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, 1997
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, 1997, Union Bankshares Corporation had 3,571,492
shares of Common Stock outstanding.
UNION BANKSHARES CORPORATION
FORM 10-Q
September 30, 1997
INDEX
PART 1 - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996.......................................... 1
Consolidated Statements of Income for the
three- and nine-months ended September 30, 1997 and 1996....... 2
Consolidated Statements of Cash Flows for the
three- and nine-months ended September 30, 1997 and 1996....... 3
Notes to Consolidated Financial Statements.......................... 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.............5-13
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................ 14
Signatures............................................................... 14
Index to Exhibits........................................................ 15
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30, December 31, September 30,
ASSETS 1997 1996 1996
Cash and cash equivalents:
Cash and due from banks $ 21,749 $ 19,333 $ 17,876
Interest-bearing deposits in other banks 808 1,016 1,264
Federal funds sold 4,004 2,104 5,734
------------ -------------- ------------
Total cash and cash equivalents 26,561 22,453 24,874
------------ -------------- ------------
Securities available for sale, at fair value 138,047 129,268 126,901
Investments securities,
fair value of $10,376 and $11,689 and $12,176, respectively 10,150 11,423 11,938
------------ -------------- ------------
Total securities 148,197 140,691 138,839
------------ -------------- ------------
Loans, net of unearned income 384,790 352,277 351,376
Less allowance for loan losses (note 2) 4,438 4,388 4,309
------------ -------------- ------------
Net loans 380,352 347,889 347,067
------------ -------------- ------------
Bank premises and equpiment, net 16,470 14,221 13,881
Other real estate owned 2,535 4,056 4,059
Other assets 8,859 11,583 11,725
------------ -------------- ------------
Total assets $ 582,974 $ 540,893 $ 540,445
============ ============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 58,410 $ 55,005 $ 62,971
Interest-bearing deposits:
Savings accounts 46,900 54,364 58,723
NOW accounts 60,590 49,834 43,387
Money market accounts 49,199 54,431 53,519
Time deposits of $100,000 and over 58,882 51,812 43,244
Other time deposits 194,636 174,161 177,558
------------ -------------- ------------
Total interest-bearing deposits 410,207 384,602 376,431
------------ -------------- ------------
Total deposits 468,617 439,607 439,402
------------ -------------- ------------
Short-term borrowings 21,279 27,403 28,850
Long-term borrowings 23,745 11,125 11,125
Other liabilities 4,995 4,192 3,886
------------ -------------- ------------
Total liabilities 518,636 482,327 483,263
------------ -------------- ------------
Stockholders' equity:
Common stock, $4 par value. Authorized 12,000,000 shares;
issued and outstanding, 3,571,475 and 3,566,915 shares, respectively 14,286 14,267 14,251
Surplus 248 160 84
Retained earnings 48,461 43,863 43,414
Unrealized gains on securities available for sale, net of taxes 1,343 276 (567)
------------ -------------- ------------
Total stockholders' equity 64,338 58,566 57,182
------------ -------------- ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 582,974 $ 540,893 $ 540,445
============ ============== ============
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,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- -----
Interest income:
Interest and fees on loans $ 9,037 $ 8,216 $ 25,561 $ 24,046
Interest on securities:
U.S. Government agencies and corpor 674 911 2,501 2,796
States and political subdivisions 972 896 2,921 2,707
Other securities 618 342 1,177 631
Interest on Federal funds sold 118 95 222 239
Interest on interest-bearing deposits 8 23 33 27
-------- --------- -------- --------
Total interest income 11,427 10,456 32,415 30,446
-------- --------- -------- --------
Interest expense:
Interest on deposits 4,736 4,395 13,637 13,047
Interest on other borrowings 561 583 1,678 1,450
-------- --------- -------- --------
Total interest expense 5,297 4,978 15,315 14,497
-------- --------- -------- --------
Net interest income 6,130 5,478 17,100 15,949
Provision for loan losses (note 2) 310 242 730 563
-------- --------- -------- --------
Net interest income after provision
for loan losses 5,820 5,236 16,370 15,386
-------- --------- -------- --------
Other income:
Service fees 782 628 2,184 1,904
Gains (losses) on sale of securities (10) 6 3 (97)
Gains (losses) on sales of other real estate owned
and bank premises, net 16 4 424 68
Other operating income 171 113 539 649
-------- --------- -------- --------
Total other income 959 751 3,150 2,524
-------- --------- -------- --------
