summary

 

This summary highlights selected information from this joint proxy statement/prospectus. We urge shareholders to read carefully the entire joint proxy statement/prospectus, including the appendices and the other documents referred to, and incorporated by reference into, this joint proxy statement/prospectus for more information on the merger and the other matters to be considered at the special meetings. See “Where You Can Find More Information” beginning on page [•]. Each item in this summary includes a page reference directing you to a more complete description of that item.

 

The Merger (page [•])

 

We have attached a copy of the merger agreement to this joint proxy statement/prospectus as Appendix A. We encourage you to read the merger agreement. It is the legal document that governs the merger.

 

In the merger, Union will acquire Xenith by means of the merger of Xenith with and into Union, with Union being the surviving company in the merger, pursuant to the terms and conditions of the merger agreement. The parties expect to complete the merger during early January 2018.

 

After the effective time of the merger, the parties expect that Xenith Bank, the Virginia chartered bank subsidiary of Xenith, for no additional consideration and pursuant to the bank merger agreement, which is attached as an exhibit to the merger agreement, will merge with and into Union Bank, the Virginia chartered bank subsidiary of Union. Union Bank will be the surviving bank in the subsidiary bank merger. The parties expect to complete the subsidiary bank merger during early January 2018.

 

Consideration to be Received in the Merger by Xenith Shareholders (page [•])

 

In the merger, holders of Xenith common stock will receive 0.9354 shares of Union common stock for each of their shares of Xenith common stock outstanding at the effective time of the merger and cash in lieu of any fractional shares. The exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger.

 

Based on the closing price of Union common stock on May 19, 2017 ($31.72), the 0.9354 exchange ratio represented approximately $29.67 in value for each share of Xenith common stock or $687.2 million on an aggregate basis. The most recent reported closing sale price for Union common stock on [•], 2017 was $[•]; based on this closing sale price, the 0.9354 exchange ratio represents approximately $[•] in value for each share of Xenith common stock, or $[•] million on an aggregate basis. The most recent reported closing sale price for Xenith common stock on [•], 2017 was $[•]. We urge you to obtain current market quotations for Union common stock (trading symbol “UBSH”) and Xenith common stock (trading symbol “XBKS”).

 

It is expected that current holders of Xenith common stock will own approximately 33% of Union’s outstanding common stock after the merger.

 

Shares of Union common stock held by Union shareholders will remain unchanged in the merger. It is expected that current holders of Union common stock will own approximately 67% of Union’s outstanding common stock after the merger.

 

Treatment of Xenith Stock Options and Awards (page [•])

 

Stock Options. At the effective time of the merger, each Xenith stock option, whether vested or unvested, that is outstanding and unexercised immediately prior to the merger will cease and be automatically converted without any action on the part of the holder thereof into the right to receive a cash payment equal to the product of (i) the difference between (A) the product of the average of the closing sale prices of Union common stock on the NASDAQ Global Select Market for the 10 full trading days ending on the trading day immediately preceding (but not including) the effective time of the merger and the exchange ratio (the “conversion price”), and (B) the per share exercise price of the Xenith stock option immediately prior to the effective time of the merger, and (ii) the number of shares of Xenith common stock subject to such Xenith stock option, subject to any applicable withholdings. Each outstanding Xenith stock option with a per share exercise price in excess of the conversion price will be cancelled without any payment made.

Restricted Stock Awards. At the effective time of the merger, each outstanding Xenith restricted stock award that is unvested or contingent and outstanding immediately prior to the effective time of the merger, will vest fully and will be converted into the right to receive the merger consideration in respect of each share of Xenith common stock underlying such Xenith restricted stock award.

 

Restricted Stock Unit Awards. At the effective time of the merger, each outstanding Xenith restricted stock unit award in respect of shares of Xenith common stock that is outstanding and unsettled, unvested or contingent immediately prior to the effective time of the merger will vest fully and will be converted into the right to receive, without interest, the merger consideration payable in respect of each share of Xenith common stock underlying such Xenith restricted stock unit award.

 

Treatment of Xenith Warrants (page [•])

 

At the effective time of the merger, each warrant exercisable to purchase shares of Xenith common stock that is outstanding and unexercised immediately prior to the effective time of the merger will be converted into a warrant to purchase, on the same terms and conditions as were applicable prior to the merger, the number of shares of Union common stock equal to the product of the number of shares of Xenith common stock subject to such warrant immediately prior to the effective time of the merger and the exchange ratio (with any fractional shares resulting from the multiplication rounded down to the nearest whole share), at a price per share of Union common stock equal to the price per share under the warrant prior to the effective time of the merger divided by the exchange ratio (with the exercise price rounded up to the nearest cent for any fractional cents resulting from the division).

 

Xenith has agreed to use its reasonable best efforts to repurchase prior to or in connection with the completion of the merger the warrant to acquire shares of Xenith common stock that was originally issued to the U.S. Department of Treasury pursuant to the Troubled Asset Relief Program Capital Purchase Program. If Xenith is unable to repurchase this warrant, it will be converted at the effective time of the merger in the same manner as all other warrants exercisable to acquire shares of Xenith common stock.

 

Dividend Information (page [•])

 

Union is currently paying a quarterly cash dividend on shares of its common stock at a rate of $0.20 per share. Union has no current intention to change its dividend strategy of paying a quarterly cash dividend, but has and will continue to evaluate that decision based on a quarterly review of earnings, growth, capital and such other factors that the Union board of directors considers relevant to the dividend decision process.

 

Xenith is not currently paying a quarterly cash dividend on shares of its common stock, and under the merger agreement it is restricted from paying dividends on shares of its common stock before completion of the merger without the prior consent of Union.

 

Material U.S. Federal Income Tax Consequences (page [•])

 

The merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code. In connection with the filing of the registration statement of which this joint proxy statement/prospectus is a part, Troutman Sanders LLP has delivered to Union, and Hunton & Williams LLP has delivered to Xenith, their respective opinions (Exhibits 8.1 and 8.2, respectively) that, for U.S. federal income tax purposes, subject to the limitations and qualifications described in “Material U.S. Federal Income Tax Consequences” beginning on page [•], the merger will qualify as a reorganization. Additionally, it is a condition to Union’s and Xenith’s obligations to complete the merger that they each receive a tax opinion, dated the closing date of the merger, that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Accordingly, a holder of Xenith common stock generally will not recognize any gain or loss for U.S. federal income tax purposes as a result of the exchange of the holder’s shares of Xenith common stock for shares of Union common stock pursuant to the merger. However, Xenith shareholders may recognize gain or loss in connection with cash received instead of any fractional shares of Union common stock they would otherwise be entitled to receive. We note that the opinions referenced herein will not bind the IRS or the courts, which could take a contrary view.

The tax consequences of the merger to you will depend on your own situation and the consequences described in this joint proxy statement/prospectus may not apply to you. Xenith shareholders will also be required to file certain information with their U.S. federal income tax returns and to retain certain records with regard to the merger. In addition, you may be subject to state, local or foreign tax laws and consequences that are not addressed in this joint proxy statement/prospectus. You are urged to consult with your own tax advisor for a full understanding of the tax consequences of the merger to you.

