Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20293

UNION FIRST MARKET

BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

VIRGINIA

54-1598552

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

111 Virginia Street

Suite 200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of common stock outstanding as of May 2, 2011 was 26,033,957

UNION FIRST MARKET BANKSHARES CORPORATION

FORM 10-Q

INDEX


ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2011, December 31, 2010 and March 31, 2010		1

	Condensed Consolidated Statements of Income for the three months ended March 31, 2011 and 2010		2

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2011 and 2010		3

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010		4

	Notes to Condensed Consolidated Financial Statements		5

	Report of Independent Registered Public Accounting Firm		27

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43

Item 4.	Controls and Procedures		44

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		45

Item 1A.	Risk Factors		45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		45

Item 6.	Exhibits		45

	Signatures		46

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)


	March 31, 2011			December 31, 2010			March 31, 2010
	(Unaudited)			(Audited)			(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	54,403		$	58,951		$	54,984
Interest-bearing deposits in other banks		30,050			1,449			62,918
Money market investments		178			158			126
Other interest-bearing deposits		—			—			2,598
Federal funds sold		175			595			9,887

Total cash and cash equivalents		84,806			61,153			130,513


Securities available for sale, at fair value		582,394			572,441			529,351


Loans held for sale		50,584			73,974			50,633


Loans, net of unearned income		2,806,928			2,837,253			2,850,166
Less allowance for loan losses		40,399			38,406			34,014

Net loans		2,766,529			2,798,847			2,816,152


Bank premises and equipment, net		90,594			90,680			92,566
Other real estate owned		38,674			36,122			25,082
Core deposit intangibles, net		25,171			26,827			32,636
Goodwill		57,567			57,567			57,567
Other assets		116,381			119,636			115,199

Total assets	$	3,812,700		$	3,837,247		$	3,849,699


LIABILITIES
Noninterest-bearing demand deposits	$	507,565		$	484,867		$	488,426
Interest-bearing deposits:
NOW accounts		381,887			381,512			357,762
Money market accounts		827,076			783,431			720,074
Savings accounts		174,244			153,724			150,753
Time deposits of $100,000 and over		521,940			563,375			597,768
Other time deposits		653,904			703,150			757,232

Total interest-bearing deposits		2,559,051			2,585,192			2,583,589

Total deposits		3,066,616			3,070,059			3,072,015


Securities sold under agreements to repurchase		66,225			69,467			73,307
Other short-term borrowings		—			23,500			45,000
Trust preferred capital notes		60,310			60,310			60,310
Long-term borrowings		155,014			154,892			155,462
Other liabilities		29,046			30,934			28,804

Total liabilities		3,377,211			3,409,162			3,434,898


Commitments and contingencies

STOCKHOLDERS’ EQUITY
Preferred stock, $10.00 par value, $1,000 liquidation value, shares authorized 500,000; issued and outstanding, 35,595 shares for all periods.		35,595			35,595			35,595
Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 26,034,989 shares, 26,004,197 shares, and 25,928,956 shares, respectively.		34,559			34,532			34,440
Surplus		185,962			185,763			184,481
Retained earnings		173,655			169,801			155,067
Discount on preferred stock		(1,113	)		(1,177	)		(1,352	)
Accumulated other comprehensive income		6,831			3,571			6,570

Total stockholders’ equity		435,489			428,085			414,801


Total liabilities and stockholders’ equity	$	3,812,700		$	3,837,247		$	3,849,699

See accompanying notes to condensed consolidated financial statements.

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UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)


	Three Months Ended March 31
	2011			2010
	(Unaudited)			(Unaudited)
Interest and dividend income:
Interest and fees on loans	$	42,003		$	38,394
Interest on Federal funds sold		—			12
Interest on deposits in other banks		5			8
Interest and dividends on securities:
Taxable		3,630			3,539
Nontaxable		1,754			1,365

Total interest and dividend income		47,392			43,318


Interest expense:
Interest on deposits		6,684			7,263
Interest on Federal funds purchased		7			14
Interest on short-term borrowings		161			598
Interest on long-term borrowings		1,740			1,283

Total interest expense		8,592			9,158


Net interest income		38,800			34,160
Provision for loan losses		6,300			5,001

Net interest income after provision for loan losses		32,500			29,159


Noninterest income:
Service charges on deposit accounts		2,058			2,171
Other service charges, commissions and fees		2,924			2,315
Gains (losses) on securities transactions, net		(16	)		19
Gains on sales of loans		4,968			4,491
Gains (losses) on sales of other real estate and bank premises, net		(299	)		39
Other operating income		912			704

Total noninterest income		10,547			9,739


Noninterest expenses:
Salaries and benefits		17,654			15,415
Occupancy expenses		2,754			2,635
Furniture and equipment expenses		1,662			1,402
Other operating expenses		12,697			17,348

Total noninterest expenses		34,767			36,800


Income before income taxes		8,280			2,098
Income tax expense		2,086			399

Net income	$	6,194		$	1,699
Dividends paid and accumulated on preferred stock		462			303
Accretion of discount on preferred stock		64			51

Net income available to common shareholders	$	5,668		$	1,345


Earnings per common share, basic	$	0.22		$	0.06

Earnings per common share, diluted	$	0.22		$	0.06

See accompanying notes to condensed consolidated financial statements.

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UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Dollars in thousands, except share and per share amounts)

(Unaudited)


	Preferred Stock		Common Stock		Surplus			Retained Earnings			Discount on Preferred Stock			Accumulated Other Comprehensive Income		Comprehensive Income			Total

Balance - December 31, 2009	$	—	$	24,462	$	98,136		$	155,047		$	—		$	4,443				$	282,088

Comprehensive income:
Net income - 2010									1,699							$	1,699			1,699
Unrealized holding gains arising during the period (net of tax, $1,153)																	2,138
Reclassification adjustment for gains included in net income (net of tax, $8)																	(11	)

Other comprehensive income (net of tax, $1,145)															2,127		2,127			2,127

Total comprehensive income																$	3,826

Issuance of common stock (7,477,273 shares)				9,945		86,139														96,084
Dividends on Common Stock ($.06 per share)									(1,555	)										(1,555	)
Dividends on Preferred Stock									(73	)										(73	)
Issuance costs of Preferred Stock		35,595										(1,403	)							34,192
Accretion of discount on Preferred Stock									(51	)		51								—
Issuance of common stock under Dividend Reinvestment Plan (5,174 shares)				7		85														92
Issuance of common stock under Stock Incentive Plan (4,473 shares)				6		33														39
Vesting of restricted stock under Stock Incentive Plan (12,616 shares)				20		(20	)													—
Stock-based compensation expense						108														108


Balance - March 31, 2010	$	35,595	$	34,440	$	184,481		$	155,067		$	(1,352	)	$	6,570				$	414,801


Balance - December 31, 2010	$	35,595	$	34,532	$	185,763		$	169,801		$	(1,177	)	$	3,571				$	428,085

Comprehensive income:
Net income - 2011									6,194							$	6,194			6,194
Change in fair value of interest rate swap																	193
Unrealized holding gains arising during the period (net of tax, $1,645)																	3,057
Reclassification adjustment for losses included in net income (net of tax, $6)																	10

Other comprehensive income (net of tax, $1,651)															3,260		3,260			3,260

Total comprehensive income																$	9,454

Dividends on Common Stock ($.07 per share)									(1,814	)										(1,814	)
Tax benefit from exercise of stock awards						1														1
Dividends on Preferred Stock									(462	)										(462	)
Accretion of discount on Preferred Stock									(64	)		64								—
Issuance of common stock under Dividend Reinvestment Plan (5,194 shares)				7		52														59
Issuance of common stock under Stock Incentive Plan (6,450 shares)				8		68														76
Vesting of restricted stock under Stock Incentive Plan (8,659 shares)				12		(12	)													—
Stock-based compensation expense						90														90


Balance - March 31, 2011	$	35,595	$	34,559	$	185,962		$	173,655		$	(1,113	)	$	6,831				$	435,489

See accompanying notes to condensed consolidated financial statements.

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UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Dollars in thousands)

(Unaudited)


	2011			2010
Operating activities:
Net income	$	6,194		$	1,699
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Depreciation and amortization of bank premises and equipment		1,649			1,477
Amortization, net		1,571			1,184
Provision for loan losses		6,300			5,001
Increase in loans held for sale, net		23,390			3,647
Losses (gains) on the sale of investment securities		16			(19	)
Losses (gains) on sales of other real estate owned and premises, net		299			(39	)
Stock-based compensation expense		90			108
Decrease (increase) in other assets		4,761			(1,461	)
(Decrease) increase in other liabilities		(1,888	)		4,214

Net cash and cash equivalents provided by operating activities		42,382			15,811

Investing activities:
Purchases of securities available for sale		(40,971	)		(38,471	)
Proceeds from sales of securities available for sale		—			103,836
Proceeds from maturities, calls and paydowns of securities available for sale		32,841			25,823
Net decrease (increase) in loans		19,587			(1,261	)
Sales of bank premises and equipment and OREO, net		2,017			3,344
Cash received in bank acquisition		—			137,460

Net cash and cash equivalents provided by investing activities		13,474			230,731

Financing activities:
Net increase in noninterest-bearing deposits		22,698			23,087
Net decrease in interest-bearing deposits		(26,141	)		(75,759	)
Net decrease in short-term borrowings		(26,742	)		(107,444	)
Net increase (decrease) in long-term borrowings		122			(327	)
Cash dividends paid - common stock		(1,814	)		(1,555	)
Cash dividends paid - preferred stock		(462	)		(73	)
Tax benefit from the exercise of equity-based awards		1			—
Proceeds from the issuance of common stock		135			131

Net cash and cash equivalents used in financing activities		(32,203	)		(161,940	)

Increase in cash and cash equivalents		23,653			84,602
Cash and cash equivalents at beginning of the period		61,153			45,911

Cash and cash equivalents at end of the period	$	84,806		$	130,513


Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	8,795		$	8,567
Income taxes		2,464			—

Supplemental Schedule of Noncash Activities
Unrealized gains on securities available for sale	$	4,718		$	3,272
Unrealized gain on cash flow hedge		193			—
Transfer of loans to other real estate owned, net		6,431			5,390
Common stock issued for acquisition		—			96,083
Preferred stock issued for acquisition		—			34,192

Transactions related to bank acquisitions
Increase in assets and liabilities:
Loans	$	—		$	981,541
Securities		—			218,676
Other Assets		—			78,542
Noninterest bearing deposits		—			171,117
Interest bearing deposits		—			1,037,206
Borrowings		—			75,789
Other Liabilities		—			1,832

See accompanying notes to condensed consolidated financial statements.

- 4 -

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2011

1.	ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of Union First Market Bankshares Corporation and its subsidiaries (collectively, the “Company”). Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited condensed consolidated financial statements do not include all the information and footnotes required by GAAP 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. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2010 Annual Report on Form 10-K. If needed, certain previously reported amounts have been reclassified to conform to current period presentation.

2.	BUSINESS COMBINATIONS

On February 1, 2010, the Company completed its acquisition of First Market Bank, FSB (“First Market Bank” or “FMB”), in an all stock transaction. First Market Bank’s common shareholders received 6,273.259 shares of the Company’s common stock in exchange for each share of First Market Bank’s common stock, resulting in the Company’s issuing 6,701,478 common shares. The Series A preferred shareholder of First Market Bank received 775,795 shares of the Company’s common stock in exchange for all shares of the FMB Series A preferred stock. In connection with the transaction, the Company issued a total of 7,477,273 common shares with an acquisition date fair value of $96.1 million. The Series B and Series C preferred shareholder of First Market Bank received 35,595 shares of the Company’s Series B FMB preferred stock in exchange for all shares of the Series B and Series C preferred stock.

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair values on the acquisition date. Assets acquired totaled $1.4 billion, including $981.5 million in net loans and $218.7 million in investment securities. Liabilities assumed were $1.3 billion, including $1.2 billion of deposits. In connection with the acquisition, the Company recorded $1.1 million of goodwill and $26.4 million of core deposit intangible. The core deposit intangible is being amortized over an average of 4.3 years using an accelerated method. In addition, the Company recorded $1.2 million related to a trademark intangible. This is being amortized over a three year time period and is non-deductible for tax purposes.