Other expenses:
Salaries and benefits 2,229 1,919 6,310 5,579
Occupancy expenses 264 197 800 637
Furniture and equipment expenses 293 327 1,039 788
FDIC assessments 26 3 53 5
Other operating expenses 1,409 1,250 3,807 3,441
-------- --------- -------- --------
Total other expenses 4,221 3,696 12,009 10,450
-------- --------- -------- --------
Income before income taxes 2,558 2,291 7,511 7,460
Income tax expense 615 547 1,629 1,663
-------- --------- -------- --------
Net income $ 1,943 $ 1,744 $ 5,882 $ 5,797
-------- --------- -------- --------
-------- --------- -------- --------
Net income per share of common stock $ 0.54 $ 0.49 $ 1.65 $ 1.63
-------- --------- -------- --------
-------- --------- -------- --------
Cash dividends per share of common stock $ - $ - $ 0.36 $ 0.30
-------- --------- -------- --------
-------- --------- -------- --------
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
Operating activities:
Net income $ 5,882 $ 5,797
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 1,093 645
Provision for loan losses 730 563
(Gains) losses on sales of securities available for sale (3) 66
(Gains) losses on sale of other real estate owned (423) 1
Other, net 1,749 232
------------ ------------
Net cash and cash equivalents provided
by operating activities 9,028 7,304
------------ ------------
Investing activities:
Net (increase) decrease in securities (7,628) 2,760
Net (increase) decrease in loans (33,668) (24,558)
Acquisition of bank premises and equipment (3,342) (3,740)
Proceeds from sales of other real estate owned 5,389 106
------------ ------------
Net cash and cash equivalents used in
investing activities (39,249) (25,432)
------------ ------------
Financing activities:
Net increase (decrease) in non-interest-bearing deposits 3,405 13,066
Net increase (decrease) in interest-bearing deposits 25,605 10,581
Net increase (decrease) in short-term borrowings (6,124) (2,258)
Purchase of common stock (39) -
Cash dividends paid (1,138) (858)
Proceeds from long-term borrowings 12,800 -
Repayment of long-term borrowings (180) (150)
------------ ------------
Net cash and cash equivalents provided by
financing activities 34,329 20,381
------------ ------------
Increase (decrease) in cash and cash equivalents 4,108 2,253
Cash and cash equivalents at beginning of period 22,453 15,623
------------ ------------
Cash and cash equivalents at end of period $ 26,561 $ 17,876
============ ============
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
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, 1997 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1996 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):
1997 1996
------- --------
Balance, January 1 $ 4,388 $4,060
Provisions charged to operations 730 563
Recoveries credited to allowance 150 363
Loans charged off (829) (677)
------- --------
Balance, September 30 $ 4,439 $ 4,309
======= ========
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 3,571,492 and 3,567,049 for
the three months ended September 30, 1997 and 1996 and 3,568,322 and
3,563,953 for the nine months ended September 30, 1997 and 1996.
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, Union Investment Services, Inc., and Union
Mortgage Company, LLC. The three subsidiary banks, Unon 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. Union Mortgage Company, LLC provides a wide array of mortgage products
to customers in the Company's primary trade area.
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 19 branches in its primary trade area. On
October 21, 1997, the Company announced it had entered into an agreement to
purchase seven Signet Bank branches in the Northern Neck. As a condition of
regulatory approval the Company will have to divest of two branches due to
market concentration issues. It is anticipated that this transaction will be
completed on or before February 13, 1998.
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 1997 was $1.9 million, up from $1.7
million for the same period in 1996. Earnings per share amounted to $.54 in the
third quarter of 1997 as compared to $.49 in the third quarter of 1996. The
Company's annualized return on assets for the third quarter of 1997 was 1.34% as
compared to 1.31% a year ago. The Company's annualized return on equity totaled
12.19% and 12.39% for the three months ended September 30, 1997 and 1996,
respectively.
Net income for the first nine months of 1997 totaled $5.9 million, up 1.5%
from $5.8 million for the same period in 1996. Earnings per share totaled $1.65
in the first nine months of 1997 as compared to $1.63 in 1996. The Company's
annualized return on assets for the first nine months of 1997 was 1.40% as
compared to 1.47% a year ago. The Company's annualized return on equity totaled
12.82% and 13.96% for the nine months ended September 30, 1997 and 1996,
respectively.