 

The Union Board of Directors Unanimously Recommends that Union Shareholders Vote “FOR” the Union Merger Proposal and “FOR” the Union Adjournment Proposal (page [•])

 

The Union board of directors has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are in the best interests of Union and its shareholders and has approved and adopted the merger agreement. The Union board of directors unanimously recommends that Union shareholders vote “FOR” the Union merger proposal and “FOR” the Union adjournment proposal. In making its recommendations, a number of substantive reasons were considered by the Union board of directors, including, among others: (i) the belief that the merger solidifies Union’s position as Virginia’s preeminent community bank, with approximately $12 billion in total assets and 147 branch locations after completion of the merger on a pro forma basis; (ii) the belief that the merger allows Union to efficiently cross the $10 billion in total assets threshold; (iii) the fact that the merger will expand Union’s operations in the attractive Hampton Roads, Virginia banking markets and in other banking markets; and (iv) the expectation that the merger will be immediately accretive to Union’s earnings per share (“EPS”) in 2018 and will be immediately accretive to Union’s tangible book value. For additional discussion of the factors considered by the Union board of directors in reaching its decision to approve and adopt the merger agreement, see “The Merger – Union’s Reasons for the Merger; Recommendation of the Union Board of Directors” beginning on page [•].

 

The Xenith Board of Directors Unanimously Recommends that Xenith Shareholders Vote “FOR” the Xenith Merger Proposal, “FOR” the Compensation Proposal and “FOR” the Xenith Adjournment Proposal (page [•])

 

The Xenith board of directors has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are in the best interests of Xenith and its shareholders and has unanimously approved the merger agreement. The Xenith board of directors unanimously recommends that Xenith shareholders vote “FOR” the Xenith merger proposal, “FOR” the compensation proposal and “FOR” the Xenith adjournment proposal. In making its recommendations, the Xenith board of directors considered a number of substantive reasons, including, among others: (i) the belief that the merger solidifies the position of the combined company following the merger as Virginia’s preeminent community bank, with approximately $12 billion in total assets and 147 branch locations after the completion of the merger on a pro forma basis; (ii) the belief that the merger allows the combined company following the merger to efficiently cross the $10 billion in total assets threshold; (iii) the expectation that the merger will be immediately accretive to the combined company’s EPS in 2018 and (iv) Union’s past record of integrating acquisitions and realizing benefits of acquisitions. For additional discussion of the factors considered by the Xenith board of directors in reaching its decision to approve and adopt the merger agreement, see “The Merger – Xenith’s Reasons for the Merger; Recommendation of the Xenith Board of Directors” beginning on page [•].

 

Opinion of Union’s Financial Advisor (page [•])

 

In considering whether to approve and adopt the merger agreement, the Union board of directors considered the opinion of its financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”), which delivered to the Union board of directors its opinion on May 19, 2017, that as of such date the exchange ratio was fair to Union from a financial point of view. A copy of the written opinion, dated May 19, 2017, is attached to this joint proxy statement/prospectus as Appendix B. You should read this opinion completely to understand the assumptions made, matters considered and limitations of the review undertaken by KBW in providing its opinion. The opinion of KBW has not been updated prior to the date of this joint proxy statement/prospectus and does not reflect any change in circumstances after May 19, 2017.

KBW’s opinion is directed to the Union board of directors, addresses only the fairness of the exchange ratio pursuant to the merger agreement from a financial point of view to Union, and does not address any other aspect of the merger. KBW’s opinion does not constitute a recommendation to any Union shareholder as to how to vote or act with respect to the merger or any matter considered at the Union special meeting.

 

Opinion of Xenith’s Financial Advisor (page [•])

 

On May 19, 2017, at a meeting of the Xenith board of directors held to evaluate the merger, Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”), delivered to the Xenith board of directors its oral opinion, confirmed by delivery of a written opinion dated as of the same date, to the effect that, as of such date, the exchange ratio was fair to the holders of Xenith common stock from a financial point of view. A copy of the written opinion, dated May 19, 2017, is attached to this joint proxy statement/prospectus as Appendix C. You should read this opinion completely to understand the assumptions made, matters considered and limitations of the review undertaken by Sandler O’Neill in providing its opinion. The opinion of Sandler O’Neill has not been updated prior to the date of this joint proxy statement/prospectus and does not reflect any change in circumstances after May 19, 2017.

 

Sandler O’Neill’s opinion is directed to the Xenith board of directors, addresses only the fairness of the exchange ratio pursuant to the merger agreement from a financial point of view to the holders of Xenith common stock, and does not address any other aspect of the merger. Sandler O’Neill’s opinion does not constitute a recommendation to any Xenith shareholder as to how to vote or act with respect to the merger or any matter considered at the Xenith special meeting.

 

Union Bankshares Corporation (page [•])

 

Union Bankshares Corporation is a bank holding company organized under the laws of the Commonwealth of Virginia and headquartered in Richmond, Virginia. Union provides a full range of financial services through its community bank subsidiary, Union Bank & Trust, to the Northern, Central, Rappahannock, Roanoke Valley, Shenandoah, Tidewater, and Northern Neck regions of Virginia. Union Bank is a commercial bank chartered under the laws of the Commonwealth of Virginia that provides banking, trust, and wealth management services and has 111 bank branches and approximately 173 ATMs. Non-bank affiliates of Union include: Union Mortgage Group, Inc., which provides a full line of mortgage products; Union Insurance Group, LLC, which offers various lines of insurance products; and Old Dominion Capital Management, Inc., which provides investment advisory services. Union common stock is traded on the NASDAQ Global Select Market under the symbol “UBSH.”

 

As of June 30, 2017, Union had total consolidated assets of approximately $8.9 billion, total consolidated loans, net of deferred fees and costs of approximately $6.8 billion, total consolidated deposits through Union Bank of approximately $6.8 billion, and consolidated shareholders’ equity of approximately $1.0 billion.

 

The principal executive office of Union is located at 1051 East Cary Street, Suite 1200, Richmond, Virginia 23219, and its telephone number is (804) 633-5031.

 

Xenith Bankshares, Inc. (page [•])

 

Xenith Bankshares, Inc. is a bank holding company organized under the laws of the Commonwealth of Virginia and headquartered in Richmond, Virginia. Xenith owns all of the stock of its subsidiary bank, Xenith Bank. Xenith Bank is a commercial bank chartered under the laws of the Commonwealth Virginia and offers a wide range of banking products and services to individuals and businesses primarily located in Virginia, Maryland, North Carolina, and the greater Washington, D.C. area, through 40 full service branches and two loan production offices. Xenith common stock is traded on the NASDAQ Global Select Market under the symbol “XBKS.”

As of June 30, 2017, Xenith had total assets of $3.2 billion, loans, net of allowance for loan losses, of $2.4 billion, total deposits through Xenith Bank of $2.6 billion, and shareholders’ equity of $478.8 million.

 

The principal executive office of Xenith is located at One James Center, 901 East Cary Street, Suite 1700, Richmond, Virginia 23219, and its telephone number is (804) 433-2200.

 

Regulatory Approvals (page [•])

 

Union and Xenith cannot complete the merger without prior approval from the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Virginia State Corporation Commission (the “Virginia SCC”). Union and Xenith have each agreed to cooperate and use their reasonable best efforts to prepare as promptly as possible all documentation, to effect all filings and to obtain all regulatory approvals necessary to complete the merger. Once the Federal Reserve approves the merger, we have to wait from 15 to 30 days before we can complete it. During that time, the Department of Justice may challenge the merger. As of the date of this joint proxy statement/prospectus, we have not yet received the required regulatory approvals. While we do not know of any reason why we would not be able to obtain the necessary regulatory approvals in a timely manner, we cannot be certain when or if we will receive them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to the combined company after completion of the merger.

 

In addition, CapGen Capital Group VI LLP and its general partner, CapGen Capital Group VI LLC, each a bank holding company of Xenith, will also file an application with the Federal Reserve for them, as bank holding companies, to acquire more than 5% of the outstanding shares of Union common stock pursuant to the merger.