In many cases, determining the estimated fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of these determinations related to the fair valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carryover of First Market Bank’s previously established allowance for loan losses. Subsequent decreases in the expected cash flows will require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows will result in the recognition of additional interest income over the then remaining lives of the loans.

- 5 -

The consideration paid for First Market Bank and the amounts of acquired identifiable assets and liabilities and preferred equity assumed as of the acquisition date were as follows (dollars in thousands):


Purchase price:
Value of:
Common shares issued (7,477,273 shares)	$	96,083
U. S. Treasury investment in First Market Bank		34,192

Total purchase price		130,275

Identifiable assets:
Cash and due from banks		137,460
Investment securities		218,676
Loans and leases		981,541
Core deposit intangible		26,400
Other assets		51,049

Total assets		1,415,126


Liabilities and equity:
Deposits		1,208,323
Short-term borrowings		60,000
Long-term borrowings		15,789
Other liabilities		1,832

Total liabilities		1,285,944


Net assets acquired		129,182


Goodwill resulting from acquisition	$	1,093

Interest income on acquired loans for the first quarter of 2011 was approximately $11.4 million. The outstanding principal balance and the carrying amount of these loans that is included in the consolidated balance sheet at March 31, 2011 are as follows (dollars in thousands):


Outstanding principal balance	$	766,261
Carrying amount	$	754,170

Loans obtained in the acquisition of First Market Bank for which there is specific evidence of credit deterioration and for which it was probable that the Company would be unable to collect all contractually required principal and interest payments represent less than 0.31% of the Company’s consolidated assets and, accordingly, are not considered material.

3.	STOCK-BASED COMPENSATION

The Company’s 2003 Stock Incentive Plan provides for the granting of incentive stock options, non-statutory stock options, and nonvested stock awards to key employees of the Company and its subsidiaries. The Company’s 2003 Stock Incentive Plan replaced the 1993 Stock Incentive Plan, and became effective on July 1, 2003, after shareholders approved the plan at the annual meeting of shareholders held in 2003. The Stock Incentive Plan makes available 525,000 shares (adjusted for any stock splits), which may be awarded to employees of the Company and its subsidiaries in the form of incentive stock options intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986 (“incentive stock options”), non-statutory stock options, and nonvested stock. Under the plan, the option price cannot be less than the fair market value of the stock on the grant date. The stock option’s maximum term is ten years from the date of grant and vests in equal annual installments of twenty percent over a five year vesting schedule. The Company issues new shares to satisfy stock-based awards. As of March 31, 2011, 89,020 shares remained available for issuance under the Company’s 2003 Stock Incentive Plan.

- 6 -

For the three month period ended March 31, 2011, the Company recognized stock-based compensation expense of approximately $74,596 net of tax, and less than $0.01 per common share for the period ended March 31, 2011.

Stock Options

The following table summarizes the stock option activity for the three months ended March 31, 2011:


	Number of Stock Options			Weighted Average Exercise Price
Options outstanding, December 31, 2010		324,776		$	19.38
Exercised		(6,450	)		8.54
Forfeited		(1,000	)		—

Options outstanding, March 31, 2011		317,326			19.61

Options exercisable, March 31, 2011		186,228			21.66

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model. There were no stock options granted during either the first quarter of 2011 or 2010.

The following table summarizes information concerning stock options issued to the Company’s employees that are vested or are expected to vest and stock options exercisable as of March 31, 2011 (dollars in thousands, except share and per share amounts):


	Stock Options Vested or Expected to Vest		Exercisable
Stock options		304,882		186,228
Weighted average remaining contractual life in years		5.33		3.04
Weighted average exercise price on shares above water	$	10.67	$	10.67
Aggregate intrinsic value	$	14	$	14

The total intrinsic value for stock options exercised during the three months ended March 31, 2011, was $37,000. The fair value of stock options vested during the three months ended March 31, 2011, was approximately $100,000. Cash received from the exercise of stock options for the three months ended March 31, 2011 was $55,000.

Nonvested Stock

The 2003 Stock Incentive Plan permits the granting of nonvested stock, but is limited to one-third of the aggregate number of total awards granted. This equity component of compensation is divided between restricted (time-based) stock grants and performance-based stock grants. Generally, the restricted stock vests fifty percent on each of the third and fourth anniversaries from the date of the grant. The performance-based stock is subject to vesting on the fourth anniversary of the date of the grant based on the performance of the Company’s stock price. The value of the nonvested stock awards was calculated by multiplying the fair market value of the Company’s common stock on grant date by the number of shares awarded. Employees have the right to vote the shares and to receive cash or stock dividends (restricted stock), if any, except for the nonvested stock under the performance-based component (performance stock).

- 7 -

The following table summarizes the nonvested stock activity for the three months ended March 31, 2011:

Number of
Shares of
Restricted Stock

Performance
Stock

Weighted
Average Grant-
Date Fair Value

Balance, December 31, 2010

94,277

15,000

15.93

Granted

22,279

—

11.19

Released

(8,659

)

—

26.91

Forfeited

(8,915

)

(9,000

)

17.42

Balance, March 31, 2011

98,982

6,000

13.49

The estimated unamortized compensation expense, net of estimated forfeitures, related to nonvested stock and stock options issued and outstanding as of March 31, 2011 that will be recognized in future periods is as follows (dollars in thousands):

Stock Options

Restricted
Stock

Total

For the remaining nine months of 2011

123

357

480

For year ending December 31, 2012

146

414

560

For year ending December 31, 2013

147

181

328

For year ending December 31, 2014

159

229

For year ending December 31, 2015

Total

648

1,032

1,680

4.	LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of unearned income, and consist of the following at March 31, 2011 and December 31, 2010 (dollars in thousands):


	2011		2010
Commercial:
Commercial Construction	$	200,227	$	205,795
Commercial Real Estate		782,675		758,034
Other Commercial		951,927		975,830

Total		1,934,829		1,939,659

Consumer:
Mortgages		211,513		212,228
Consumer Construction		14,792		15,615
Indirect auto		174,802		180,778
Indirect marine		43,152		46,383
HELOCs		269,549		273,025
Credit Card		17,095		19,308
Other Consumer		141,196		150,257

Total		872,099		897,594


Loans, net of unearned income	$	2,806,928	$	2,837,253

- 8 -

The following table shows the Company’s class types that are past due, current and greater than 90 days and still accruing at March 31, 2011 (dollars in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial:
Commercial Construction	$	5,452	$	440	$	6,770	$	12,662	$	187,565	$	200,227	$	340
Commercial Real Estate		6,067		2,983		5,602		14,652		768,023		782,675		305
Other Commercial		20,909		4,427		22,017		47,353		904,574		951,927		1,688
Consumer:
Mortgages		7,654		2,505		4,940		15,099		196,414		211,513		4,874
Consumer Construction		711		—		—		711		14,081		14,792		—
Indirect Auto		1,963		331		514		2,808		171,994		174,802		514
Indirect Marine		278		273		442		993		42,159		43,152		76
HELOCs		1,991		371		2,854		5,216		264,333		269,549		1,694
Credit Card		208		63		194		465		16,630		17,095		194
Other Consumer		2,249		1,411		1,690		5,350		135,846		141,196		1,161

Total	$	47,482	$	12,804	$	45,023	$	105,309	$	2,701,619	$	2,806,928	$	10,846

The following table shows the Company’s class types that are past due, current and greater than 90 days and still accruing at December 31, 2010 (dollars in thousands):


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial:
Commercial Construction	$	6,392	$	1,157	$	6,878	$	14,427	$	191,368	$	205,795	$	900
Commercial Real Estate		7,353		2,379		8,493		18,224		739,809		758,034		609
Other Commercial		24,308		3,016		23,566		50,889		924,941		975,830		3,459
Consumer:
Mortgages		6,161		1,944		4,308		12,414		199,815		212,228		4,242
Consumer Construction		377		—		—		377		15,238		15,615		—
Indirect auto		3,472		613		729		4,814		175,964		180,778		729
Indirect marine		920		181		605		1,706		44,677		46,383		481
HELOCs		1,285		371		2,904		4,559		268,466		273,025		1,704
Credit Card		292		90		199		581		18,727		19,308		199
Other Consumer		2,447		624		3,185		6,256		144,001		150,257		3,009

Total	$	53,007	$	10,374	$	50,866	$	114,247	$	2,723,005	$	2,837,253	$	15,332

The following table reflects the Company’s class types that are in nonaccrual status as of March 31, 2011 and excludes purchased impaired loans (dollars in thousands):


Commercial:
Commercial Construction	$	11,489
Commercial Real Estate		7,926
Other Commercial		39,646
Consumer:
Mortgages		600
Consumer Construction		216
Indirect Auto		13
Indirect Marine		365
HELOC		1,587
Other Consumer		801

Total	$	62,643

Nonaccrual loans totaled $62.6 million and $38.3 million at March 31, 2011 and 2010, respectively. The increase was principally related to the residential home builder market. There were no non-accrual loans excluded from impaired loan disclosure in 2011 or 2010. Loans past due 90 days or more and accruing interest totaled $10.8 million and $9.0 million at March 31, 2011 and 2010, respectively.

- 9 -

The following table reflects the Company’s class types that are in nonaccrual status as of December 31, 2010 and excludes purchased impaired loans (dollars in thousands):


	2010

Commercial:
Commercial Construction	$	11,410
Commercial Real Estate		9,276
Other Commercial		38,908
Consumer:
Mortgages		261
Consumer Construction		218
Indirect auto		14
Indirect marine		124
HELOC		1,329
Other Consumer		176

Total	$	61,716

The following table shows the Company’s class types that are impaired with a related allowance at March 31, 2011 (dollars in thousands):


Class Category	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

Commercial Construction	$	17,652	$	17,821	$	2,100	$	19,280	$	137
Commercial Real Estate		3,371		3,422		394		3,423		16
Other Commercial		44,490		45,029		7,864		45,849		266
Consumer Construction		216		228		94		228		—
Indirect Marine		365		365		179		365		—
HELOC		1,587		1,589		774		1,862		1
Other Consumer		801		813		358		815		1

Total	$	68,482	$	69,267	$	11,763	$	71,822	$	421

The following table shows the Company’s class types that are impaired with a related allowance at December 31, 2010 (dollars in thousands):


Class Category	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

Commercial Construction	$	18,234	$	18,274	$	3,684	$	18,649	$	970
Commercial Real Estate		10,303		10,348		1,200		9,869		664
Other Commercial		48,678		49,337		5,672		49,157		1,854
Mortgage		66		66		—		105		—
Consumer Construction		218		228		95		228		—
Indirect Auto		14		15		—		17		1
Indirect Marine		124		124		—		124		5
HELOC		1,329		1,330		606		1,330		29
Other Consumer		177		187		—		187		—

Total	$	79,144	$	79,908	$	11,257	$	79,666	$	3,524

- 10 -

The following table shows the Company’s class types that are impaired without a related allowance at March 31, 2011 (dollars in thousands):


Class Category	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

Commercial Construction	$	30,335	$	31,954	$	—	$	32,101	$	366
Commercial Real Estate		29,556		30,075		—		32,438		386
Other Commercial		118,731		119,679		—		127,558		1,390
Mortgage		1,583		1,583		—		1,583		23
Indirect Auto		119		120		—		127		2
HELOC		650		650		—		650		5
Other Consumer		1		1		—		—		—

Total	$	180,975	$	184,062	$	—	$	194,457	$	2,172

The following table shows the Company’s class types that are impaired without a related allowance at December 31, 2010 (dollars in thousands):


Class Category	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

Commercial Construction	$	39,184	$	39,271	$	—	$	42,001	$	1,707
Commercial Real Estate		29,522		29,643		—		29,698		1,656
Other Commercial		124,054		124,398		—		143,434		5,082
Mortgage		2,260		2,274		—		2,291		105
Indirect Auto		119		119		—		143		8
HELOC		650		650		—		650		22

Total	$	195,788	$	196,354	$	—	$	218,217	$	8,581

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The following table shows the allowance for loan loss activity, portfolio segment types, balances for allowance for credit losses, and loans based on impairment methodology for the quarter ended March 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Commercial			Consumer			Unallocated			Total

Allowance for loan losses:
Balance, beginning of the year	$	28,956		$	9,488		$	(38	)	$	38,406
Recoveries credited to allowance		111			262						373
Loans charged off		(3,151	)		(1,529	)					(4,680	)
Provision charged to operations		5,075			1,155			70			6,300

Balance, end of year	$	30,991		$	9,376		$	32		$	40,399


Ending balance: individually evaluated for impairment		11,369			310			—			11,679


Ending balance: collectively evaluated for impairment		19,228			9,376			32			28,636


Ending balance: loans acquired with deteriorated credit quality		84			—			—			84


Total	$	30,681		$	9,686		$	32		$	40,399


Loans:
Ending balance	$	1,934,829		$	872,099		$	—		$	2,806,928


Ending balance: individually evaluated for impairment		233,407			5,242			—			238,649


Ending balance: collectively evaluated for impairment		1,690,614			866,857			—			2,557,471


Ending balance: loans acquired with deteriorated credit quality		10,808			—			—			10,808


Total	$	1,934,829		$	872,099		$	—		$	2,806,928

The following table shows the portfolio segment types, balances for allowance for credit losses, and loans based on impairment methodology for the year ended December 31, 2010.