Net Interest Income
Net interest income on a tax-equivalent basis for the third quarter of
1997 increased by 14.1% to $6.8 million from $5.9 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 1997 increased by $39.6 million to $534.5 million from the third
quarter of 1996, while average interest-bearing liabilities grew by $31.1
million to $452.7 million over this same period. The Company's yield on average
earning assets was 8.97%, up from 8.74% a year ago, while its cost of average
interest-bearing liabilities decreased slightly from 4.68 % to 4.65%.
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent
Basis)
Three Months Ended September 30,
1997 1996
-----------------------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/
Balance Expense Rate Balance Expense
-----------------------------------------------------------------------
(Dollars in thousands)
Assets:
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . $ 81,138 $ 1,333 6.52% $ 71,006 $ 1,157
Tax-exempt(1) . . . . . . . . . . . . . . . . 65,969 1,330 8.00% 66,381 1,415
--------------------------- -----------------------
Total securities . . . . . . . . . . . . . 147,107 2,663 7.18% 137,387 2,572
Loans, net. . . . . . . . . . . . . . . . . . . . . . 376,543 9,037 9.52% 348,841 8,210
Federal funds sold . . . . . . . . . . . . . . . 10,316 118 4.54% 7,482 103
Interest-bearing deposits - - - -
in other banks . . . . . . . . . . . . . . . . 508 8 6.25% 1,187 15
--------------------------- -----------------------
Total earning assets . . . . . . . . 534,474 $ 11,826 8.78% 494,897 $ 10,900
------------- --------------
Allowance for loan losses . . . . . . . . . . (4,417) (4,387)
Total non-earning assets . . . . . . . . . 43,843 44,812
-------------- ---------
Total assets . . . . . . . . . . . . . . . . . . . $ 573,900 $ 535,322
============== ==========
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking . . . . . . . . . . . . . . . . . . . . $ 60,012 $ 405 2.68% $ 48,418 $ 302
Regular savings . . . . . . . . . . . . . . . 46,494 358 3.05% 56,738 511
Money market savings . . . . . . . . . . 49,285 425 3.42% 53,857 439
Certificates of deposit:
$100,000 and over . . . . . . . . . . . . . . 57,875 780 5.35% 50,893 652
Under $100,000 . . . . . . . . . . . . . . . 193,740 2,767 5.67% 171,707 2,483
--------------------------- -----------------------
Total interest-bearing
deposits . . . . . . . . . . . . . . . . 407,406 4,735 4.61% 381,613 4,387
Other borrowings . . . . . . . . . . . . . . . . . 45,328 561 4.91% 39,986 581
--------------------------- -----------------------
Total interest-bearing
liabilities . . . . . . . . . . . . . . . 452,734 5,296 4.64% 421,599 4,968
------------- --------------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . . . . . . . 56,141 54,732
Other liabilities . . . . . . . . . . . . . . . . 4,719 4,391
-------------- ---------------
Total liabilities . . . . . . . . . . . . . 513,594 480,722
Stockholders' equity . . . . . . . . . . . . . . 60,306 54,600
-------------- ---------------
Total liabilities and
stockholders' equity . . . . . . . . . . . $ 573,900 $ 535,322
============== ===============
Net interest income . . . . . . . . . . . . . . $ 6,530 $ 5,932
============= ==============
Interest rate spread . . . . . . . . . . . . . . . 4.14%
Interest expense as a percent
of average earning assets . . . . . . . . . 3.93%
Net interest margin 4.85%
Three Months Ended September 30,
1995
-----------------------------------------------
Interest
Yield/ Average Income/ Yield/
Rate Balance Expense Rate
-----------------------------------------------
Assets:
Securities:
Taxable . . . . . . . . . . . . . . . 6.46% $ 74,985 $ 1,198 6.34%
Tax-exempt(1) . . . . . . . . . . . . 8.46% 62,114 1,234 7.88%
------ -----------------------
Total securities . . . . . . . 7.43% 137,099 2,432 7.04%
Loans, net. . . . . . . . . . . . . . . . . 9.34% 315,593 7,595 9.55%
Federal funds sold . . . . . . . . . . . . 5.46% 5,347 97 7.20%
Interest-bearing deposits -
in other banks . . . . . . . . . . . 5.01% 274 8 11.58%
---------------------------
Total earning assets . . . . . 8.74% 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 . . . . . . . . . . . . . . 2.47% $ 43,179 $ 288 2.65%
Regular savings . . . . . . . . . . . 3.57% 56,304 525 3.70%
Money market savings . . . . . . . . 3.23% 57,163 482 3.35%
Certificates of deposit:
$100,000 and over . . . . . . . . . . 5.08% 42,000 608 5.74%
Under $100,000 . . . . . . . . . . . 5.74% 161,978 2,346 5.75%
-----------------------------
Total interest-bearing
deposits . . . . . . . . . 4.56% 360,624 4,249 4.67%
Other borrowings . . . . . . . . . . . . . 5.76% 27,446 386 5.58%
-----------------------------
Total interest-bearing
liabilities . . . . . . . . 4.68% 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 . . . . . . . . . . . 4.06% 4.03%
Interest expense as a percent
of average earning assets . . . . . . 3.98% 4.01%
Net interest margin 4.76% 4.76%
(1) Income and yields are reported on a taxable equivalent basis.