 

Conditions to Completion of the Merger (page [•])

 

Union’s and Xenith’s respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including the following:

 

·

the approval of the Union merger proposal and the Xenith merger proposal by Union and Xenith shareholders, respectively;

 

·

the approval of the merger by the necessary federal and state regulatory authorities;

 

·

the SEC declaring Union’s registration statement on Form S-4, of which this joint proxy statement/prospectus is a part, effective under the Securities Act of 1933, as amended (the “Securities Act”), and its continued effectiveness;

 

·

the approval from the NASDAQ Stock Market for the listing on the NASDAQ Global Select Market of the shares of Union common stock to be issued in the merger;

 

·

the absence of any order, decree or injunction of any court or regulatory agency that enjoins or prohibits the completion of the merger;

 

·

the accuracy of the other party’s representations and warranties in the merger agreement, subject to the materiality standards in the merger agreement (subject to limited exceptions);

 

·

the other party’s performance in all material respects of its obligations under the merger agreement;

 

·

the receipt by Union from Troutman Sanders LLP, Union’s outside legal counsel, and the receipt by Xenith from Hunton & Williams LLP, Xenith’s outside legal counsel, of written legal opinions to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code;

·

with respect to Union’s obligation to complete the merger, the continued effectiveness of the voting agreements between Union, Xenith and the Xenith institutional shareholders (as defined below) and the affiliate agreements between Union, Xenith and the directors of Xenith (for more information on the voting agreements and the affiliate agreements, see “The Merger Agreement – Voting Agreements” beginning on page [•] and “The Merger Agreement – Affiliate Agreements” beginning on page [•]); and

 

·

with respect to Xenith’s obligation to complete the merger, the continued effectiveness of the affiliate agreements between Union, Xenith and the directors of Union.

 

Where the merger agreement and/or law permits, Union and Xenith could choose to waive a condition to its obligation to complete the merger even if that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.

 

Timing of the Merger (page [•])

 

Union and Xenith expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including after shareholder approvals are received at the respective special meetings and the receipt of all required regulatory approvals. We currently expect to complete the merger during early January 2018. However, it is possible that factors outside of either party’s control could require us to complete the merger at a later time or not to complete it at all.

 

Interests of Certain Xenith Directors and Executive Officers in the Merger (page [•])

 

Xenith shareholders should be aware that some of Xenith’s directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of Xenith shareholders generally. The Xenith board of directors was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger agreement and the merger, and in recommending that Xenith shareholders vote in favor of the Xenith merger proposal.

 

These interests include the following:

 

·

severance entitlements under existing employment agreements and separation agreements with certain Xenith executive officers, including the named executive officers;

 

·

transaction bonuses payable to certain Xenith executive officers, including the named executive officers;

 

·

the potential early receipt of 2017 annual incentive awards under an existing short-term incentive plan by certain Xenith executive officers, including the named executive officers;

 

·

accelerated vesting of certain outstanding Xenith equity awards, either at the effective time of the merger or in 2017, for certain executive officers and directors;

   

·

Union will appoint two current directors of Xenith to the Union board of directors as of the effective time of the merger; and

 

·

rights to ongoing indemnification and insurance coverage by Union for acts or omissions of Xenith directors and officers occurring prior to the merger.

No Solicitation (page [•])

 

Union and Xenith have agreed that each party will not directly or indirectly:

 

·

initiate, solicit, endorse or knowingly encourage or knowingly facilitate any inquiries, proposals or offers with respect to or any inquiry, proposal or offer that is reasonably likely to lead to an “acquisition proposal” (for the definition of acquisition proposal, see “The Merger Agreement – No Solicitation” beginning on page [•]); or

 

·

engage or participate in any negotiations or discussions concerning, or provide any confidential or nonpublic information relating to, an acquisition proposal.

 

The merger agreement does not, however, prohibit Union or Xenith from considering an unsolicited bona fide acquisition proposal from a third party if certain conditions are met.

 

Termination of the Merger Agreement (page [•])

 

The merger agreement may be terminated, and the merger abandoned, by Union and Xenith at any time before the merger is completed if the boards of directors of both parties vote to do so. In addition, the merger agreement may be terminated, and the merger abandoned, under the following circumstances:

 

·

by the board of directors of Union or Xenith if the merger has not been completed by March 31, 2018, unless the failure to complete the merger on or before such time is caused by the terminating party’s action or failure to act and such action or failure to act constitutes a breach of the merger agreement;

 

·

by the board of directors of Union or Xenith if any required regulatory approval has been denied by the relevant governmental authority or any governmental authority has issued an injunction permanently enjoining or otherwise prohibiting the completion of the merger or the other transactions contemplated in the merger agreement, unless the denial of such regulatory approval is due to, or materially contributed to by, the failure to perform or observe the covenants or agreements under the merger agreement by the terminating party;

 

·

by the board of directors of Union or Xenith if there is a breach by the other party of any representation, warranty, covenant or obligation contained in the merger agreement that would cause the failure of a condition to completing the merger, and the breach is not cured within 30 days following written notice to the breaching party or by its nature cannot be cured within such time period;

 

·

by the Union board of directors at any time before Xenith shareholders approve the Xenith merger proposal if (i) the Xenith board of directors (a) fails to recommend to the Xenith shareholders that they approve the Xenith merger proposal, or (b) withholds, withdraws or modifies in any manner adverse to Union, or proposes publicly to withhold, withdraw or modify in any manner adverse to Union, the approval or recommendation with respect to the Xenith merger proposal; or (ii) Xenith fails to comply in all material respects with its obligations in the merger agreement requiring the calling and holding of a meeting of shareholders to consider the Xenith merger proposal or its obligations regarding the non-solicitation of other competing offers;

 

·

by the board of directors of Union or Xenith if Xenith shareholders do not approve the Xenith merger proposal;

 

·

by the Xenith board of directors at any time before Union shareholders approve the Union merger proposal if (i) the Union board of directors (a) fails to recommend to the Union shareholders that they approve the Union merger proposal, or (b) withholds, withdraws or modifies in any manner adverse to Xenith, or proposes publicly to withhold, withdraw or modify in any manner adverse to Xenith, the approval or recommendation with respect to the Union merger proposal; or (ii) Union fails to comply in all material respects with its obligations in the merger agreement requiring the calling and holding of a meeting of shareholders to consider the Union merger proposal or its obligations regarding the non-solicitation of other competing offers;

·

by the board of directors of Union or Xenith if Union shareholders do not approve the Union merger proposal;

 

·

by the Union board of directors if it has approved entering into a definitive agreement to accept a superior proposal (as further described in “The Merger Agreement – No Solicitation” beginning on page [•]), provided Union pays to Xenith the termination fee described below; or

 

·

by the Xenith board of directors if it has approved entering into a definitive agreement to accept a superior proposal, provided Xenith pays to Union the termination fee.

 

Termination Fee and Expenses (page [•])

 

Union or Xenith must pay the other a termination fee of $26.5 million if the merger agreement is terminated by either party under certain specified circumstances. The termination and payment circumstances are more fully described in “The Merger Agreement – Termination Fee” beginning on page [•].

 

In general, whether or not the merger is completed, Union and Xenith will each pay its respective expenses incident to preparing, entering into and carrying out the terms of the merger agreement. The parties will share the costs of printing this joint proxy statement/prospectus and all filing fees paid to the SEC and other governmental authorities.

 

The Union Special Meeting (page [•])

 

The Union special meeting will be held on [•], [•] [•], 2017 at [•] [a.m.][p.m.] local time at [•], located at [•].

 

At the Union special meeting Union shareholders will be asked to vote on the following matters:

 

·

the Union merger proposal; and

 

·

the Union adjournment proposal.

 

The Xenith Special Meeting (page [•])

 

The Xenith special meeting will be held on [•], [•] [•], 2017 at [•] [a.m.][p.m.] local time at [•], located at [•].

 

At the Xenith special meeting Xenith shareholders will be asked to vote on the following matters:

 

·

the Xenith merger proposal;

 

·

the compensation proposal; and

 

·

the Xenith adjournment proposal.