	Commercial		Consumer		Unallocated			Total

Balance, end of year	$	28,956	$	9,488	$	(38	)	$	38,406


Ending balance: individually evaluated for impairment		10,065		701		—			10,766


Ending balance: collectively evaluated for impairment		17,699		9,488		(38	)		27,149


Ending balance: loans acquired with deteriorated credit quality		491		—		—			491


Total	$	28,255	$	10,189	$	(38	)	$	38,406


Loans:
Ending balance	$	1,939,659	$	897,594	$	—		$	2,837,253


Ending balance: individually evaluated for impairment		259,386		1,547		—			260,933


Ending balance: collectively evaluated for impairment		1,667,473		896,047		—			2,563,520


Ending balance: loans acquired with deteriorated credit quality		12,800		—		—			12,800


Total	$	1,939,659	$	897,594	$	—		$	2,837,253

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Activity in the allowance for loan losses for the quarter ended March 31, 2010 is summarized below (dollars in thousands):


Beginning balance	$	30,484
Recoveries credited to allowance		1,041
Loans charged off		(2,512	)
Provision for loan losses		5,001

Ending balance	$	34,014

The Company uses a risk rating system for commercial loans. They are graded on a scale of 1 through 9. A general description of the characteristics of the risk grades is as follows:

•

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

•

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

•

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

•

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan;

•

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay;

•

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position;

•

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected;

•

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined; and

•

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

Classified loans include loans with risk ratings of 7 and worse. The following table shows classified loans, excluding purchased impaired loans, classified in the commercial portfolios by class with their related risk rating as of March 31, 2011. The risk rating information has been updated through March 31, 2011 (dollars in thousands):


	Commercial Construction		Commercial Real Estate		Other Commercial		Total

Risk rated 7	$	47,379	$	32,927	$	167,050	$	247,356
Risk rated 8		—		—		411		411

Total	$	47,379	$	32,927	$	167,461	$	247,767

The following table shows classified loans, excluding purchased impaired loans, classified in the commercial portfolios by class with their related risk rating as of December 31, 2010. The risk rating information has been updated through December 31, 2010 (dollars in thousands):


	Commercial Construction		Commercial Real Estate		Other Commercial		Total

Risk rated 7	$	55,633	$	41,409	$	168,719	$	265,761
Risk rated 8		—		—		376		376

Total	$	55,633	$	41,409	$	169,095	$	266,137

- 13 -

The following table shows only purchased impaired commercial portfolios by class with their related risk rating as of March 31, 2011. The credit quality indicator information has been updated through March 31, 2011 (dollars in thousands):


	Commercial Construction		Commercial Real Estate		Other Commercial		Total

Risk rated 7	$	420	$	1,314	$	8,040	$	9,774
Risk rated 8		—		119		915		1,034

	$	420	$	1,433	$	8,955	$	10,808

The following table shows only purchased impaired commercial portfolios by class with their related risk rating as of December 31, 2010. The credit quality indicator information has been updated through December 31, 2010 (dollars in thousands):


	Commercial Construction		Commercial Real Estate		Other Commercial		Total

Risk rated 7	$	945	$	375	$	8,164	$	9,485
Risk rated 8		225		535		2,556		3,315

	$	1,170	$	910	$	10,720	$	12,800

- 14 -

The following table shows purchased impaired commercial and consumer portfolios by class and their delinquency status. The credit quality indicator information has been updated through March 31, 2011 (dollars in thousands):


	30-89 Days Past Due		Greater Than 90 Days		Current		Total

Commercial:
Commercial Construction	$	—	$	420	$	—	$	420
Commercial Real Estate		—		79		1,354		1,433
Other Commercial		—		6,684		2,271		8,955
Consumer:
Indirect auto		22		7		37		66
HELOCs		116		12		796		924
Other Consumer		81		57		—		138

Total	$	219	$	7,259	$	4,458	$	11,936

The current column represents loans that are less than 30 days past due and on nonaccrual status.


	30-89 Days Past Due		Greater Than 90 Days		Current		Total

Commercial:
Commercial Construction	$	—	$	1,170	$	—	$	1,170
Commercial Real Estate		—		910		—		910
Other Commercial		—		9,341		1,379		10,720
Consumer:
Indirect auto		8		10		63		81
HELOCs		20		844		116		980
Other Consumer		81		56		1		137

Total	$	109	$	12,331	$	1,559	$	13,999

The current column represents loans that are less than 30 days past due and on nonaccrual status.

5.	EARNINGS PER SHARE

Basic earnings per common share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS uses as the denominator the weighted average number of common shares outstanding during the period, including the effect of potentially dilutive common shares outstanding attributable to stock awards. Dividends on preferred stock and amortization of discount on preferred stock are treated as a reduction of the numerator in calculating basic and diluted EPS. There were approximately 333,386 and 178,354 shares underlying anti-dilutive stock awards as of March 31, 2011 and 2010, respectively. Dividends paid on nonvested stock awards were approximately $3,000 for both periods ending March 31, 2011 and 2010, respectively.

- 15 -

The following is a reconcilement of the denominators of the basic and diluted EPS computations for the three months ended March 31, 2011 and 2010 (dollars and shares in thousands, except per share amounts):


	Net Income Available to Common Shareholders (Numerator)		Weighted Average Common Shares (Denominator)		Per Share Amount
For the Three Months ended March 31, 2011
Net income	$	6,194		25,958	$	0.24
Less: dividends paid and accumulated on preferred stock		462		—		0.02
Less: accretion of discount on preferred stock		64		—		—

Basic	$	5,668		25,958	$	0.22
Add: potentially dilutive common shares - stock awards		—		23		—

Diluted	$	5,668		25,981	$	0.22


For the Three Months ended March 31, 2010
Net income		1,699		23,197	$	0.07
Less: dividends paid and accumulated on preferred stock		303		—		0.01
Less: accretion of discount on preferred stock		51		—		—

Basic	$	1,345		23,197	$	0.06
Add: potentially dilutive common shares - stock awards		—		38		—

Diluted	$	1,345		23,235	$	0.06

6.	TRUST PREFERRED CAPITAL NOTES

During the first quarter of 2004, the Company’s Statutory Trust I, a wholly owned subsidiary, was formed for the purpose of issuing redeemable capital securities in connection with the acquisition of Guaranty Financial Corporation. A Trust Preferred Capital Note of $22.5 million was issued through a pooled underwriting. The securities have an indexed London Interbank Offer Rate (“LIBOR”) floating rate (three month LIBOR rate plus 2.75%) which adjusts and is payable quarterly. The interest rate at March 31, 2011 was 3.05%. The capital securities were redeemable at par beginning on June 17, 2009 and each quarterly anniversary of such date until the securities mature on June 17, 2034. The principal asset of the Statutory Trust I is $23.2 million of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital notes, while $696,000 is reflected as the Company’s investment in Statutory Trust I reported as “Other assets” within the consolidated balance sheet.

During the first quarter of 2006, the Company’s Statutory Trust II, a wholly owned subsidiary, was formed for the purpose of issuing redeemable capital securities in connection with the acquisition of Prosperity Bank & Trust Company that was completed on April 1, 2006. A Trust Preferred Capital Note of $36.0 million was issued through a pooled underwriting. The securities have a LIBOR-indexed floating rate (three month LIBOR plus 1.40%) which adjusts and is payable quarterly. The interest rate at March 31, 2011 was 1.70%. The redeemable capital securities may be called at par after five years on March 31, 2011 and each quarterly anniversary of such date until the securities mature in 30 years on March 31, 2036. The principal asset of the Statutory Trust II is $37.1 million of the Company’s junior subordinated debt securities with like maturities and like interest rates to the capital notes, while $1.1 million is reflected as the Company’s investment in Statutory Trust II reported as “Other assets” within the consolidated balance sheet.

7.	SEGMENT REPORTING DISCLOSURES

The Company has two reportable segments: a traditional full service community bank and a mortgage loan origination business. The community bank business for 2011 includes one bank, which provides loan, deposit, investment, and trust services to retail and commercial customers throughout its 91 retail locations in Virginia. The mortgage segment provides a variety of mortgage loan products principally in Virginia, North Carolina, South Carolina, Maryland and the Washington D.C. metro area. These loans are originated and sold primarily in the secondary market through purchase commitments from investors, which subject the Company to only de minimus risk.

- 16 -

Profit and loss is measured by net income after taxes including realized gains and losses on the Company’s investment portfolio. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process.

Both of the Company’s reportable segments are service based. The mortgage business is a fee-based business while the bank is driven principally by net interest income. The bank segment provides a distribution and referral network through their customers for the mortgage loan origination business. The mortgage segment offers a more limited referral network for the bank, due largely to the minimal degree of overlapping geographic markets.

The community bank segment provides the mortgage segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest at the three month LIBOR rate plus 1.5%. These transactions are eliminated in the consolidation process. A management fee for operations and administrative support services is charged to all subsidiaries and eliminated in the consolidated totals.

Information about reportable segments and reconciliation of such information to the consolidated financial statements for three months ended March 31, 2011 and 2010 was as follows (dollars in thousands):


	Community Banks		Mortgage		Eliminations			Consolidated
Three Months Ended March 31, 2011
Net interest income	$	38,313	$	487	$	—		$	38,800
Provision for loan losses		6,300		—		—			6,300

Net interest income after provision for loan losses		32,013		487		—			32,500
Noninterest income		5,695		4,969		(117	)		10,547
Noninterest expenses		29,956		4,928		(117	)		34,767

Income before income taxes		7,752		528		—			8,280
Income tax expense		1,887		199		—			2,086

Net income	$	5,865	$	329	$	—		$	6,194

Total assets	$	3,807,228	$	55,260	$	(49,788	)	$	3,812,700


Three Months Ended March 31, 2010
Net interest income	$	33,778	$	382	$	—		$	34,160
Provision for loan losses		5,001		—		—			5,001

Net interest income after provision for loan losses		28,777		382		—			29,159
Noninterest income		5,365		4,491		(118	)		9,739
Noninterest expenses		33,011		3,906		(118	)		36,800

Income before income taxes		1,131		967		—			2,098
Income tax expense		11		388		—			399

Net income	$	1,120	$	579	$	—		$	1,699

Total assets	$	3,843,190	$	56,877	$	(50,368	)	$	3,849,699

8.	RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). This amends previous guidance to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The new disclosure guidance significantly expands the existing requirements and will lead to greater transparency into a company’s exposure to credit losses from lending arrangements. The extensive new disclosures of information as of the end of a reporting period

- 17 -

became effective for both interim and annual reporting periods ending on or after December 15, 2010. Specific disclosures regarding activity that occurred before the issuance of the ASU, such as the allowance roll forward and modification disclosures, will be required for periods beginning on or after December 15, 2010. The Company has included the required disclosures in its consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” The guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. This is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments in this guidance modify step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

The Securities Exchange Commission (“SEC”) has issued Final Rule No. 33-9002, “Interactive Data to Improve Financial Reporting”, which requires companies to submit financial statements in extensible business reporting language (“XBRL”) format with their SEC filings on a phased-in schedule. Large accelerated filers and foreign large accelerated filers using U.S. GAAP were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010. All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011. The Company is preparing for and will be submitting financial statements in XBRL format for the second quarter of 2011.