COMBINED
The following table presents the Company's interest sensitivity position at
September 30, 1997. 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, 1997
--------------------------------------------------------------------------------
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
----------- --------------- --------------- --------------- ----------------
(In thousands)
Earning Assets:
Loans, net of unearned income (3) . . . . $ 74,539 $ 48,639 $ 138,051 $ 121,237 $ 382,466
Investment securities . . . . . . . . . . 315 578 8,015 1,242 10,150
Securities available for sale. . . . . . . 6,532 11,584 35,045 84,886 138,047
Federal funds sold . . . . . . . . . . . . 4,004 - - - 4,004
Other short-term investments . . . . . . . 808 - - - 808
----------- --------------- --------------- --------------- ----------------
Total earning assets . . . . . . . . . . . 86,198 60,801 181,111 207,365 535,475
----------- --------------- --------------- --------------- ----------------
Interest-Bearing Liabilities:
Interest checking (2) . . . . . . . . . . - 506 60,084 - 60,590
Regular savings (2) . . . . . . . . . . . 4,815 1,934 40,151 - 46,900
Money market savings . . . . . . . . . . . 48,317 192 690 - 49,199
Certificates of deposit:
$100,000 and over . . . . . . . . . . . 15,765 27,906 15,211 - 58,882
Under $100,000 . . . . . . . . . . . . 39,727 102,605 52,304 - 194,636
Short-term borrowings. . . . . . . . . . . 16,679 4,600 - - 21,279
Long-term borrowings . . . . . . . . . . . 30 120 16,455 7,140 23,745
----------- --------------- --------------- --------------- ----------------
Total interest-bearing
liabilities . . . . . . . . . . . . . . 125,333 137,863 184,895 7,140 455,231
--------------------------------------------------------------------------------
Period gap . . . . . . . . . . . . . . . .. (39,135) (77,062) (3,784) 200,225
Cumulative gap . . . . . . . . . . . . . . $ (39,135) $ (116,197) $ (119,981) $ 80,244 $ 80,244
=========== =============== =============== =============== ================
Ratio of cumulative gap to
total earning assets . . . . . . . . . -7.31% -21.70% -22.41% 14.99%
=========== =============== =============== ===============
(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
INTERNAL NOTE: Due to differences in the grouping of g/l accounts, the initial
GAP table above contained immaterial differences compared to the balance sheet;
differences have been adjusted to the 1-5 year category.
Provision for Possible Loan Losses
The provision for possible loan losses totaled $310,000 for the third
quarter of 1997, up from $242,000 for the third quarter of 1996. The provision
for the first nine months of 1997 totaled $730,000, up from $563,000 a year ago.
These provisions reflect increased charge-offs, principally in the consumer 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 1997 totaled $959,000 up from
$751,000 a year ago. Over the first nine months of 1997 non-interest income
totaled $3.2 million up from $2.5 million a year ago. The nine-month total
reflects $424,000 in gains on sales of real estate owned including $299,000 in
the second quarter. The second quarter of 1996 included approximately $261,000
in proceeds from life insurance. The remaining increase in non-interest income
is due to increases in service fees on deposit accounts, increases in other
service fees and increased brokerage commissions. 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 14.2% for the third quarter of 1997,
totaling $4.2 million as compared to $3.7 million for the quarter ended
September 30, 1996. Personnel costs comprised much of this change, increasing
approximately 16.2% over the third quarter of 1996.