 

Record Date and Votes Required – Union Special Meeting (page [•])

 

You can vote at the Union special meeting of shareholders if you owned Union common stock at the close of business on [•], 2017. On that date, Union had [•] shares of common stock outstanding and entitled to vote. For each proposal presented at the Union special meeting, a shareholder can cast one vote for each share of Union common stock owned on the record date.

The votes required to approve the proposals at the Union special meeting are as follows:

 

·

The Union merger proposal requires the affirmative vote of a majority of the shares of Union common stock outstanding and entitled to vote on the proposal.

 

·

The Union adjournment proposal requires that the number of votes cast “FOR” the proposal exceed the number of votes cast “AGAINST” the proposal, whether or not a quorum is present.

 

Record Date and Votes Required – Xenith Special Meeting (page [•])

 

You can vote at the Xenith special meeting of shareholders if you owned Xenith common stock at the close of business on [•], 2017. On that date, Xenith had [•] shares of common stock outstanding and entitled to vote. For each proposal presented at the Xenith special meeting, a shareholder can cast one vote for each share of Xenith common stock owned on the record date.

 

The votes required to approve the proposals at the Xenith special meeting are as follows:

 

·

The Xenith merger proposal requires the affirmative vote of a majority of the shares of Xenith common stock outstanding and entitled to vote on the proposal.

 

·

The compensation proposal, to be approved on a non-binding advisory basis, requires that the number of votes cast “FOR” the proposal exceed the number of votes cast “AGAINST” the proposal.

 

·

The Xenith adjournment proposal requires that the number of votes cast “FOR” the proposal exceed the number of votes cast “AGAINST” the proposal, whether or not a quorum is present.

 

Affiliate Agreements and Voting by Union and Xenith Directors (page [•] and Appendices D and E)

 

Union and Xenith have entered into affiliate agreements with the directors of Union and Xenith, in their capacities as shareholders, regarding the voting of their shares of common stock in Union and Xenith, respectively, in connection with the merger. As of [•], 2017, the record date for the Union special meeting, directors and executive officers of Union and their affiliates beneficially owned and were entitled to vote approximately [•] shares of Union common stock, or approximately [•]% of the total voting power of the shares of Union common stock outstanding on that date, of which approximately [•] shares or approximately [•]% of the total voting power of the shares of Union common stock outstanding on that date are subject to an affiliate agreement. As of [•], 2017, the record date for the Xenith special meeting, directors and executive officers of Xenith and their affiliates beneficially owned and were entitled to vote approximately [•] shares of Xenith common stock, or approximately [•]% of the total voting power of the shares of Xenith common stock outstanding on that date, of which approximately [•] shares or approximately [•]% of the total voting power of the shares of Xenith common stock outstanding on that date are subject to an affiliate agreement.

 

Pursuant to the affiliate agreements, each of Union’s and Xenith’s directors, respectively, has agreed, among other things and subject to several conditions and exceptions, to vote all shares of Union common stock or Xenith common stock, respectively, owned beneficially or of record by such director, and over which such director has sole power to vote or direct the disposition, in favor of the Union merger proposal or the Xenith merger proposal, respectively, and against any alternative acquisition proposal. The directors have also agreed to customary non-solicitation covenants relating to alternative acquisition proposals.

 

Voting Agreements by Certain Xenith Shareholders (page [•] and Appendix F)

 

Union and Xenith have entered into a voting agreement with the following Xenith shareholders (collectively, the “Xenith institutional shareholders”): ACMO-HR, L.L.C., CapGen Capital Group VI LP, Carlyle Financial Services Harbor, L.P., and BCP Fund I Virginia Holdings, LLC. As of [•], 2017, the record date for the Xenith special meeting, the Xenith institutional shareholders beneficially owned and were entitled to vote approximately [•] shares of Xenith common stock, or approximately [•]% of the total voting power of the shares of Xenith common stock outstanding on that date, all of which are subject to a voting agreement.

Pursuant to the voting agreements, each Xenith institutional shareholder has agreed, among other things, to vote the shares of Xenith common stock beneficially owned and over which it has voting power in favor of the Xenith merger proposal and any related matters and against any alternative acquisition proposal. Also pursuant to the voting agreements, each Xenith institutional shareholder has agreed to customary lock-up restrictions on the transfer of its shares of Union common stock for a period of 60 days following the effective time of the merger and to customary non-solicitation covenants relating to alternative acquisition proposals. The voting agreements permit each Xenith institutional shareholder to elect to enter into a registration rights agreement with Union within 30 days following the effective time of the merger, which registration rights agreement would apply to up to all shares of Union common stock that the Xenith institutional shareholder, as of the effective time of the merger, owns or has the right to receive pursuant to the terms of the merger agreement. Any such registration rights agreement will contain customary terms and conditions.

 

No Appraisal or Dissenters’ Rights (page [•])

 

Under Virginia law, Union shareholders and Xenith shareholders are not entitled to appraisal or dissenters’ rights in connection with the merger.

 

Union and Xenith Shareholders Have Different Rights (page [•])

 

Union and Xenith are Virginia corporations governed by the Virginia Stock Corporation Act (the “Virginia SCA”). In addition, the rights of Union and Xenith shareholders are governed by their respective articles of incorporation and bylaws, each as amended (“Union’s articles of incorporation” and “Union’s bylaws,” respectively, and “Xenith’s articles of incorporation” and “Xenith’s bylaws,” respectively). Upon completion of the merger, Xenith shareholders will become Union shareholders, and as such their shareholder rights will then be governed by the Virginia SCA, Union’s articles of incorporation and Union’s bylaws. The rights of Union shareholders differ in certain respects from the rights of Xenith shareholders.

 

The Merger Will Be Accounted for Under the Acquisition Method of Accounting (page [•])

 

Union will use the acquisition method of accounting to account for the merger.

 

Listing of Union Common Stock (page [•])

 

Union will list the shares of common stock to be issued in the merger on the NASDAQ Global Select Market.

 

Market Prices and Share Information (page [•])

 

Union common stock is listed on the NASDAQ Global Select Market under the symbol “UBSH” and Xenith common stock is listed on the NASDAQ Global Select Market under the symbol “XBKS.” The following table sets forth the closing sale prices per share of Union common stock as reported on the NASDAQ Global Select Market and of Xenith common stock on the NASDAQ Global Select Market on May 19, 2017, the last trading day before we announced the signing of the merger agreement, and on [•], 2017, the last trading day before the date of this joint proxy statement/prospectus.

 

		Union Common Stock				Xenith Common Stock				Equivalent Market Value Per Share of Xenith
May 19, 2017		$	31.72			$	26.87			$	29.67
[•], 2017			[•]				[•]				[•]

 

Union cannot assure Xenith shareholders that its stock price will continue to trade at or above, as applicable, the prices shown in the table above. You should obtain current stock price quotations for Union common stock and Xenith common stock from a newspaper, via the Internet or by calling your broker.

Risk Factors (page [•])

 

You should consider all the information contained in or incorporated by reference into this joint proxy statement/prospectus in deciding how to vote for the proposals presented in the joint proxy statement/prospectus. In particular, you should consider the factors in “Risk Factors” beginning on page [•].

selected historical financial data of union

 

The following tables set forth certain of Union’s consolidated financial data as of the end of and for each of the years in the five-year period ended December 31, 2016, and as of and for the six months ended June 30, 2017 and 2016. The historical consolidated financial information as of the end of and for each of the years in the five-year period ended December 31, 2016, is derived from Union’s audited consolidated financial statements. The consolidated financial information as of and for the six-month periods ended June 30, 2017 and 2016 is derived from Union’s unaudited consolidated financial statements. In Union’s opinion, such unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of its financial position and results of operations for such periods. Interim results for the six months ended June 30, 2017 are not necessarily indicative of, and are not projections for, the results to be expected for the full year ended December 31, 2017.

