiary increased by $126,000 over 1995 levels. Management continues to seek
additional sources of non-interest income, including increased emphasis on its
credit card operations, mortgage banking activities and discount brokerage
services.
Non-Interest Expense
Non-interest expense increased by 19.8% for the third quarter of 1996,
totaling $3.7 million as compared to $3.1 million for the quarter ended
September 30, 1995. Personnel costs comprised much of this change, increasing
approximately 8.9% over the third quarter of 1995, consistent with the loan and
asset growth for the same period of 9.8% and 8.2%, respectively.
Much of this cost is attributable to infrastructure associated with the
development and introduction of new products and delivery systems, which are
expected to enhance future earnings through increased revenue and/or improved
efficiencies. The Company continues to stress budgetary expense controls and
operates at considerably more efficient levels than its peers, as measured by
the efficiency ratio (ratio of non-interest expenses to net interest income plus
non-interest income). For the third quarter of 1996 the Company's efficiency
ratio was 58.4%.
Financial Condition
Total assets as of September 30, 1996 were $540.4 million, an increase of
6.9% from $505.4 million at December 31, 1995 and 8.2% from $500.0 million at
September 30, 1995. Asset growth continued to be fueled by strong loan demand,
as loans totaled $351.4 million at September 30, 1996, an increase of 7.4% from
$327.1 million at December 31, 1995, and 9.8% from $320.0 million at September
30, 1995. Stockholders' equity totaled $57.2 million at September 30, 1996 which
represents a book value of $ 16.05 per share.
9
Deposit growth, though outpaced by loan growth, remained steady. Total
deposits at September 30, 1996 were $439.4 million, up 2.7% from December 31,
1995 and 6.2% from $413.7 million a year earlier. Other borrowings totaled $40.0
million a 23.4% increase over $32.4 million at the end of 1995 and a 33.9%
increase from $29.9 million at September 30, 1995. The Company continues to
utilize other borrowings to supplement deposit growth and, periodically, in
wholesale leverage transactions.
Continued competition for deposits, particularly as it impacts certificate
of deposit rates, is reflected in the deposit mix. Management's focus on
increasing lower costs deposit products has resulted in improved growth in those
products, including non-interest bearing demand deposits and savings accounts.
Increased competition for funds, particularly by non-banks, continues to
contribute to a narrowing of the net interest margin which has been largely
offset by increases in the volume of earning assets.
Asset Quality
The allowance for credit losses is an estimate of an amount adequate to
provide for potential losses in the loan portfolio. The level of credit losses
is affected by general economic trends as well as conditions affecting
individual borrowers. The allowance is also subject to regulatory examinations
and determination as to adequacy, which may take in to account such factors as
the methodology used to calculate the allowance and comparison to peer groups.
The allowance for loan losses totaled $4.3 million at September 30, 1996
or 1.23% of total loans, as compared to 1.28% at December 31, 1995 and 1.37% at
September 30, 1995. Non-performing assets of $4.5 million included foreclosed
properties of $3.6 million at September 30, 1996. The increase from the prior
year is principally due to the addition of a single property comprising over
1800 acres in King George County and carried at $1.9 million.
September 30 December 31, September 30,
1996 1995 1995
----- ---- ----
Non-accrual loans $ 477 $ 596 $2,087
Foreclosed properties 4,059 3,288 1,757
------ ----- ------
Non-performing assets $4,536 $3,884 $3,844
====== ====== ======
Allowance for loan losses $4,309 $3,757 $4,394
Allowance as % of total loans 1.23% 1.28% 1.37%
Non-performing assets to loans
and foreclosed properties 1.28% 1.31% 1.37%
Capital Resources
Capital resources represent funds, earned or obtained, over which
financial institutions can exercise greater or longer control in comparison with
deposits and borrowed funds. The adequacy of the Company's capital is reviewed
by management on an ongoing basis with reference to the size, composition, and
quality of the Company's resources and consistency with regulatory requirements
and industry standards. Management seeks to maintain a capital structure that
will assure an adequate level of capital to support anticipated asset growth and
absorb potential losses.
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The Federal Reserve, along with the Comptroller of the Currency and the
Federal Deposit Insurance Corporation, has adopted capital guidelines to
supplement the existing definitions of capital for regulatory purposes and to
establish minimum capital standards. Specifically, the guidelines categorize
assets and off-balance sheet items into four risk-weighted categories. The
minimum ratio of qualifying total assets is 8.0%, of which 4.0% must be Tier 1
capital, consisting of common equity and retained earnings, less certain
goodwill items.
At September 30, 1996, the Company's ratio of total capital to risk-weighted
assets was 16.22% and its ratio of Tier 1 capital to risk-weighted assets was
13.39%. Both ratios exceed the fully phased-in capital requirements. The
following summarizes the Company's regulatory capital and related ratios at
September 30, 1996:
Tier 1 capital $ 57,482
Tier 2 capital $ 4,309
Total risk-based capital $ 61,791
Total risk-weighted assets $ 380,907
Capital Ratios:
Tier 1 risk-based capital ratio 13.39%
Total risk-based capital ratio 16.22%
Leverage ratio (Tier I capital to
average adjusted total assets) 9.50%
Equity to assets ratio 10.64%
The Company's book value per share at September 30, 1996 was $16.05.
Dividends to stockholders are typically declared and paid semi-annually in
September and December.
Liquidity
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. Additional sources of liquidity available to the Company include its
capacity to borrow additional funds when necessary through Federal funds lines
with several regional banks and a line of credit with the Federal Home Loan
Bank. Management considers the Company's overall liquidity to be sufficient to
satisfy its depositors' requirements and to meet its customers' credit needs.
At September 30, 1996, cash, interest-bearing deposits in other banks,
federal funds sold, securities available for sale and loans maturing or
repricing in one year were 61.2% of total earning assets. At September 30, 1996
approximately $155.3 million or 44.2% of total loans would mature or reprice
within the next year. The Company utilizes federal funds purchased, FHLB
advances, securities sold under agreements to repurchase and customer repurchase
agreements, in addition to deposits, to fund the growth in its loan portfolio,
and to fund securities purchases.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) A Form 8-K was filed on September 15, 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Union Bankshares Corporation
(Registrant)
November 14, 1996 s/ G. William Beale
- ------------------ --------------------------
(Date) G. William Beale,
President, Chief Executive Officer
and Director
November 14, 1996 s/ D. Anthony Peay
- ------------------ -------------------------------
(Date) D. Anthony Peay,
Vice President and Chief Financial Officer
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Index to Exhibits
Form 10-Q / September 30, 1996
Exhibit
No. Description
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession - Not Applicable
4 Instruments defining the rights of security holders,
including indentures Not Applicable
10 Material contracts Not Applicable
11 Statement re: computation of per share earnings Not Applicable
15 Letter re: unaudited interim financial
information Not Applicable
18 Letter re: change in accounting principles Not Applicable
19 Previously unfiled documents Not Applicable
20 Report furnished to security holders Not Applicable
22 Published report re: matters submitted to
vote of security holders None
23 Consents of experts and counsel Not Applicable
24 Power of Attorney Not Applicable
99 Additional Exhibits None
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