In March 2011, the SEC issued Staff Accounting Bulletin (“SAB”) 114. This SAB revises or rescinds portions of the interpretive guidance included in the codification of the SAB. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASB’s codification. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB series. The effective date for SAB 114 is March 28, 2011. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (“ASU 2011-02”). This clarifies the guidance on a creditor’s evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulty. The amendments in this guidance are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company is currently assessing the impact that ASU 2011-02 will have on its consolidated financial statements.

- 18 -

9.	GOODWILL AND INTANGIBLE ASSETS

The Company adopted ASC 350, Goodwill and Other Intangible Assets, which prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of this statement discontinued the amortization of goodwill and intangible assets with indefinite lives but require an impairment review at least annually and more frequently if certain impairment indicators are evident.

Core deposit intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 14 years. In connection with the First Market Bank acquisition, the Company recorded $26.4 million of core deposit intangible, $1.2 million of trademark intangible and $1.1 million in goodwill. None of the goodwill recognized will be deductible for income tax purposes. The core deposit intangible on that acquisition is being amortized over an average of 4.3 years using an accelerated method and the trademark intangible is being amortized over three years using the straight-line method. Based on the annual testing during the second quarter of each year and the absence of impairment indicators during the quarter ended March 31, 2011 the Company has recorded no impairment charges to date for goodwill or intangible assets.

Information concerning goodwill and intangible assets is presented in the following table (in thousands):


	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
March 31, 2011
Amortizable core deposit intangibles	$	46,615	$	21,444	$	25,171
Unamortizable goodwill		57,909		342		57,567
Trademark intangible		1,200		467		733

December 31, 2010
Amortizable core deposit intangibles	$	46,615	$	19,788	$	26,827
Unamortizable goodwill		57,909		342		57,567
Trademark intangible		1,200		367		833

March 31, 2010
Amortizable core deposit intangibles	$	46,615	$	13,979	$	32,636
Unamortizable goodwill		57,909		342		57,567
Trademark intangible		1,200		67		1,133

Amortization expense of the core deposit intangibles for the three month periods ended March 31, 2011 and 2010 totaled $1.7 million and $1.5 million, respectively. Amortization expense of the trademark intangibles for the three month periods ended March 31, 2011 and 2010 was $100,000 and $67,000, respectively. As of March 31, 2011, the estimated remaining amortization expense of core deposit and trademark intangibles for each of the five succeeding fiscal years is as follows (dollars in thousands):


2012	$	6,262
2013		5,160
2014		3,508
2015		2,667
2016		2,281
Thereafter		6,026

	$	25,904

10.

COMMITMENTS AND CONTINGENCIES

Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payments of fees. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. At March 31, 2011 and 2010, the Company had outstanding loan commitments approximating $758.4 million and $744.9 million, respectively.

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Letters of credit written are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The amount of standby letters of credit whose contract amounts represent credit risk totaled approximately $36.0 million and $33.8 million at March 31, 2011, and 2010, respectively.

At March 31, 2011, Union Mortgage Group, Inc. (“Union Mortgage”), a wholly owned subsidiary of Union First Market Bank, a wholly owned subsidiary of Union First Market Bankshares Corporation, had rate lock commitments to originate mortgage loans amounting to $104.7 million and loans held for sale of $50.6 million. Union Mortgage has entered into corresponding commitments on a best-efforts basis to sell loans on a servicing released basis totaling approximately $155.3 million. These commitments to sell loans are designed to mitigate the mortgage company’s exposure to fluctuations in interest rates in connection with rate lock commitments and loans held for sale.

11.

SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair values of investment securities as of March 31, 2011 and December 31, 2010 are summarized as follows (in thousands):


			Gross Unrealized
	Amortized Cost		Gains		(Losses)			Estimated Fair Value
March 31, 2011
U.S. government and agency securities	$	8,915	$	545	$	—		$	9,460
Obligations of states and political subdivisions		179,960		3,765		(1,569	)		182,156
Corporate and other bonds		15,205		447		(892	)		14,760
Mortgage-backed securities		337,926		9,517		(224	)		347,219
Federal Reserve Bank stock - restricted		6,711		—		—			6,711
Federal Home Loan Bank stock - restricted		18,345		—		—			18,345
Other securities		3,754		—		(11	)		3,743

Total securities	$	570,816	$	14,274	$	(2,696	)	$	582,394


December 31, 2010
U.S. government and agency securities	$	9,610	$	454	$	(103	)	$	9,961
Obligations of states and political subdivisions		176,431		2,189		(3,588	)		175,032
Corporate and other bonds		15,543		380		(858	)		15,065
Mortgage-backed securities		334,696		9,767		(425	)		344,038
Federal Reserve Bank stock - restricted		6,716		—		—			6,716
Federal Home Loan Bank stock - restricted		18,345		—		—			18,345
Other securities		3,259		32		(7	)		3,284

Total securities	$	564,600	$	12,822	$	(4,981	)	$	572,441

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The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position and are as follows:


	Less than 12 months					More than 12 months					Total
	Fair value		Unrealized Losses			Fair value		Unrealized Losses			Fair value		Unrealized Losses
As of March 31, 2011
Obligations of states and political subdivisions	$	40,204	$	(872	)	$	16,599	$	(697	)	$	56,803	$	(1,569	)
Mortgage-backed securities		43,674		(224	)		—		—			43,674		(224	)
Corporate bonds and other securities		—		(11	)		4,029		(892	)		4,029		(903	)

Totals	$	83,878	$	(1,107	)	$	20,628	$	(1,589	)	$	104,506	$	(2,696	)


As of December 31, 2010
U.S. government and agency securities	$	43	$	(103	)	$	—	$	—		$	43	$	(103	)
Obligations of states and political subdivisions		82,952		(2,451	)		14,762		(1,137	)		97,714		(3,588	)
Mortgage-backed securities		49,515		(425	)		—		—			49,515		(425	)
Corporate bonds and other securities		—		(7	)		4,104		(858	)		4,104		(865	)

	$	132,510	$	(2,986	)	$	18,866	$	(1,995	)	$	151,376	$	(4,981	)

As of March 31, 2011, there were $20.6 million, or 46 issues, of individual securities that had been in a continuous loss position for more than 12 months. Additionally, these securities had an unrealized loss of $1.6 million and consisted corporate and municipal obligations.

During each quarter the Company conducts an assessment of the securities portfolio for other-than-temporary impairment (“OTTI”) consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is OTTI if any of the following conditions exists: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the quarter ended March 31, 2011 and in accordance with the guidance, no OTTI was recognized.

12.

FAIR VALUE MEASUREMENTS

The Company adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This statement clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:


Level 1	-	Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2	-	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.

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Level 3		-		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Interest rate swap agreement used for interest rate risk management

Interest rate swaps are recorded at fair value on a recurring basis. The Company utilizes an interest rate swap agreement as part of the management of interest rate risk to modify the repricing characteristics of certain portions of the Company’s interest-bearing liabilities. The Company determines the fair value of its interest rate swap using externally developed pricing models based on market observable inputs and therefore classifies such valuation as Level 2. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity then the security would fall to the lowest level of the hierarchy (Level 3). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis (dollars in thousands):


	Fair Value Measurements at March 31, 2011 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance

ASSETS

Interest rate swap - loans	$	—	$	156			$	156
Securities available for sale:
U.S. government and agency securities		—		9,460		—		9,460
Obligations of states and political subdivisions		—		182,156		—		182,156
Corporate and other bonds		—		14,760		—		14,760
Mortgage-backed securities		—		347,219		—		347,219
Other securities		—		3,743		—		3,743

Total	$	—	$	557,494	$	—	$	557,494


LIABILITIES

Interest rate swap - loans			$	156			$	156
Cash flow hedge - trust		—		1,281		—		1,281

Total	$	—	$	1,437	$	—	$	1,437

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	Fair Value Measurements at December 31, 2010 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance

ASSETS
Interest rate swap - loans	$	—	$	189	$	—	$	189
Securities available for sale:
U.S. government and agency securities		—		9,961		—		9,961
Obligations of states and political subdivisions		—		175,032		—		175,032
Corporate and other bonds		—		15,065		—		15,065
Mortgage-backed securities		—		344,038		—		344,038
Other securities		—		3,284		—		3,284

Total	$	—	$	547,569	$	—	$	547,569


LIABILITIES
Interest rate swap - loans			$	189			$	189
Cash flow hedge - trust		—		1,476		—		1,476

Total	$	—	$	1,665	$	—	$	1,665

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements.

Loans held for sale

Loans held for sale are carried at the lower of cost or market value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different from cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the three months ended March 31, 2011. Gains and losses on the sale of loans are recorded within income from the mortgage segment on the Consolidated Statements of Income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than two years old, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income. At March 31, 2011, the Company’s Level 3 loans consisted of six relationships secured by residential real estate and lots of $7.4 million with a valuation reserve of $1.0 million; six relationships secured by commercial real estate of $6.5 million with a valuation reserve of $949,000; and two relationships secured by inventory, receivables, or equipment of $4.0 million with a valuation reserve of $846,000.

- 23 -

The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis (dollars in thousands):


	Fair Value Measurements at March 31, 2011 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Loans held for sale	$	—	$	50,584	$	—	$	50,584
Impaired loans		—		41,582		15,137		56,719

Total	$	—	$	92,166	$	15,137	$	107,303


	Fair Value Measurements at December 31, 2010 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Loans held for sale	$	—	$	73,974	$	—	$	73,974
Impaired loans		—		59,992		7,895		67,887

Total	$	—	$	133,966	$	7,895	$	141,861

The Company’s nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value on a nonrecurring basis relate to other real estate owned (“OREO”), goodwill, and intangible assets. In accordance with ASC 360, Property, Plant and Equipment, OREO with a carrying value above fair value is written down to its fair value and results in an impairment charge. The fair value of the real property is generally determined using appraisals or other indicators of value based on recent comparables of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2. Total valuation expenses related to OREO for the three months ended March 31, 2011 and 2010 were $12,000 and zero, respectively. No impairment charges have been recorded for goodwill or intangible assets.

ASC 825, Financial Instruments requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and Cash Equivalents

For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Loans

The fair value of performing loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

- 24 -

Borrowings

The carrying value of short-term borrowings is a reasonable estimate of fair value. The fair value of long-term borrowings is estimated based on interest rates currently available for debt with similar terms and remaining maturities.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Cash Flow Hedge

The carrying amount of the cash flow hedge approximates fair value.

Commitments to Extend Credit and Standby Letters of Credit

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. At March 31, 2011, the fair value of loan commitments and standby letters of credit was immaterial and excluded from the table below.

The carrying values and estimated fair values of the Company’s financial instruments as of March 31, 2011 are in the following table (dollars in thousands):


	Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	84,806	$	84,806
Securities available for sale		582,394		582,394
Loans held for sale		50,584		50,584
Net loans		2,766,529		2,817,175
Interest rate swap - loans		156		156
Accrued interest receivable		15,728		15,728

Financial liabilities:
Deposits	$	3,066,616	$	3,074,600
Borrowings		281,549		296,268
Accrued interest payable		1,979		1,979
Cash flow hedge - trust		1,281		1,281
Interest rate swap - loans		156		156

13.

DERIVATIVES

During the second quarter of 2010, the Company entered into an interest rate swap agreement (the “trust swap”) as part of the management of interest rate risk. The Company designated the trust swap as a cash flow hedge intended to protect against the variability of cash flows associated with the aforementioned Statutory Trust II preferred capital securities. The trust swap hedges the interest rate risk, wherein the Company receives interest of LIBOR from a counterparty and pays a fixed rate of 3.51% to the same counterparty calculated on a notional amount of $36.0 million. The term of the trust swap is six years with a fixed rate that starts June 15, 2011. The trust swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.

Amounts receivable or payable are recognized as accrued under the terms of the agreements. In accordance with ASC 815, Derivatives and Hedging, the trust swap is designated as a cash flow hedge, with the effective portion of the derivative’s unrealized gain or loss recorded as a component of other comprehensive income. The ineffective portion of the unrealized gain or loss, if any, would be recorded in other expense.