 

The selected historical financial data below is only a summary and should be read in conjunction with Union’s consolidated financial statements and related notes thereto, which are incorporated by reference into this joint proxy statement/prospectus.

 

		Six Months Ended
		June 30,								Year Ended December 31,
		2017				2016				2016				2015				2014				2013				2012
		(Dollars in thousands, expect per share information)
Results of Operations
Interest and dividend income		$	157,861			$	143,530			$	294,920			$	276,771			$	274,945			$	172,127			$	181,863
Interest expense			22,294				14,023				29,770				24,937				19,927				20,501				27,508
Net interest income			135,567				129,507				265,150				251,834				255,018				151,626				154,355
Provision for credit losses			4,295				4,904				9,100				9,571				7,800				6,056				12,200
Net interest income after provision for credit losses			131,272				124,603				256,050				242,263				247,218				145,570				142,155
Noninterest income			36,894				33,907				70,907				65,007				61,287				38,728				41,068
Noninterest expenses			117,325				109,523				222,703				216,882				238,216				137,047				133,390
Income before income taxes			50,841				48,987				104,254				90,388				70,289				47,251				49,833
Income tax expense			13,761				12,689				26,778				23,309				18,125				12,885				14,571
Net income		$	37,080			$	36,298			$	77,476			$	67,079			$	52,164			$	34,366			$	35,262
Financial Condition
Assets		$	8,915,187			$	8,100,561			$	8,426,793			$	7,693,291			$	7,358,643			$	4,176,353			$	4,095,692
Securities available for sale, at fair value			960,537				949,663				946,764				903,292				1,102,114				677,348				585,382
Securities held to maturity, at carrying value			205,630				202,917				201,526				205,374				-				-				-
Loans held for sale, at fair value			41,135				38,114				36,487				36,030				42,519				53,185				167,698
Loans held for investment, net of deferred fees and costs			6,771,490				5,941,098				6,307,060				5,671,462				5,345,996				3,039,368				2,966,847
Allowance for loan losses			38,214				35,074				37,192				34,047				32,384				30,135				34,916
Intangible assets, net			315,613				321,108				318,793				316,832				325,277				71,380				75,211
Tangible assets, net (1)			8,599,574				7,779,453				8,108,000				7,376,459				7,033,366				4,104,973				4,020,481
Deposits			6,764,434				6,095,826				6,379,489				5,963,936				5,638,770				3,236,842				3,297,767
Total borrowings			1,070,803				952,809				990,089				680,175				686,935				463,314				329,395
Total liabilities			7,884,318				7,111,360				7,425,761				6,697,924				6,381,474				3,783,543				3,660,128
Common stockholders' equity			1,030,869				989,201				1,001,032				995,367				977,169				437,810				435,564
Tangible common stockholders' equity (1)			715,256				668,093				682,239				678,535				651,892				366,430				360,353
Ratios
Net interest margin			3.51	%			3.69	%			3.66	%			3.75	%			3.96	%			4.08	%			4.23	%
Net interest margin (FTE) (1)			3.64	%			3.83	%			3.80	%			3.89	%			4.09	%			4.22	%			4.34	%
Return on average assets			0.87	%			0.93	%			0.96	%			0.90	%			0.72	%			0.85	%			0.89	%
Return on average common stockholders' equity			7.34	%			7.39	%			7.79	%			6.76	%			5.30	%			7.89	%			8.10	%
Return on average tangible common stockholders' equity (1)			10.66	%			10.86	%			11.45	%			10.00	%			8.02	%			9.48	%			9.86	%
Efficiency ratio			68.03	%			67.02	%			66.27	%			68.45	%			75.31	%			72.00	%			68.26	%
Efficiency ratio (FTE) (1)			66.04	%			65.06	%			64.31	%			66.54	%			73.43	%			70.06	%			66.81	%
CET1 capital (to risk weighted assets)			9.39	%			9.94	%			9.72	%			10.55	%			11.20	%			11.26	%			11.27	%
Tier 1 capital (to risk weighted assets)			10.57	%			11.27	%			10.97	%			11.93	%			12.76	%			13.03	%			13.14	%
Total capital (to risk weighted assets)			13.00	%			11.79	%			13.56	%			12.46	%			13.38	%			14.16	%			14.57	%
Leverage Ratio			9.61	%			10.01	%			9.87	%			10.68	%			10.62	%			10.69	%			10.52	%
Common equity to total assets			11.56	%			12.21	%			11.88	%			12.94	%			13.28	%			10.48	%			10.63	%
Tangible common equity / tangible assets (1)			8.32	%			8.59	%			8.41	%			9.20	%			9.27	%			8.93	%			8.96	%
Asset Quality
Allowance for loan losses		$	38,214			$	35,074			$	37,192			$	34,047			$	32,384			$	30,135			$	34,916
Nonaccrual loans		$	24,574			$	10,861			$	9,973			$	11,936			$	19,255			$	15,035			$	26,206
OREO		$	9,482			$	13,381			$	10,084			$	15,299			$	28,118			$	34,116			$	32,834
ALL / total outstanding loans			0.56	%			0.59	%			0.59	%			0.60	%			0.61	%			0.99	%			1.18	%
Nonaccrual loans/total loans			0.36	%			0.18	%			0.16	%			0.21	%			0.36	%			0.49	%			0.88	%
ALL / nonaccrual loans			155.51	%			322.94	%			372.93	%			285.25	%			168.18	%			200.43	%			133.24	%
NPAs / total outstanding loans			0.50	%			0.41	%			0.32	%			0.48	%			0.89	%			1.62	%			1.99	%
Net charge-offs / total average loans			0.10	%			0.13	%			0.09	%			0.14	%			0.11	%			0.36	%			0.58	%
Provision / total average loans			0.13	%			0.16	%			0.15	%			0.17	%			0.15	%			0.20	%			0.42	%
Per Share Data
Earnings per share, basic		$	0.85			$	0.82			$	1.77			$	1.49			$	1.13			$	1.38			$	1.36
Earnings per share, diluted			0.85				0.82				1.77				1.49				1.13				1.37				1.36
Cash dividends paid per share			0.40				0.38				0.77				0.68				0.58				0.54				0.37
Market value per share			33.90				24.71				35.74				25.24				24.08				24.81				15.77
Book value per share			23.79				22.87				23.15				22.38				21.73				17.63				17.29
Tangible book value per share (1)			16.50				15.44				15.78				15.25				14.50				14.76				14.30
Price to earnings ratio, diluted			19.78				14.98				20.19				16.94				21.31				18.11				11.60
Price to book value ratio			1.42				1.08				1.54				1.13				1.11				1.41				0.91
Dividend payout ratio			47.06	%			46.34	%			43.50	%			45.64	%			51.33	%			39.42	%			27.21	%
Weighted average shares outstanding, basic			43,674,070				43,998,929				43,784,193				45,054,938				46,036,023				24,975,077				25,872,316
Weighted average shares outstanding, diluted			43,755,045				44,075,706				43,890,271				45,138,891				46,130,895				25,030,711				25,900,863

 

(1) Refer to non-GAAP reconciliation in section below.

In reporting the consolidated financial data as of and for each of the years in the five-year period ended December 31, 2016 and as of and for the six months ended June 30, 2017 and 2016, Union has provided supplemental performance measures on a tax-equivalent or tangible basis. These measures are a supplement to generally accepted accounting principles in the U.S. (“GAAP”) used to prepare Union’s financial statements and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, Union’s non-GAAP measures may not be comparable to non-GAAP measures of other companies.

 

Union believes that net interest income (fully taxable equivalent or “FTE”), which is used in computing net interest margin (FTE) and efficiency ratio (FTE), provides valuable additional insight into the net interest margin and efficiency ratio by adjusting for differences in tax treatment of interest income sources.