Non-interest expense for the first nine months of 1997 increased by 14.9% over
1996 levels for the same period. Much of these costs are attributable to
infrastructure associated with the consolidation of certain functions and the
development and introduction of new products and delivery systems, which are
expected to enhance future earnings through increased revenue and/or improved
efficiencies. Over the period from November 1996 to July 1997 the Company
consolidated its data processing operations for all subsidiaries to a single
in-house system. The personnel, equipment and other costs associated with these
conversions are reflected in 1997 results. Management expects to begin to
realize increased operating efficiencies through improved access to information
and economies of scale beginning in early 1998.
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 first nine months of 1997 the Company's efficiency ratio was
57.1%.
Financial Condition
Total assets as of September 30, 1997 were $583.0 million, an increase of
7.8% from $540.9 million at December 31, 1996 and 7.9% from $540.4 million at
September 30, 1996. Asset growth continued to be fueled by steady loan demand,
as loans totaled $384.8 million at
September 30, 1997, an increase of 9.2% from $352.3 million at December 31,
1996, and 9.5% from $351.4 million at September 30, 1996. Stockholders' equity
totaled $64.3 million at September 30, 1997 which represents a book value of $
18.01 per share.
Deposit growth, though outpaced by loan growth, remained steady. Total
deposits at September 30, 1997 were $468.6 million, up 6.6% from $439.6 million
at December 31, 1996 and 6.7% from $439.4 million a year earlier. Other
borrowings totaled $45.0 million a 16.9% increase over $38.5 million at the end
of 1996 and a 12.6% increase from $40.0 million at September 30, 1996. The
Company continues to utilize other borrowings to supplement deposit growth and,
periodically, in wholesale leverage transactions. These wholesale leverage
transactions are typically executed at spreads of approximately 150 to 200 basis
points and, although they may negatively impact the Company's net interest
margin, they have a positive effect on earnings and return on equity.
Continued competition for deposits, particularly as it impacts certificate
of deposit rates, is reflected in the deposit mix. Management continues to focus
on increasing lower cost deposit 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 $4.4 million at September 30, 1997
or 1.15% of total loans, as compared to 1.25% at December 31, 1996 and 1.23% at
September 30, 1996. At September 30, 1997, non-performing assets of $5.0 million
included foreclosed properties of $1.2 million and a $1.40 million investment in
income-producing property. The decrease from December 31, 1996 is principally
due to the sale of a single property comprising over 1800 acres in King George
County and which had been carried at $1.9 million and continuing sales of homes
which comprise the aforementioned income-producing property.
September 30, December 31, September 30,
1997 1996 1996
------------ ------------ -------------
Non-accrual loans $2,324 $ 420 $ 477
Foreclosed properties 1,151 4,056 4,059
Real estate investment 1,384 2,970 -
------------ ------------ -------------
Non-performing assets $4,859 $7,446 $4,536
------------ ------------ -------------
------------ ------------ -------------
Allowance for loan losses $4,439 $4,388 $4,309
Allowance as % of total loans 1.15% 1.25% 1.23%
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.
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, 1997, the Company's ratio of total capital to
risk-weighted assets was 16.04% and its ratio of Tier 1 capital to risk-weighted
assets was 14.98%. Both ratios exceed the fully phased-in capital requirements.
The following summarizes the Company's regulatory capital and related ratios at
September 30, 1997:
Tier 1 capital $ 62,752
Tier 2 capital $ 4,438
Total risk-based capital $ 67,190
Total risk-weighted assets $418,847
Capital Ratios:
Tier 1 risk-based capital ratio 14.98%
Total risk-based capital ratio 16.04%
Leverage ratio (Tier I capital to
average adjusted total assets) 10.94%
Equity to assets ratio 10.81%
The Company's book value per share at September 30, 1997 was $18.01.
Dividends to stockholders are typically declared and paid semi-annually in June
and December. On October 27, 1997, a dividend was declared of $0.38 per share
payable on December 1, 1997 to shareholders of record as of November 21, 1997.
Total dividends for 1997 amount to $0.72.
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, 1997, cash, interest-bearing deposits in other banks,
federal funds sold, securities available for sale and loans maturing or
repricing in one year were 53.7% of total earning assets. At September 30, 1997
approximately $123.2 million or 32.0% 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, periodically in wholesale leverage
transactions.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) No Form 8-K was required to be filed during the most recently
completed quarter.
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, 1997 /s/ G. William Beale
--------------------------- ---------------------------
(Date) G. William Beale,
President, Chief Executive
Officer and Director
November 14, 1997 /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, 1997
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