- 25 -

The Company has assessed the effectiveness of the hedging relationship by comparing the changes in cash flows on the designated hedged item. There was no hedge ineffectiveness for this trust swap. At March 31, 2011, the fair value of the trust swap agreement was an unrealized loss of $1.3 million, the amount the Company would have expected to pay if the contract was terminated. The below liability is recorded as a component of other comprehensive income recorded in the Company’s Consolidated Statements of Changes in Stockholders’ Equity.

Shown below is a summary of the derivative designated as an accounting hedge at March 31, 2011:


	Positions		Notional Amount		Asset		Liability		Receive Rate			Pay Rate			Life (Years)

Pay fixed - receive floating interest rate swaps		1	$	36,000		—	$	1,281		0.30	%		3.51	%		6.21

The Company also acquired two interest rate swap loan relationships (“loan swaps”) as a result of the acquisition of First Market Bank. Upon entering into loan swaps with borrowers to meet their financing needs, offsetting positions with counterparties were entered into in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values reported in other assets and other liabilities. The Company had loan swaps with a notional value of $4.2 million and offsetting fair values of $156,000 recorded in other assets and other liabilities with no net effect on other operating income. Shown below is a summary regarding loan swap derivative activities at March 31, 2011 (dollars in thousands):


	Positions		Notional Amount		Asset		Liability		Receive Rate			Pay Rate			Life (Years)

Receive fixed - pay floating interest rate swaps		2	$	4,160	$	156		—		6.35	%		2.75	%		1.76
Pay fixed - receive floating interest rate swaps		2		4,160		—		156		2.75	%		6.35	%		1.76

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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Union First Market Bankshares Corporation

Richmond, Virginia

We have reviewed the accompanying condensed consolidated balance sheets of Union First Market Bankshares Corporation and subsidiaries as of March 31, 2011 and 2010, and the related condensed consolidated statements of income, changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2011 and 2010. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Union First Market Bankshares Corporation and subsidiaries as of December 31, 2010, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 9, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

LOGO

Winchester, Virginia

May 10, 2011

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Union First Market Bankshares Corporation and its subsidiaries (collectively the “Company”). This discussion and analysis should be read with the consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s Annual Report on Form 10-K and management’s discussion and analysis for the year ended December 31, 2010. Highlighted in the discussion are material changes from prior reporting periods and any identifiable trends affecting the Company. Results of operations for the three month periods ended March 31, 2011 and 2010 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes while some of the percentages presented are computed based on unrounded amounts.

FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, technology, and consumer spending and savings habits. More information is available on the Company’s website, http://investors.bankatunion.com and on the Securities and Exchange Commission’s website, www.sec.gov. The information on the Company’s website is not a part of this Form 10-Q. The Company does not intend or assume any obligation to update or revise any forward-looking statements that may be made from time to time by or on behalf of the Company.

CRITICAL ACCOUNTING POLICIES

General

The accounting and reporting policies of the Company and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities, and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations.

The more critical accounting and reporting policies include the Company’s accounting for the allowance for loan losses and mergers and acquisitions. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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The following is a summary of the Company’s critical accounting policies that are highly dependent on estimates, assumptions, and judgments.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 Contingencies, which requires that losses be accrued when occurrence is probable and can be reasonably estimated, and (ii) ASC 310 Receivables, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market, and the loan balance.

The Company’s allowance for loan losses is the accumulation of various components that are calculated based on independent methodologies. All components of the allowance represent an estimation performed pursuant to applicable GAAP. Management’s estimate of each homogenous pool component is based on certain observable data that management believes are most reflective of the underlying credit losses being estimated. This evaluation may include but is not limited to credit quality trends; collateral values; loan volumes; geographic, borrower and industry concentrations; seasoning of the loan portfolio; the findings of internal credit quality assessments; and results from external bank regulatory examinations. These factors together with historical losses and current economic and business conditions are considered in developing estimated loss factors used in the calculations.

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates generally to commercial loans that are classified as impaired, and on which an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is derived from an estimate of credit losses adjusted for various environmental factors applicable to both commercial and consumer loan segments. The estimate of credit losses is a function of the product of net charge-off historical loss experience to the loan balance of the loan portfolio averaged over a period of time management deems appropriate to adequately reflect the losses inherent in the loan portfolio. The environmental factors consist of national, local, and portfolio characteristics and are applied to both the commercial and consumer segments. The following table shows the types of environmental factors management considers:


ENVIRONMENTAL FACTORS
Portfolio	National	Local
Experience and ability of lending team	Interest rates	Level of economic activity
Depth of lending team	Inflation	Unemployment
Pace of loan growth	Unemployment	Competition
Franchise expansion	Gross domestic product	Rural v. urban market
Execution of loan risk rating process	General market risk and other concerns	Military/government impact
Degree of oversight / underwriting standards	Legislative and regulatory environment
Value of real estate serving as collateral
Delinquency levels in portofolio
Charge-off levels in portfolio
Credit concentrations / nature and volume of the portfolio

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb potential losses in the portfolio. Loans are charged against the allowance when management judges the loan to be uncollectable. Recoveries of amounts previously charged-off are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and other risk factors. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly those affecting real estate values. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for

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loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination. These adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

An unallocated component may be used to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Together, the specific, general, and any unallocated allowance for loan loss represents management’s estimate of losses inherent in the current loan portfolio. Though provisions for loan losses may be based on specific loans, the entire allowance for loan losses is available for any loan management deems necessary to charge-off. At March 31, 2011 and 2010, there were no material amounts considered unallocated as part of the allowance for loan losses.

Mergers and Acquisitions

The Company accounts for its business combinations under the purchase method of accounting, a cost allocation process which requires the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. To determine the fair values, the Company will continue to rely on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Under the acquisition method of accounting, the Company will identify the acquirer and the closing date and apply applicable recognition principles and conditions. Costs that the Company expects, but is not obligated to incur in the future, to effect its plan to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree’s employees are not liabilities at the acquisition date. The Company will not recognize these costs as part of applying the acquisition method. Instead, the Company will recognize these costs in its post-combination financial statements in accordance with other applicable accounting guidance.

Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some other examples for the Company include systems conversions, integration planning consultants and advertising costs. The Company will account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities will be recognized in accordance with other applicable accounting guidance. These acquisition-related costs are included within the Consolidated Statements of Income classified within the noninterest expense caption.

Latest Acquisition

On February 1, 2010, the Company completed its acquisition of First Market Bank, FSB (“First Market Bank” or “FMB”) in an all stock transaction. First Market Bank’s common shareholders received 6,273.259 shares of the Company’s common stock in exchange for each share of First Market Bank’s common stock, resulting in the Company issuing 6,701,478 common shares. The Series A preferred shareholder of First Market Bank received 775,795 shares of the Company’s common stock in exchange for all shares of the Series A preferred stock. In connection with the transaction the Company issued a total of 7,477,273 common shares with an acquisition date fair value of $96.1 million. The Series B and Series C preferred shareholder of First Market Bank received 35,595 shares of the Company’s Series B preferred stock in exchange for all shares of the FMB Series B and Series C preferred stock.

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is being amortized over a three year time period. Based on the annual testing during the second quarter of each year and the absence of impairment indicators during the quarter ended March 31, 2011 the Company has recorded no impairment charges to date for goodwill or intangible assets.

In many cases, determining the estimated fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of these determinations related to the fair valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carryover of First Market Bank’s previously established allowance for loan losses. Subsequent decreases in the expected cash flows (credit deterioration) will require the Company to evaluate the need for additions to the Company’s allowance for credit losses. Subsequent improvements in expected cash flows will result in the recognition of additional interest income over the then remaining lives of the loans.

The estimated fair value of liabilities assumed was based on the discounted value of contractual cash flows and compared to other securities with similar characteristics and remaining maturities. Specifically, First Market Bank’s Federal Home Loan Bank of Atlanta (“FHLB”) advances, subordinated debt and certificates of deposit were assumed at a net premium.

ABOUT UNION FIRST MARKET BANKSHARES CORPORATION

Headquartered in Richmond, Virginia, Union First Market Bankshares Corporation is the holding company for Union First Market Bank, which has 91 branches and more than 160 ATMs throughout Virginia. Non-bank affiliates of the holding company include: Union Investment Services, Inc., which provides full brokerage services; Union Mortgage Group, Inc., which provides a full line of mortgage products; and Union Insurance Group, LLC, which offers various lines of insurance products. Union First Market Bank also owns a non-controlling interest in Johnson Mortgage Company, LLC.

On March 21, 2011, Union First Market Bank announced that it has opened a new branch in Stafford, Virginia. Located at 1044 Warrenton Road, the Berea Marketplace branch is the 91st branch of Union First Market Bank.

On February 8, 2011, Union First Market Bank and MARTIN’S® Food Markets announced that Union First Market Bank will add in-store bank branches to seven MARTIN’S stores in the western part of Virginia. Union First Market Bank currently operates in-store bank branches in 22 MARTIN’S Food Markets.

On December 21, 2010, the Company announced it will acquire approximately $73.5 million of loans and assume approximately $59.3 million in deposits at book value through the acquisition of the Harrisonburg, Virginia branch of NewBridge Bank. The closing date is expected to be in the second quarter of 2011.

Additional information is available on the Company’s website at http://investors.bankatunion.com. The information contained on the Company’s website is not a part of this report. Shares of the Company’s common stock are traded on the NASDAQ Global Select Market under the symbol UBSH.

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RESULTS OF OPERATIONS

Net Income

The Company reported net income of $6.2 million and earnings per share of $0.22 for its first quarter ended March 31, 2011. The quarterly results represent an increase of $1.8 million in net income and $0.07 in earnings per share from the prior year’s fourth quarter and an increase of $4.5 million in net income and a $0.16 increase in earnings per share from the quarter ended March 31, 2010.

The increase in quarterly net income from the prior year is largely a result of improvements in net interest income, the absence of prior year nonrecurring acquisition costs partially offset by increased provisions for loan losses. Comparative results to the first quarter of the prior year exclude FMB results for the month of January 2010. For the first quarter of 2011, net income available to common shareholders, which deducts dividends and discount accretion on preferred stock from net income, was $5.7 million compared to $1.3 million for the prior year’s first quarter.

First quarter 2011 net income increased $1.8 million from the fourth quarter of 2010 and was largely attributable to a reduction in the provision for loan losses and lower nonrecurring costs. These improvements were partially offset by lower income from the mortgage segment.

NET INTEREST INCOME

On a linked quarter basis, tax-equivalent net interest income was $39.9 million, a decrease of $395,000, or 0.98%, from the fourth quarter of 2010. The linked quarter decrease was principally due to a greater decrease in earning asset volumes compared to interest-bearing liabilities. First quarter tax-equivalent net interest margin increased 13 basis points to 4.68% from 4.55% in the most recent quarter. The net interest margin increase was primarily the result of the increase of investment security yields and lower costs of interest-bearing deposits. Additionally, the funding mix continued to shift from higher cost certificates of deposit to lower cost money market accounts and checking accounts. The following table shows average interest-earning assets, interest-bearing liabilities, the related income/expense and change for the periods shown:


	Linked quarter results
	Dollars in thousands
	Three Months Ended
	03/31/11			12/31/10			Change

Average interest-earning assets	$	3,459,834		$	3,514,367		$	(54,533	)
Interest income	$	48,490		$	49,834		$	(1,344	)
Yield on interest-earning assets		5.68	%		5.63	%		5	bps
Average interest-earning liabilities	$	2,858,406		$	2,895,213		$	(36,807	)
Interest expense	$	8,591		$	9,540		$	(949	)
Cost of interest-bearing liabilities		1.22	%		1.31	%		(9	)bps

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The first quarter tax-equivalent net interest income increased $4.8 million, or 13.67%, when compared to the same period last year. This increase was related to increased interest-earning asset volumes resulting from the acquisition of FMB. The tax-equivalent net interest margin increased 9 basis points to 4.68% from 4.59% in the prior year. The improvement in the cost of funds related to the declining costs on certificates of deposit. Another favorable factor driving the increase in the net interest margin was the increase in demand deposits. The decrease in the interest-earning asset yield was related to lower loan yields and lower yields on investment securities. The Company’s ability to maintain the net interest margin at current levels is largely dependent upon future interest rates, loan demand, and deposit competition. The following table shows average interest-earning assets, interest-bearing liabilities, the related income/expense and change for the periods shown:


	Year-over-year results
	Dollars in thousands
	Three Months Ended
	03/31/11			03/31/10			Change

Average interest-earning assets	$	3,459,834		$	3,103,964		$	355,870
Interest income	$	48,490		$	44,256		$	4,234
Yield on interest-earning assets		5.68	%		5.78	%		(10	)bps
Average interest-earning liabilities	$	2,858,406		$	2,621,815		$	236,591
Interest expense	$	8,591		$	9,159		$	(568	)
Cost of interest-bearing liabilities		1.22	%		1.42	%		(20	)bps

Acquisition Activity – net interest margin

Net interest income increased $1.8 million for the three months ended March 31, 2011 as a result of acquisition accounting fair value adjustments. If not for this impact, the net interest margin for the first quarter would have been 4.47%, an 18 basis point improvement from the fourth quarter of last year.