 

Union believes tangible common equity is an important indication of its ability to grow organically and through business combinations as well as its ability to pay dividends and to engage in various capital management strategies. Tangible common equity is used in the calculation of certain profitability, capital, and per share ratios. These ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which Union believes will assist investors in assessing the capital of Union and its ability to absorb potential losses.

 

Non-GAAP Measures:

 

		Six Months Ended
		June 30,								Year Ended December 31,
		2017				2016				2016				2015				2014				2013				2012
		(Dollars in thousands, expect per share information)
Net Interest Income (FTE)
Net interest income (GAAP)		$	135,567			$	129,507			$	265,150			$	251,834			$	255,018			$	151,626			$	154,355
FTE adjustment			5,188				4,941				10,244				9,079				8,127				5,256				4,222
Net interest income (FTE) (non-GAAP)		$	140,755			$	134,448			$	275,394			$	260,913			$	263,145			$	156,882			$	158,577
Average earning assets		$	7,798,427			$	7,061,307			$	7,249,090			$	6,713,239			$	6,437,681			$	3,716,849			$	3,649,865
Net interest margin (GAAP)			3.51	%			3.69	%			3.66	%			3.75	%			3.96	%			4.08	%			4.23	%
Net interest margin (FTE) (non-GAAP)			3.64	%			3.83	%			3.80	%			3.89	%			4.09	%			4.22	%			4.34	%
Efficiency ratio (GAAP)			68.03	%			67.02	%			66.27	%			68.45	%			75.31	%			72.00	%			68.26	%
Efficiency ratio (FTE) (non-GAAP)			66.04	%			65.06	%			64.31	%			66.54	%			73.43	%			70.06	%			66.81	%
Tangible Assets
Ending assets (GAAP)		$	8,915,187			$	8,100,561			$	8,426,793			$	7,693,291			$	7,358,643			$	4,176,353			$	4,095,692
Less: Ending intangible assets			315,613				321,108				318,793				316,832				325,277				71,380				75,211
Ending tangible assets (non-GAAP)		$	8,599,574			$	7,779,453			$	8,108,000			$	7,376,459			$	7,033,366			$	4,104,973			$	4,020,481
Tangible Common Equity
Ending common stockholders' equity (GAAP)		$	1,030,869			$	989,201			$	1,001,032			$	995,367			$	977,169			$	437,810			$	435,564
Less: Ending intangible assets			315,613				321,108				318,793				316,832				325,277				71,380				75,211
Ending tangible common stockholders' equity (non-GAAP)		$	715,256			$	668,093			$	682,239			$	678,535			$	651,892			$	366,430			$	360,353
Average common stockholders' equity (GAAP)		$	1,018,277			$	988,281			$	994,785			$	991,977			$	983,727			$	435,635			$	435,475
Less: Average intangible assets			317,139				316,248				318,131				320,906				333,495				73,205				77,790
Average tangible common stockholders' equity (non-GAAP)		$	701,138			$	672,033			$	676,654			$	671,071			$	650,232			$	362,430			$	357,685
Return on average common stockholders' equity (GAAP)			7.34	%			7.39	%			7.79	%			6.76	%			5.30	%			7.89	%			8.10	%
Return on average tangible common stockholders' equity (non-GAAP)			10.66	%			10.86	%			11.45	%			10.00	%			8.02	%			9.48	%			9.86	%
Common equity to total assets (GAAP)			11.56	%			12.21	%			11.88	%			12.94	%			13.28	%			10.48	%			10.63	%
Tangible common equity / tangible assets (non-GAAP)			8.32	%			8.59	%			8.41	%			9.20	%			9.27	%			8.93	%			8.96	%
Book value per share (GAAP)		$	23.79			$	22.87			$	23.15			$	22.38			$	21.73			$	17.63			$	17.29
Tangible book value per share (non-GAAP)		$	16.50			$	15.44			$	15.78			$	15.25			$	14.50			$	14.76			$	14.30

  

unaudited pro forma condensed combined financial information

 

The following unaudited pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of Union and Xenith, as an acquisition by Union of Xenith using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Xenith will be recorded by Union at their respective fair values as of the date the merger is completed. The pro forma financial information should be read in conjunction with the Quarterly Reports on Forms 10-Q for the period ended June 30, 2017 and Annual Reports on Forms 10-K for the year ended December 31, 2016 of both Union and Xenith, which are incorporated by reference herein. See “Selected Historical Financial Data of Union” beginning on page [•], “Information About Union Bankshares Corporation” beginning on page [•], “Information About Xenith Bankshares, Inc.” beginning on page [•], and “Where You Can Find More Information” beginning on page [•].

 

The unaudited pro forma condensed combined balance sheet gives effect to the merger as if the transaction had occurred on June 30, 2017. The unaudited pro forma condensed combined income statements for the six months ended June 30, 2017 and the year ended December 31, 2016 give effect to the merger as if the transaction had occurred on January 1, 2016.

 

The unaudited pro forma condensed combined financial information included herein is presented for informational purposes only and does not necessarily reflect the financial results of the combined company had the companies actually been combined at the beginning of the periods presented. The adjustments included in this unaudited pro forma condensed combined financial information are preliminary and may be revised and may not agree to actual amounts recorded by Union upon completion of the merger. This financial information does not reflect the benefits of the expected cost savings and expense efficiencies, opportunities to earn additional revenue, potential impacts of current market conditions on revenues or asset dispositions, among other factors, and includes various preliminary estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the merger had been completed on the date or at the beginning of the period indicated or which may be attained in the future.

 

As explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed or as subsequently adjusted.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with Union’s historical consolidated financial statements and related notes thereto, and with Xenith’s historical consolidated financial statements and related notes thereto, each of which are incorporated by reference into this joint proxy statement/prospectus.

UNION AND XENITH

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET

As of June 30, 2017

(Dollars in thousands)

 

										Merger
		Union				Xenith				Pro Forma				Pro Forma
		(As Reported)				(As Reported)				Adjustments				Combined
ASSETS
Cash and cash equivalents		$	181,910			$	149,940			$	(10,176	)(a)		$	321,674
Securities available for sale, at fair value			960,537				316,463				-				1,277,000
Securities held to maturity, at carrying value			205,630				-				-				205,630
Restricted stock, at cost			69,631				17,341				-				86,972
Loans held for sale, at fair value			41,135				-				-				41,135
Loans held for investment, net of deferred fees and costs			6,771,490				2,370,594				(41,911	)(b)(c)			9,100,173
Less allowance for loan losses			38,214				17,027				(17,027	)(d)			38,214
Net loans held for investment			6,733,276				2,353,567				(24,884	)			9,061,959
Premises and equipment, net			121,842				55,607				6,293	(e)			183,742
Other real estate owned, net of valuation allowance			9,482				5,083				-				14,565
Goodwill			298,191				26,931				227,147	(f)			552,269
Amortizable intangibles, net			17,422				3,524				22,626	(g)			43,572
Bank owned life insurance			180,110				73,004				-				253,114
Other assets			96,021				175,001				3,710	(h)			274,732
Total assets		$	8,915,187			$	3,176,461			$	224,716			$	12,316,364
LIABILITIES
Noninterest-bearing demand deposits		$	1,501,570			$	515,632			$	-			$	2,017,202
Interest-bearing deposits			5,262,864				2,123,557				5,697	(i)			7,392,118
Total deposits			6,764,434				2,639,189				5,697				9,409,320
Securities sold under agreements to repurchase			34,543				-				-				34,543
Other short-term borrowings			602,000				-				-				602,000
Long-term borrowings			434,260				39,066				8,940	(j)			482,266
Other liabilities			49,081				19,425				11,680	(k)			80,186
Total liabilities			7,884,318				2,697,680				26,317				10,608,315
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock			57,643				232				28,743	(l)(m)			86,618
Surplus			607,666				712,640				(52,755	)(l)(m)			1,267,551
Retained earnings (deficit)			361,552				(233,409	)			221,729	(k)(l)			349,872
Accumulated other comprehensive income			4,008				(682	)			682	(l)			4,008
Total stockholders' equity			1,030,869				478,781				198,399				1,708,049
Total liabilities and stockholders' equity		$	8,915,187			$	3,176,461			$	224,716			$	12,316,364

 

See accompanying notes to unaudited pro forma financial information.