The acquired loan and investment security portfolios of FMB were marked-to-market with a fair value discount to market rates. Performing loan and investment security discount accretion is recognized as interest income over the estimated remaining life of the loans and investment securities. The Company also assumed borrowings (Federal Home Loan Bank of Altanta (“FHLB”) and subordinated debt) and certificates of deposit. These liabilities were marked-to-market with estimates of fair value on acquisition date. The resulting discount/premium to market is accreted/amortized as an increase (or decrease) to interest expense over the estimated lives of the liabilities and reduced by provisions for loan losses.

The first quarter and remaining estimated discount/premium is reflected in the following table (dollars in thousands):


	Loan Accretion		Investment Securities		Borrowings			Certificates of Deposit

For the quarter ended March 31, 2011	$	1,557	$	108	$	(122	)	$	258
For the remaining nine months of 2011		3,755		278		(367	)		504
For the years ending:
2012		3,576		201		(489	)		222
2013		2,925		15		(489	)		—
2014		1,835		—		(489	)		—
2015		—		—		(489	)		—
2016		—		—		(163	)		—

Acquisition Activity – other operating expenses

Total nonrecurring costs associated with the previously described and proposed NewBridge Bank branch acquisition were $294,000 for the quarter ended March 31, 2011. Costs to date principally include systems conversion and integrating operations, which were expensed as incurred. The costs are reported as a component of “Other operating expenses” within the Company’s “Condensed Consolidated Statements of Income.” Total acquisition costs are expected to be approximately $457,000 with no additional costs expected to be incurred after the second quarter of 2011.

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


	For the Three Months Ended March 31,
	2011								2010								2009
	Average Balance			Interest Income / Expense		Yield / Rate (1)			Average Balance			Interest Income / Expense		Yield / Rate (1)			Average Balance			Interest Income / Expense		Yield / Rate (1)
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	412,512		$	3,630		3.57	%	$	378,494		$	3,539		3.79	%	$	219,977		$	2,436		4.49	%
Tax-exempt		164,928			2,698		6.63	%		119,602			2,100		7.12	%		116,739			2,100		7.29	%

Total securities (2)		577,440			6,328		4.44	%		498,096			5,639		4.59	%		336,716			4,536		5.46	%
Loans, net (3) (4)		2,812,412			41,592		6.00	%		2,515,652			38,151		6.15	%		1,869,759			27,257		5.91	%
Loans held for sale		54,152			565		4.23	%		44,607			446		4.05	%		38,698			431		4.52	%
Federal funds sold		266			—		0.32	%		28,205			12		0.17	%		471			—		0.14	%
Money market investments		161			—		0.00	%		112			—		0.00	%		93			—		0.00	%
Interest-bearing deposits in other banks		15,403			5		0.14	%		14,694			8		0.22	%		94,235			54		0.23	%
Other interest-bearing deposits		—			—		0.00	%		2,598			—		0.00	%		2,598			—		0.00	%

Total earning assets		3,459,834			48,490		5.68	%		3,103,964			44,256		5.78	%		2,342,570			32,278		5.59	%

Allowance for loan losses		(38,765	)							(31,579	)							(26,144	)
Total non-earning assets		386,891								368,028								249,492

Total assets	$	3,807,960							$	3,440,413							$	2,565,918


Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
Checking	$	374,756			159		0.17	%	$	303,824			177		0.24	%	$	198,120			81		0.17	%
Money market savings		810,573			1,505		0.75	%		634,090			1,476		0.94	%		400,157			2,489		2.52	%
Regular savings		160,565			103		0.26	%		147,045			189		0.52	%		95,570			101		0.43	%
Certificates of deposit: (5)
$100,000 and over		600,932			2,482		1.68	%		583,442			2,854		1.98	%		469,667			4,052		3.50	%
Under $100,000		620,168			2,435		1.59	%		588,981			2,568		1.77	%		516,806			4,382		3.44	%

Total interest-bearing deposits		2,566,994			6,684		1.06	%		2,257,382			7,264		1.30	%		1,680,320			11,105		2.68	%
Other borrowings (6)		291,412			1,908		2.66	%		364,433			1,895		2.11	%		319,648			2,545		3.23	%

Total interest-bearing liabilities		2,858,406			8,592		1.22	%		2,621,815			9,159		1.42	%		1,999,968			13,650		2.77	%


Noninterest-bearing liabilities:
Demand deposits		486,864								401,971								267,980
Other liabilities		30,283								26,901								21,419

Total liabilities		3,375,553								3,050,687								2,289,367
Stockholders’ equity		432,407								389,726								276,551

Total liabilities and stockholders’ equity	$	3,807,960							$	3,440,413							$	2,565,918


Net interest income				$	39,898							$	35,097							$	18,628

Interest rate spread (7)							4.46	%							4.36	%							2.82	%
Interest expense as a percent of average earning assets							1.01	%							1.20	%							2.36	%
Net interest margin (8)							4.68	%							4.59	%							3.22	%

(1)	Rates and yields are annualized and calculated from actual, not rounded amounts in thousands, which appear above.

(2)	Interest income on securities includes $108 thousand in accretion of the fair market value adjustments related to the acquisition of FMB. Remaining estimated accretion for 2011 is $278 thousand.

(3)	Nonaccrual loans are included in average loans outstanding.

(4)	Interest income on loans includes $1.6 million in accretion of the fair market value adjustments related to the acquisition of FMB. Remaining estimated accretion for 2011 is $3.8 million.

(5)	Interest expense on certificates of deposits includes $258 thousand in accretion of the fair market value adjustments related to the acquisition of FMB. Remaining estimated accretion for 2011 is $504 thousand.

(6)	Interest expense on borrowings includes $122 thousand in amortization of the fair market value adjustments related to the acquisition of FMB. Remaining estimated amortization for 2011 is $367 thousand.

(7)	Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.

(8)	Core net interest margin excludes purchase accounting adjustments and was 4.47% for the quarter ending 3/31/11.

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Provision for Loan Losses

The provision for loan losses for the quarter ended March 31, 2011 was $6.3 million, a decrease of $3.2 million from the fourth quarter of last year and an increase of $1.3 million from the same quarter a year ago. The lower provision for loan losses compared to the most recent quarter is partially reflective of lower net charge-offs. The current level of the allowance for loan losses reflect specific reserves related to nonperforming loans, changes in risk ratings on loans, net charge-off activity, loan growth, delinquency trends and other credit risk factors that the Company considers in assessing the adequacy of the allowance for loan losses.

The allowance for loan losses as a percentage of the total loan portfolio, including net loans acquired in the FMB acquisition, was 1.44% at March 31, 2011, and 1.35% at December 31, 2010, and 1.19% at March 31, 2010, respectively. The allowance-to-legacy loans as a percentage of the total loan portfolio was 1.96% at March 31, 2011, an increase from 1.88% at December 31, 2010, and 1.82% in the same quarter a year ago. See the Non-GAAP Measures section below for additional information on the allowance-to-legacy loan ratio.

Noninterest Income

On a linked quarter basis, noninterest income decreased $2.5 million, or 19.3%, to $10.5 million from $13.1 million in the fourth quarter of last year. Gains on the sale of loans in the mortgage segment decreased $1.5 million, or 23.0%, and were driven by a decline in mortgage originations. Declines in refinanced mortgage loan volume from 56.1% to 38.1% accounted for most of this decrease. Gains on sales of other real estate owned decreased $551,000. During the quarter ended March 31, 2011, the Company recorded sales of other real estate owned at a net loss of $299,000 as compared to a net gain of $252,000 during the prior quarter. Excluding the mortgage segment operations and other real estate sales, noninterest income decreased $487,000, or 7.5% from the fourth quarter of last year and related to a combination of lower service charge income, letter of credit fees and ATM income. Comparative results to the first quarter of the prior year exclude FMB results for the month of January 2010.

For the first quarter, noninterest income increased $808,000, or 8.3%, to $10.5 million from $9.7 million in the prior year’s same quarter. Other service charges and fees increased $609,000, primarily as a result of increased debit card income, ATM income, brokerage commissions and letter of credit fees. Gains on sales of loans in the mortgage segment increased $477,000, or 10.6%. Gains on sales of other real estate owned decreased $338,000. During the quarter ended March 31, 2011, the Company recorded sales of other real estate owned at a net loss of $299,000. Other operating income increased $208,000, primarily the result of higher trust revenue and bank owned life insurance investment income. Additionally, service charges on deposit accounts decreased principally from lower overdraft and return check income.

Noninterest Expense

On a linked quarter basis, noninterest expense decreased $2.3 million, or 6.2%, to $34.8 million from $37.1 million when compared to the fourth quarter of last year. Other operating expenses decreased $2.0 million, or 13.9%. Of the other operating expenses decrease, $708,000 was related to post acquisition lease and contract termination expenses incurred during the fourth quarter of last year. Conversion costs related to merging bank affiliates in the fourth quarter of last year declined by $436,000. Marketing and advertising expenses declined $460,000 related to Loyalty Banking® and multi-media brand awareness campaigns in the prior year’s fourth quarter. Additionally, legal and professional fees related to continuing problem loan work outs and foreclosure activity decreased $388,000, and costs to maintain the Company’s portfolio of other real estate owned decreased $248,000. Partially offsetting decreases in other operating expenses were increases related to expected Federal Deposit Insurance Corporation (“FDIC”) insurance assessments of $323,000, and an increase in franchise tax of $299,000 levied in the first quarter of 2011 that included the acquired branches of FMB. Excluding the mortgage segment operations and non-recurring costs, noninterest expense decreased $450,000, or 1.5%, compared to last year’s fourth quarter.

For the first quarter, noninterest expense decreased $2.0 million, or 5.5%, to $34.8 million from $36.8 million for the first quarter of 2010. Other operating expenses decreased $4.7 million, or 26.8%. Included in other operating expenses were costs associated with the acquisition of FMB of $6.9 million during the

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first quarter of 2010, and quarter ended March 31, 2011 bank branch acquisition costs of $294,000. Partially offsetting the decrease in other operating expenses were increases in internet and communication expenses of $640,000, increases related to expected FDIC insurance assessments of $455,000, and an increase in franchise tax of $299,000 levied in the first quarter of 2011 that included the acquired branches of FMB. Salaries and benefits increased $2.2 million and were primarily due to increased salary expense of $1.9 million related to first quarter merit increases and additional personnel, and included $436,000 higher commissions in the mortgage segment. Marketing and advertising costs declined $268,000 primarily related to brand awareness campaigns that occurred in the first quarter of 2010. Additionally, costs to maintain the Company’s portfolio of other real estate owned decreased as did legal and professional fees related to continuing problem loan work outs and foreclosure activity. Comparative results to the first quarter of the prior year exclude FMB results for the month of January 2010.

Securities

As of March 31, 2011, the Company maintained a diversified municipal bond portfolio with three quarters of its holdings in general obligation issues and the remainder backed by revenue bonds. Issuances within the Commonwealth of Virginia represented 9% and the only state with a concentration above 10% was Texas, which represented 28% of the municipal portfolio. Approximately 83% of municipal holdings are considered investment grade by Moody’s or S&P. The non-investment grade securities are principally insured Texas municipalities with no underlying rating. When purchasing municipal securities, the Company focuses on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.