UNION AND XENITH

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME

For the Six Months Ended June 30, 2017

(Dollars in thousands, except per share amounts)

 

										Merger
		Union				Xenith				Pro Forma				Pro Forma
		(As Reported)				(As Reported)				Adjustments				Combined
Interest and dividend income:
Interest and fees on loans		$	140,696			$	54,509			$	3,601	(n)		$	198,806
Other interest income			17,165				4,741				-				21,906
Total interest and dividend income			157,861				59,250				3,601				220,712
Interest expense:
Interest on deposits			11,176				8,003				(680	)(o)			18,499
Other interest expense			11,118				1,685				369	(p)			13,172
Total interest expense			22,294				9,688				(311	)			31,671
Net interest income			135,567				49,562				3,912				189,041
Provision for credit losses			4,295				9				249	(A)			4,553
Net interest income after provision for credit losses			131,272				49,553				3,663				184,488
Noninterest income:
Service charges on deposit accounts			9,792				2,303				-				12,095
Other service charges and fees			9,045				1,593				516	(B)			11,154
Fiduciary and asset management fees			5,519				-				-				5,519
Mortgage banking income			4,818				-				-				4,818
Bank owned life insurance income			3,460				900				-				4,360
Other operating income			4,260				2,156				(516	)(B)			5,900
Total noninterest income			36,894				6,952				-				43,846
Noninterest expenses:
Salaries and benefits			62,730				20,271				-				83,001
Occupancy expenses			9,621				3,784				25	(q)			13,430
Furniture and equipment expenses			5,323				727				325	(C)			6,375
Technology and data processing			7,827				2,542				(325	)(C)			10,044
Acquisition-related costs			2,744				1,965				(4,709	)(r)			-
Other expenses			29,080				9,681				2,985	(s)(A)			41,746
Total noninterest expenses			117,325				38,970				(1,699	)			154,596
Income before income taxes			50,841				17,535				5,362				73,738
Income tax expense			13,761				5,545				888	(t)			20,194
Net income from continuing operations			37,080				11,990				4,474				53,544
Net loss from discontinued operations			-				(59	)			-				(59	)
Net income attributable to Company		$	37,080			$	11,931			$	4,474			$	53,485
Earnings per common share, basic		$	0.85			$	0.51							$	0.82
Earnings per common share, diluted		$	0.85			$	0.51							$	0.81
Weighted average common shares outstanding, basic			43,674,070				23,172,014				(1,496,912	)(u)			65,349,172
Weighted average common shares outstanding, diluted			43,755,045				23,451,301				(1,514,954	)(u)			65,691,392

 

See accompanying notes to unaudited pro forma financial information.

UNION AND XENITH

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME

For the Year Ended December 31, 2016

(Dollars in thousands, except per share amounts)

 

										Merger
		Union				Xenith				Pro Forma				Pro Forma
		(As Reported)				(As Reported)				Adjustments				Combined
Interest and dividend income:
Interest and fees on loans		$	262,567			$	85,513			$	11,258	(n)		$	359,338
Other interest income			32,353				6,904				-				39,257
Total interest and dividend income			294,920				92,417				11,258				398,595
Interest expense:
Interest on deposits			17,731				12,879				(3,631	)(o)			26,979
Other interest expense			12,039				2,669				713	(p)			15,421
Total interest expense			29,770				15,548				(2,918	)			42,400
Net interest income			265,150				76,869				14,176				356,195
Provision for credit losses			9,100				11,329				(287	)(A)			20,142
Net interest income after provision for credit losses			256,050				65,540				14,463				336,053
Noninterest income:
Service charges on deposit accounts			19,496				4,686				-				24,182
Other service charges and fees			17,175				2,847				977	(B)			20,999
Fiduciary and asset management fees			10,199				-				-				10,199
Mortgage banking income			10,953				-				-				10,953
Bank owned life insurance income			5,513				1,492				-				7,005
Other operating income			7,571				2,099				(977	)(B)			8,693
Total noninterest income			70,907				11,124				-				82,031
Noninterest expenses:
Salaries and benefits			117,103				34,501				-				151,604
Occupancy expenses			19,528				6,427				49	(q)			26,004
Furniture and equipment expenses			10,475				1,083				671	(C)			12,229
Technology and data processing			15,368				5,602				(671	)(C)			20,299
Acquisition-related costs			-				16,717				-	(r)			16,717
Other expenses			60,229				16,548				7,671	(s)(A)			84,448
Total noninterest expenses			222,703				80,878				7,720				311,301
Income before income taxes			104,254				(4,214	)			6,743				106,783
Income tax expense (benefit)			26,778				(59,728	)			2,360	(t)			(30,590	)
Net income from continuing operations			77,476				55,514				4,383				137,373
Net income from discontinued operations			-				1,528				-				1,528
Net income attributable to Company		$	77,476			$	57,042			$	4,383			$	138,901
Earnings per common share, basic		$	1.77			$	2.90							$	2.23
Earnings per common share, diluted		$	1.77			$	2.89							$	2.23
Weighted average common shares outstanding, basic			43,784,193				19,685,290				(1,271,670	)(u)			62,197,813
Weighted average common shares outstanding, diluted			43,890,271				19,753,971				(1,276,107	)(u)			62,368,135

 

See accompanying notes to unaudited pro forma financial information.

NOTE A – BASIS OF PRESENTATION

 

On May 19, 2017, Union entered into the merger agreement with Xenith. The merger agreement provides that at the effective time of the merger, each outstanding share of common stock of Xenith will be converted into the right to receive 0.9354 shares of Union common stock, par value $1.33 per share and cash in lieu of any fractional shares.

 

The unaudited pro forma condensed combined financial information of Union’s financial condition and results of operations, including per share data, are presented after giving effect to the merger. The pro forma financial information assumes that the merger with Xenith was consummated on January 1, 2016 for purposes of the unaudited pro forma condensed combined statements of income and on June 30, 2017 for purposes of the unaudited pro forma condensed combined balance sheet and gives effect to the merger, for purposes of the unaudited pro forma condensed combined statement of income, as if it had been effective during the entire period presented.

 

The merger will be accounted for using the acquisition method of accounting; accordingly, the difference between the purchase price over the estimated fair value of the assets acquired (including identifiable intangible assets) and liabilities assumed will be recorded as goodwill as of completion of the merger.

 

The pro forma financial information includes estimated adjustments to record certain assets and liabilities of Xenith at their respective fair values and represents management’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after the merger is completed and after completion of a final analysis to determine the fair values of Xenith’s tangible, and identifiable intangible, assets and liabilities as of the effective time of the merger.

 

NOTE B – PRO FORMA ADJUSTMENTS

 

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on current valuations, estimates, and assumptions. Subsequent to the completion of the merger, Union will engage an independent third-party valuation firm to determine the fair value of the assets acquired and liabilities assumed, which could significantly change the amount of the estimated fair values used in the pro forma financial information presented.

 

(a) Cash paid for outstanding Xenith stock options at the effective time of merger and an anticipated purchase from the U.S. Treasury by Xenith of warrants to acquire shares of Xenith common stock prior to completion of the merger.