Income Taxes

The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

The Company must also evaluate the likelihood that deferred tax assets will be recovered from future taxable income. If any such assets are not likely to be recovered, a valuation allowance must be recognized. The Company has determined that a valuation allowance is not required for deferred tax assets as of March 31, 2011. The assessment of the carrying value of deferred tax assets is based on certain assumptions, changes in which could have a material impact on the Company’s financial statements.

The effective tax rate for the three months ended March 31, 2011 and 2010 was 25.2% and 19.0%, respectively.

SEGMENT INFORMATION

Community Banking Segment

On a linked quarter basis, net interest income was $38.3 million, a decrease of $223,000, or 0.60%, from the fourth quarter of last year. The linked quarter decrease was principally due to a greater decrease in earning asset volumes compared to interest-bearing liabilities.

Noninterest income decreased $1.0 million, or 15.6%, to $5.7 million from $6.7 million in the fourth quarter of last year. Gains on sales of other real estate owned decreased $551,000. During the quarter ended March 31, 2011, the Company recorded sales of other real estate owned at a net loss of $299,000 as compared to a net gain of $252,000 during the prior quarter.

Noninterest expense decreased $1.4 million, or 4.7%, to $30.0 million from $31.4 million when compared to the fourth quarter of last year. Other operating expenses decreased $2.0 million, or 14.2%. The decrease in other operating expenses included $708,000 related to post acquisition lease and contract termination expenses incurred during the fourth quarter of last year. Conversion costs related to merging bank affiliates

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in the fourth quarter of last year declined by $436,000. Marketing and advertising expenses declined $439,000 related to Loyalty Banking® and multi-media brand awareness campaigns in the prior year’s fourth quarter. Additionally, legal and professional fees related to continuing problem loan work outs and foreclosure activity decreased $397,000, and costs to maintain the Company’s portfolio of other real estate owned decreased $271,000. Partially offsetting decreases in other operating expenses were increases related to expected FDIC insurance assessments of $324,000, and an increase in franchise taxes of $299,000 levied in the first quarter of 2011 that included the acquired branches of FMB. Salary expense increased $762,000, primarily related to incentive compensation and merit increases occurring in the first quarter.

For the three months ended March 31, 2011 net interest income increased $4.5 million, or 13.4%, when compared to the same period last year. This increase was principally attributable to increased interest-earning asset volumes resulting from the acquisition of FMB.

Noninterest income increased $330,000, or 6.2%, to $5.7 million from $5.4 million. Other service charges and fees increased $609,000, primarily as a result of increased debit card income, ATM income, brokerage commissions, and letter of credit fees. Gains on sales of other real estate owned decreased $338,000. During the quarter ended March 31, 2011, the Company recorded sales of other real estate owned at a net loss of $299,000. Other operating income increased $207,000, primarily the result of higher trust revenue and bank owned life insurance investment income. Additionally, service charges on deposit accounts decreased principally from lower overdraft and return check income.

Noninterest expense decreased $3.0 million, or 9.3%, to $30.0 million from $33.0 million in the prior year’s same quarter. Other operating expenses decreased $4.8 million, or 28.4%. Included in other operating expenses were costs associated with the acquisition of FMB of $6.9 million during the first quarter of 2010, and quarter ended March 31, 2011 bank branch acquisition costs of $294,000. Marketing and advertising costs declined $266,000 primarily related to brand awareness campaigns that occurred in the first quarter of 2010. Partially offsetting the decrease in other operating expenses were increases in internet and communication expenses of $596,000, increases related to expected FDIC insurance assessments of $455,000, and an increase in franchise taxes of $299,000 levied in the first quarter of 2011 that included the acquired branches of FMB. Salaries and benefits increased $1.5 million and were primarily due to two months of FMB in the prior year’s same quarter, as well as increased salary expense related to first quarter merit increases and additional personnel.

Mortgage Segment

On a linked quarter basis, the mortgage segment net income for the first quarter decreased $525,000, or 61.6%, to $329,000 from $854,000 in the fourth quarter of 2010. Originations declined by $87.4 million from $236.5 million to $149.1 million, or 37.0%, from the fourth quarter of last year. Gains on the sale of loans decreased $1.5 million, or 23.0%, on lower originations. Refinanced loans represented 38.1% of originations during the first quarter compared to 56.1% during the fourth quarter of 2010. Salary and benefit expenses decreased $753,000 on loan volume driven commission expense. Occupancy and equipment expense decreased 4.4% and 10.0% respectively on a linked quarter basis.

For the first quarter, the mortgage segment net income decreased $250,000 to $329,000, from $579,000 for the same quarter in 2010. Noninterest expenses increased $1.0 million. Of this amount, salaries and benefits increased $782,000 as a result of commission expenses associated with the higher loan revenue and personnel expenses related to the hiring of corporate support staff to service increased loan volume during the past twelve months. Originations increased $930,000 from $148.2 million to $149.1 million, or 0.6%, during the same period last year. Gains on the sale of loans increased $478,000, or 10.6%. The increase in gain on sale revenue was driven by adjustments to loan fees and pricing strategies, volume related revenue incentives and the contribution of newer branches originating loans at favorable margins.

BALANCE SHEET

At March 31, 2011, total cash and cash equivalents were $84.8 million, an increase of $23.7 million from December 31, 2010, and a decrease of $45.7 million from March 31, 2010. At March 31, 2011, net loans

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were $2.8 billion, a decrease of $32.3 million, or 1.2% from the fourth quarter of last year. Net loans decreased $49.6 million, or 1.8%, from March 31, 2010. Loans held for sale of $50.6 million in the Company’s mortgage segment decreased by $23.4 million from the fourth quarter of last year, related to lower origination volume, and flat from the prior year’s same quarter. At March 31, 2011, total assets were $3.8 billion, a decrease of $24.5 million compared to the fourth quarter of 2010, and a decrease of $37.0 million from March 31, 2010.

Total deposits decreased $3.4 million compared to the fourth quarter of last year driven by lower volumes of time deposits and certificates of deposits, offset by higher money market and savings accounts. Total deposits decreased $5.4 million from March 31, 2010 with net volume inflows into money market accounts and out of certificates of deposit. Total borrowings, including repurchase agreements, decreased $26.6 million on a linked quarter basis and $52.5 million from March 31, 2010. The Company’s equity to assets ratio was 11.42% and 10.77% at March 31, 2011 and 2010, respectively. The Company’s tangible common equity to assets ratio was 8.51% and 7.70% at March 31, 2011 and 2010, respectively. See Capital Resources section below for regulatory capital ratios.

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, money market investments, Federal funds sold, securities available for sale, loans held for sale and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through Federal funds lines with several correspondent banks, a line of credit with the FHLB, and corporate lines of credit with large correspondent banks. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

As of March 31, 2011, cash, interest-bearing deposits in other banks, money market investments, Federal funds sold, loans held for sale, investment securities and loans that mature within one year totaled $1.2 billion, or 35.7%, of total earning assets. As of March 31, 2011, approximately $1.1 billion, or 37.9%, of total loans are scheduled to mature within one year. In addition to deposits, the Company utilizes Federal funds purchased, FHLB advances, securities sold under agreements to repurchase and customer repurchase agreements, to fund the growth in its loan portfolio, securities purchases, and periodically, wholesale leverage transactions.

Loan Portfolio

The following table presents the Company’s composition of loans, net of unearned income in dollar amounts and as a percentage of total gross loans (dollars in thousands) as of:


	March 31, 2011		% of Total Loans			December 31, 2010		% of Total Loans			March 31, 2010		% of Total Loans
Loans secured by real estate:
Residential 1-4 family	$	433,517		15.4	%	$	431,614		15.2	%	$	421,138		14.8	%
Commercial		937,104		33.5	%		924,548		32.6	%		868,214		30.4	%
Construction, land development and other land loans		484,835		17.3	%		489,601		17.3	%		500,909		17.6	%
Second mortgages		62,572		2.2	%		64,534		2.3	%		62,762		2.2	%
Equity lines of credit		298,634		10.6	%		305,741		10.8	%		309,765		10.9	%
Multifamily		92,360		3.3	%		91,397		3.2	%		83,173		2.9	%
Farm land		26,715		1.0	%		26,787		0.9	%		28,463		1.0	%

Total real estate loans		2,335,737		83.3	%		2,334,222		82.3	%		2,274,424		79.8	%

Commercial Loans		163,943		5.8	%		180,840		6.4	%		211,663		7.4	%

Consumer installment loans
Personal		264,142		9.4	%		277,184		9.8	%		315,927		11.1	%
Credit cards		17,095		0.6	%		19,308		0.6	%		13,438		0.5	%

Total consumer installment loans		281,237		10.0	%		296,492		10.4	%		329,365		11.6	%

All other loans		26,011		0.9	%		25,699		0.9	%		34,714		1.2	%

Gross loans	$	2,806,928		100.0	%	$	2,837,253		100.0	%	$	2,850,166		100.0	%

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As reflected in the loan table, at March 31, 2011, the largest component of the Company’s loan portfolio consisted of real estate loans, concentrated in commercial, construction and residential 1-4 family. The risks attributable to these concentrations are mitigated by the Company’s credit underwriting and monitoring processes, including oversight by a centralized credit administration function and credit policy and risk management committee, as well as seasoned bankers’ focusing their lending to borrowers with proven track records in markets with which the Company is familiar.

Asset Quality

Overview

During the first quarter, the Company experienced a slight deterioration in asset quality, principally within the builder/developer real estate portfolio, as the housing market remained soft. The magnitude of any such softening is largely dependent upon any lagging impact on commercial real estate, the recovery of residential housing, and the pace at which the economies in the markets we serve recover.

The Company considers the level of nonperforming assets to be manageable and has devoted an appropriate amount of resources to review the loan portfolio and workout problem assets in order to minimize any potential losses to the Company. Management continues to monitor delinquencies, risk rating changes, charge-offs, market trends and other indicators of risk in the Company’s portfolio, particularly those tied to residential and commercial real estate, and adjusts the allowance for loan losses accordingly. Historically, and particularly in the current economic environment, the Company seeks to work with its customers on loan collection matters while taking appropriate actions to improve the Company’s position and minimize any losses.

Loans obtained in connection with the FMB acquisition have been accounted for in accordance with ASC 805, Business Combinations, and/or ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”), if the loan experienced deterioration of credit quality at the time of acquisition. Both require that acquired loans be recorded at fair value and prohibit the carryover of the related allowance for loan losses. Determining the fair value of the acquired loans required estimating cash flows expected to be collected on the loans. Because ASC 310-30 loans (i.e., impaired loans) have been recorded at fair value, such loans are not classified as nonaccrual or past due even though some payments may be contractually past due.

Nonperforming Assets (“NPAs”)

At March 31, 2011, nonperforming assets totaled $101.3 million, an increase of $3.5 million from the fourth quarter of last year and $37.9 million compared to a year ago. The increase in NPAs continues to be related to stresses in the residential home builder market, driven by the slow pace of the economic recovery. Nonperforming loans have increased as residential real estate borrowers (i.e., developers, owners of residential housing, and those related to the residential housing industry) continue to experience financial difficulties with the protracted economic recovery depleting their cash reserves and other repayment resources. In addition, despite working with the borrowers, the Company has foreclosed on various real estate collateral in order to avoid additional losses. The quarter ended March 31, 2011 increase in NPAs from the fourth quarter of 2010 related to increases in nonaccrual loans of $926,000 and other real estate owned (“OREO”) of $2.6 million.

Nonaccrual Loans

Nonperforming assets at March 31, 2011 included $62.6 million in nonaccrual loans. This total includes residential real estate loans of $30.2 million, land loans of $14.9 million, commercial real estate loans of $7.9 million, commercial and industrial loans of $6.8 million, land development loans of $1.5 million, and other loans of $1.3 million. At March 31, 2011, the coverage ratio of the allowance for loan losses to nonperforming loans was 64.5%, a decline from 88.7% a year earlier but an increase from 62.2% at December 31, 2010. Impairment analyses provided appropriate reserves on these nonperforming loans while appropriate reserves on homogenous pools continue to be maintained. The quarter ended March 31, 2011 increase in the coverage ratio as compared to year end 2010 is partially related to the allowance for loan loss building at a faster pace than nonaccrual loans.