 

(b) Fair value adjustment on Xenith’s outstanding loan portfolio. This fair value adjustment consists of:

 

i. a fair value adjustment for credit deterioration of the acquired loan portfolio in the amount of $35.7 million which represented a markdown of 1.5% on Xenith’s outstanding loan portfolio. Of the $35.7 million credit markdown, approximately $20.3 million is estimated to be an accretable adjustment. In order to determine the adjustment related to credit deterioration, Union engaged an independent third-party loan review team to review and perform analytics on Xenith’s loan portfolio; and

 

ii. a further fair value adjustment to reflect differences in interest rates in the amount of $11.4 million in addition to the credit deterioration adjustment. This portion of the fair value adjustment was based on current market interest rates and spreads including the consideration of liquidity concerns.

 

(c) Elimination of the fair value adjustment of $6.5 million for loans purchased by Xenith in previous acquisitions and elimination of Xenith’s net deferred loan fees of $1.3 million.

 

(d) Elimination of Xenith’s allowance for loan losses. Purchased loans acquired in a business combination are recorded at fair value and the recorded allowance of the acquired company is not carried over.

 

(e) Estimated fair value adjustment of $6.3 million on Xenith’s premises and equipment.

(f) Elimination of Xenith’s legacy goodwill ($26.9 million) plus the addition of goodwill estimated based on the preliminary purchase price allocation for the merger shown in Note C ($254.1 million).

 

(g) Union’s estimate of the fair value of the core deposit intangible asset ($26.2 million) and the elimination of Xenith’s previously reported core deposit intangible asset ($3.5 million). This will be amortized over 78 months using sum-of-years digits method. This estimate represents a 1.5% premium on Xenith’s core deposits based on current market data for similar transactions.

 

(h) Adjustment for deferred federal income taxes associated with the adjustments to record the assets and liabilities of Xenith at fair value based on Union’s statutory rate of 35%.

 

(i) Estimated fair value adjustment on deposits at current market rates and spreads for similar products.

 

(j) Estimated fair value adjustment on long-term borrowings at current market rates and spreads for similar products ($17.2 million) and the elimination of fair value adjustments on long-term borrowings assumed by Xenith in previous acquisitions ($26.1 million).

 

(k) Estimated accrual of transaction costs of $11.7 million related to transaction bonuses and success-based fees.

 

(l) Elimination of Xenith’s stockholders’ equity representing conversion of all of the outstanding shares of Xenith common stock into shares of Union common stock based on the exchange ratio.

 

(m) Recognition of the equity portion of the merger consideration. The adjustment to common stock represents the $1.33 par value of Union common stock issuable in the merger to former holders of shares of Xenith common stock. The adjustment to surplus represents the amount of equity consideration above the par value of Union common stock issuable in the merger.

 

(n) Represents the estimated net discount accretion on acquired loans (see Note D). Discount on purchase credit impaired loans is expected to be accreted over a weighted average expected life of 36 months on a pooled basis using the effective interest rate method. Discount on purchase performing loans is expected to be accreted over a weighted average contractual life of 52 months (actual contractual life up to 30 years) on an individual loan basis under the straight line method for revolving loans and the effective interest rate method for all other loans.

 

(o) Represents premium accretion on deposits assumed as part of the merger (see Note D). Premium will be amortized over 79 months using the effective interest rate method.

 

(p) Represents net discount amortization on borrowings assumed as part of the merger (see Note D). Discount on trust preferred capital notes will be accreted over 20 years using the effective interest method. Premium on subordinated debt notes will be amortized over three years using the straight-line method.

 

(q) Represents premium amortization on bank premises (see Note D). Premium will be amortized over 20 years using the straight-line method.

 

(r) Elimination of costs incurred in relation to the merger. All acquisition-related costs in 2016 relate to prior mergers.

 

(s) Represents amortization of core deposit premium (see Note D). Premium will be amortized over 78 months using the sum-of-years digits method.

 

(t) Income tax expense calculated using a federal corporate income tax rate of 35% of pre-tax income, adjusted for nondeductible acquisition-related costs reversed in adjustment (r).

 

(u) Weighted average basic and diluted shares outstanding were adjusted to effect the merger. 

The following conforming reclassifications are adjustments to Xenith’s reported income statement in order to more closely align with the presentation of Union.

 

(A) Adjustment of provision for unfunded commitments recorded in other expenses reclassified to provision for credit losses.

 

(B) Adjustment of service charges and fees recorded in other operating income reclassified to other service charges and fees.

 

(C) Adjustment of depreciation expense recorded in technology and data processing reclassified to equipment expense.

NOTE C – PRO FORMA ALLOCATION OF PURCHASE PRICE

 

The following table sets forth the pro forma allocation of the preliminary consideration paid using Union’s stock price of $31.62 at July 25, 2017 for Xenith common stock to the acquired identifiable assets and liabilities assumed and the pro forma goodwill generated from the merger (dollars in thousands):

 

Purchase Price:
Fair value of shares of Union common stock issued						$	688,860
Fair value of Xenith stock options and Xenith common stock warrants held by the U.S. Treasury							10,176
Total pro forma purchase price						$	699,036
Fair value of assets acquired:
Cash and cash equivalents		$	149,940
Securities available for sale			316,463
Restricted stock, at cost			17,341
Net loans			2,328,683
Premises and equipment			61,900
OREO			5,083
Core deposit intangible			26,150
Other assets			251,715
Total assets			3,157,275
Fair value of liabilities assumed:
Deposits			2,644,886
Borrowings			48,006
Other liabilities			19,425
Total liabilities		$	2,712,317
Net assets acquired						$	444,958
Preliminary pro forma goodwill						$	254,078

 

The following table sets forth the sensitivity of the purchase price and resulting goodwill to changes in the price of Union common stock at a price of $31.62 at July 25, 2017:

 

Share Price Sensitivity (dollars in thousands)
		Purchase Price				Estimated Goodwill
Up 10%		$	770,733			$	325,775
As presented in pro forma		$	699,036			$	254,078
Down 10%		$	627,339			$	182,381

NOTE D – ESTIMATED AMORTIZATION/ACCRETION OF ACQUISITION ACCOUNTING ADJUSTMENTS

 

The following table sets forth an estimate of the expected effects of the estimated aggregate acquisition accounting adjustments reflected in the pro forma combined financial statements on the future pre-tax net income of Union after the merger (dollars in thousands):

 

		Accretion (Amortization)
		For the Years Ended December 31,
		2018				2019				2020				2021				2022				Thereafter				Total
Loans		$	11,258			$	6,657			$	3,960			$	2,159			$	1,540			$	6,116			$	31,690
Bank premises			(49	)			(49	)			(49	)			(49	)			(49	)			(731	)			(976	)
Core Deposit Intangible			(7,384	)			(6,162	)			(4,940	)			(3,718	)			(2,495	)			(1,451	)			(26,150	)
Deposits			3,631				1,225				552				254				35				-				5,697
Borrowings			(713	)			(736	)			(754	)			(785	)			(803	)			(13,406	)			(17,197	)

 

The actual effect of purchase accounting adjustments on the future pre-tax income of Union will differ from these estimates based on the closing date estimates of fair values and, if applicable, the use of different amortization methods than assumed above. Refer to Note B for additional information on assumed amortization methods.

 

NOTE E – ESTIMATED COST SAVINGS AND MERGER-RELATED COSTS

 

Estimated cost savings are excluded from the pro forma analysis. Cost savings are estimated to be realized at 80% in the first year after acquisition and 100% in subsequent years. In addition, estimated merger-related costs are not included in the pro forma combined statements of income since they will be recorded in the combined results of income as they are incurred prior to or after completion of the merger and not indicative of what historical results of the combined company would have been had the companies been actually combined during the periods presented. Merger-related costs are estimated to be approximately $33.0 million, after-tax.