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Other Real Estate Owned

Nonperforming assets also included $38.7 million in OREO. This total includes residential real estate of $15.4 million, land development of $12.2 million, land of $8.9 million, commercial real estate of $1.2 million and land held for development of bank branch sites of $1.0 million. Included in land development is $8.7 million related to a residential community in the Northern Neck region of Virginia, which includes developed residential lots, a golf course and undeveloped land. Foreclosed properties were adjusted to their fair values at the time of each foreclosure and any losses were taken as loan charge-offs against the allowance for loan losses at that time. OREO asset valuations are also evaluated at least quarterly and any necessary write down to fair value is recorded as impairment. During the first quarter ended March 31, 2011, the Company’s OREO showed a net increase of approximately $2.6 million, with sales of $3.6 million at a net loss of $299,000, and additions of $6.4 million. Approximately half of the additions were related to residential builders with the remaining split between commercial developers and homeowners; sales from OREO were principally related to residential lots, land, and houses. The Company expects this type of activity to continue until the market for these properties and the economy as a whole shows marked improvement. The Company also believes that its foreclosure practices are sound.

The following table reflects the balances and changes from the most recent quarter (dollars in thousands):


Other Real Estate Owned	3/31/2011		12/31/2010		Change
Land development	$	12,192	$	11,233	$	959
Land		8,885		7,689		1,196
Residential real estate (builder lines)		15,345		13,402		1,943
Commercial real estate		1,232		2,778		(1,546	)
Land held for development of branch sites		1,020		1,020		(0	)

Totals	$	38,674		36,122	$	2,552

Charge-offs

For the quarter ended March 31, 2011, net charge-offs were $4.3 million, or 0.62%, of loans on an annualized basis, compared to $8.5 million, or 1.19%, for the fourth quarter of last year and $1.5 million, or 0.21%, for the same quarter last year. Net charge-offs in the first quarter included commercial construction loans of $1.6 million, residential builder loans of $1.3 million, and other consumer loans of $1.4 million. At March 31, 2011, total accruing past due loans were $42.7 million, or 1.52%, of total loans, a decrease from 1.85% at December 31, 2010, and 1.89% for the same quarter a year ago.

The following table sets forth selected asset quality data and ratios (dollars in thousands) for the quarter ended:


	March 31, 2011			December 31, 2010			March 31, 2010
Nonaccrual loans	$	62,642		$	61,716		$	38,337
Foreclosed properties		37,654			35,101			24,062
Real estate investment		1,020			1,020			1,020

Total nonperforming assets	$	101,316		$	97,838		$	63,419


Balances
Allowance for loan losses	$	40,399		$	38,406		$	34,014
Average loans, net of unearned income		2,812,412			2,830,435			2,515,652
Loans, net of unearned income		2,806,928			2,837,253			2,850,166

Ratios
Allowance for loan losses to loans		1.44	%		1.35	%		1.19	%
Allowance-to-legacy loans (Non-GAAP)		1.96	%		1.88	%		1.82	%
Allowance for loan losses to NPAs		39.87	%		39.25	%		53.63	%
Allowance for loan losses to NPLs		64.49	%		62.23	%		88.72	%
Nonperforming assets to loans & other real estate		3.56	%		3.40	%		2.21	%
Net charge-offs to loans (annualized)		0.62	%		1.19	%		0.21	%

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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 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 to absorb potential losses, yet allow management to effectively leverage its capital to maximize return to shareholders.

The Board of Governors of the Federal Reserve System and the FDIC, 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, retained earnings and a limited amount of perpetual preferred stock, less certain intangible items. The Company had a ratio of total capital to risk-weighted assets of 15.12% and 13.75% on March 31, 2011 and 2010, respectively. The Company’s ratio of Tier 1 capital to risk-weighted assets was 13.37% and 12.18% at March 31, 2011 and 2010, respectively, allowing the Company to meet the definition of “well-capitalized” for regulatory purposes. Both of these ratios exceeded the fully phased-in capital requirements in 2011 and 2010. The Company’s equity to asset ratio at March 31, 2011 and 2010 were 11.42% and 10.77%, respectively.

In connection with two bank acquisitions, prior to 2005, the Company has issued trust preferred capital notes to fund the cash portion of those acquisitions, collectively totaling $58.5 million. The total of the trust preferred capital notes currently qualify for Tier 1 capital of the Company for regulatory purposes.

The Company’s outstanding series of preferred stock resulted from the acquisition of First Market Bank. The Company’s Board of Directors established a series of preferred stock with substantially identical preferences, rights and limitations to the First Market Bank preferred stock, except as explained below. Pursuant to the closing of the acquisition, each share of First Market Bank Series B and Series C preferred stock was exchanged for one share of the Company’s Series B Preferred Stock. The Series B Preferred Stock of the Company pays cumulative dividends to the Treasury at a rate of 5.19% per annum for the first five years and thereafter at a rate of 9.0% per annum. The 5.19% dividend rate is a blended rate comprised of the dividend rate of the 33,900 shares of First Market Bank 5% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B and 1,695 shares of First Market Bank 9% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A. The Series B Preferred Stock of the Company is non-voting and each share has a liquidation preference of $1,000. The Company anticipates redemption of this capital issue in increments or in full prior to the end of 2012, subject to regulatory approval. Despite the Treasury’s being the sole holder of the Company’s Series B Preferred Stock, the Company is not considered a participant in the Treasury’s Capital Purchase Program.

The following table summarizes the Company’s regulatory capital and related ratios (dollars in thousands):


	March 31, 2011			December 31, 2010			March 31, 2010
Tier 1 capital	$	404,271		$	398,165		$	376,145
Tier 2 capital		52,893			53,298			48,539
Total risk-based capital		457,164			451,463			424,683
Risk-weighted assets		3,023,431			3,075,330			3,087,768

Capital ratios:
Tier 1 risk-based capital ratio		13.37	%		12.95	%		12.18	%
Total risk-based capital ratio		15.12	%		14.68	%		13.75	%
Leverage ratio (Tier 1 capital to average adjusted assets)		10.85	%		10.55	%		11.14	%
Stockholders’ equity to assets		11.42	%		11.16	%		10.77	%
Tangible common equity to tangible assets		8.51	%		8.22	%		7.70	%

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NON-GAAP MEASURES

In reporting the results as of March 31, 2011, the Company has provided supplemental performance measures on an operating or tangible basis. Such measures exclude amortization expense related to intangible assets, such as core deposit intangibles. The Company believes these measures are useful to investors as they exclude non-operating adjustments resulting from acquisition activity and allow investors to see the combined economic results of the organization.

These measures are a supplement to GAAP used to prepare the Company’s financial statements and should not be viewed as a substitute for GAAP measures. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies.

A reconciliation of these non-GAAP measures from their respective GAAP basis measures is presented in the following table (dollars in thousands, except share and per share amounts):


	Three Months Ended March 31
	2011			2010

Net income	$	6,194		$	1,699
Plus: core deposit intangible amortization, net of tax		1,076			945
Plus: trademark intangible amortization, net of tax		65			44

Cash basis operating earnings		7,335			2,688


Average assets		3,807,960			3,440,413
Less: average trademark intangible		782			786
Less: average goodwill		57,567			56,740
Less: average core deposit intangibles		25,994			24,736

Average tangible assets		3,723,617			3,358,151


Average equity		432,407			389,726
Less: average trademark intangible		782			786
Less: average goodwill		57,567			56,740
Less: average core deposit intangibles		25,994			24,736
Less: average preferred equity		34,448			22,416

Average tangible equity		313,616			285,048


Weighted average shares outstanding, diluted		25,980,698			23,235,498
Cash basis earnings per share, diluted	$	0.28		$	0.12
Cash basis return on average tangible assets		0.80	%		0.32	%
Cash basis return on average tangible equity		9.49	%		3.82	%

The allowance-to-legacy loan ratio (non-GAAP) includes the allowance for loan losses to the total loan portfolio less acquired loans without additional credit deterioration above the original credit mark (which have been provided for in the allowance for loan losses subsequent to acquisition). GAAP requires the acquired allowance for loan losses not be carried over in an acquisition or merger. We believe the presentation of the allowance-to-legacy loan ratio is useful to investors because the acquired loans were recorded at a market discount (including credit valuation) with no allowance for loan losses carried over to the Company. Acquired loans that have further deteriorated are included in the loan loss calculation and reflected in both the numerator and denominator of the allowance-to-legacy loan ratio. In order to present the allowance-to-legacy loan ratio, acquired loans with no additional credit deterioration beyond the original credit mark are adjusted out of the loan balance denominator. See reconciliation below (dollars in thousands):


	March 31, 2011			March 31, 2010
Gross Loans	$	2,806,928		$	2,850,166
less acquired loans without additional credit deterioration		(743,308	)		(981,541	)

Gross Loans, adjusted for acquired		2,063,620			1,868,625
Allowance for loan losses		40,399			34,014
Allowance-to-legacy loan loss ratio		1.96	%		1.82	%

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. The Company’s market risk is composed primarily of interest rate risk. The Asset and Liability Management Committee (“ALCO”) of the Company is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

Interest rate risk is monitored through the use of three complementary modeling tools: static gap analysis, earnings simulation modeling, and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk models has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Static gap, which measures aggregate re-pricing values, is less utilized because it does not effectively measure the options risk impact on the Company and is not addressed here. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.

EARNINGS SIMULATION ANALYSIS

Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis discussed above.

Assumptions used in the model are derived from historical trends and management’s outlook and include loan and deposit growth rates and projected yields and rates. Such assumptions are monitored by management and periodically adjusted as appropriate. All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage backed securities prepayment assumptions are based on estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.

The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates. The Company previously evaluated change to net interest income by gradually ramping rates up or down over a 12 month period. The Company views the immediate shock of rates as a more effective measure of interest rate risk exposure. The analysis assesses the impact on net interest income over a 12 month time horizon after an immediate increase or “shock” in rates, of 100 basis points up to 300 basis points. The shock down 200 or 300 basis points analysis is not as meaningful as interest rates across most of the yield curve are at historic lows and cannot decrease another 200 or 300 basis points. The model, under all scenarios, does not drop the index below zero.

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The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled for balances ended March 31, 2011 (dollars in thousands):


	Change In Net Interest Income
	%			$
Change in Yield Curve:
+300 basis points		2.50	%	$	3,968
+200 basis points		0.99			1,573
+100 basis points		(0.60	)		(983	)
Most likely rate scenario		0.00			—
-100 basis points		(2.55	)		(4,046	)
-200 basis points		(5.93	)		(9,407	)
-300 basis points		(8.35	)		(13,247	)

ECONOMIC VALUE SIMULATION

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.

The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the period ended March 31, 2011 (dollars in thousands):


	Change In Economic Value of Equity
	%			$
Change in Yield Curve:
+300 basis points		(3.94	)%	$	(24,039	)
+200 basis points		(1.95	)		(11,896	)
+100 basis points		(0.31	)		(1,894	)
Most likely rate scenario		0.00			—
-100 basis points		(4.28	)		(26,139	)
-200 basis points		(8.15	)		(49,791	)
-300 basis points		(14.47	)		(88,383	)

The shock down 200 or 300 basis points analysis is not as meaningful since interest rates across most of the yield curve are at historic lows and cannot decrease another 200 or 300 basis points. While management considers this scenario highly unlikely, the natural floor increases the Company’s sensitivity in rates down scenarios. Additionally, the Company’s deposit base has experienced a shift from fixed rate time deposits to floating rate money markets. The change in deposit mix has not been wholly offset by changes in asset mix, where duration has increased moderately. This dynamic results in negative economic value of equity in up rate scenarios.

ITEM 4 – CONTROLS AND PROCEDURES

The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), which are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures

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are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level. There was no change in the internal control over financial reporting that occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the ordinary course of its operations, the Company is a party to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.

ITEM 1A – RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities – None

(b) Use of Proceeds – Not Applicable

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this Form 10-Q and this list includes the Exhibit Index:


Exhibit No.		Description

31.01		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 First Market Bankshares Corporation
		(Registrant)

Date: May 10, 2011	By:	/s/ G. William Beale
		G. William Beale,
		Chief Executive Officer

Date: May 10, 2011	By:	/s/ D. Anthony Peay
		D. Anthony Peay,
		Executive Vice President and Chief Financial Officer

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