UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File No. 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1598552
(State of Incorporation) (I.R.S. Employer Identification No.)
211 North Main Street
P.O. Box 446
Bowling Green, Virginia 22427
(Address of principal executive offices)
(804) 633-5031
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON
STOCK, $4 PAR VALUE
Union Bankshares Corporation (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
As of June 30, 1997, Union Bankshares Corporation had 3,571,475 shares of
Common Stock outstanding.
UNION BANKSHARES CORPORATION
FORM 10-Q
June 30, 1997
INDEX
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996........................................... 1
Consolidated Statements of Income for the
three- and six-months ended June 30, 1997 and 1996.............. 2
Consolidated Statements of Cash Flows for the
three- and six-months ended June 30, 1997 and 1996.............. 3
Notes to Consolidated Financial Statements........................... 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 5-10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................. 11
Signatures................................................................ 11
Index to Exhibits......................................................... 12
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
June 30, December 31, June 30,
ASSETS 1997 1996 1996
- -------- ---- ---- ----
Cash and cash equivalents:
Cash and due from banks $ 20,504 $19,33 $ 17,036
Interest-bearing deposits in other banks 645 1,016 420
Federal funds sold 2,722 2,104 6,593
--------- --------- ---------
Total cash and cash equivalents 23,871 22,453 24,049
--------- --------- ---------
Securities available for sale, at fair value 138,158 129,268 125,589
Investments securities,
fair value of $10,570 and $11,689, respectively 10,803 11,423 12,066
--------- --------- ---------
Total securities 148,961 140,691 137,655
--------- --------- ---------
Loans, net of unearned income 370,636 352,277 346,327
Less allowance for loan losses (note 2) 4,297 4,388 4,277
--------- --------- ---------
Net loans 366,339 347,889 342,050
--------- --------- ---------
Bank premises and equpiment, net 15,891 14,221 12,020
Other real estate owned 3,627 4,056 3,976
Other assets 8,870 11,583 11,495
--------- --------- ---------
Total assets $ 567,559 $ 540,893 $ 531,245
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 56,056 $ 55,005 $ 53,355
Interest-bearing deposits:
Savings accounts 45,884 54,364 58,806
NOW accounts 57,327 49,834 46,945
Money market accounts 47,624 54,431 52,625
Time deposits of $100,000 and over 53,997 51,812 50,509
Other time deposits 191,578 174,161 168,455
--------- --------- ---------
Total interest-bearing deposits 396,410 384,602 377,340
--------- --------- ---------
Total deposits 452,466 439,607 430,695
--------- --------- ---------
Short-term borrowings 31,566 27,403 29,927
Long-term borrowings 17,850 11,125 11,200
Other liabilities 3,575 4,192 3,645
--------- --------- ---------
Total liabilities 505,457 482,327 475,467
--------- --------- ---------
Stockholders' equity:
Common stock, $4 par value. Authorized 12,000,000 shares;
issued and outstanding, 3,571,475 and 3,566,915 shares, respectively 14,262 14,267 14,268
Surplus 127 160 674
Retained earnings 46,663 43,863 41,171
Unrealized gains on securities available for sale, net of taxes 1,050 276 (335)
--------- --------- ---------
Total stockholders' equity 62,102 58,566 55,778
--------- --------- ---------
Commitments and contingencies
Total liabilities and stockholders' equity $ 567,559 $ 540,893 $ 531,245
========= ========= =========
See accompanying notes to consolidated financial statements
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(Dollars in thousands)
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------- -------- -------- ---------
Interest income:
Interest and fees on loans $ 8,305 $ 7,993 $ 16,524 $15,830
Interest on securities:
U.S. Government agencies and corporations 857 886 1,827 1,885
States and political subdivisions 986 956 1,949 1,838
Other securities 374 113 559 289
Interest on Federal funds sold 46 68 104 144
Interest on interest-bearing deposits
in other banks 10 2 25 4
------- -------- -------- ---------
Total interest income 10,578 10,018 20,988 19,990
------- -------- -------- ---------
Interest expense:
Interest on deposits 4,493 4,307 8,901 8,652
Interest on other borrowings 591 484 1,117 867
------- -------- -------- ---------
Total interest expense 5,084 4,791 10,018 9,519
------- -------- -------- ---------
Net interest income 5,494 5,227 10,970 10,471
Provision for loan losses (note 2) 220 190 420 321
------- -------- -------- ---------
Net interest income after provision
for loan losses 5,274 5,037 10,550 10,150
------- -------- -------- ---------
Other income:
Service fees 660 708 1,402 1,276
Gains (losses) on sale of securities
available for sale (18) 3 13 (103)
Gains (losses) on sales of other real estate owned
and bank premises, net 299 64 408 64
Other operating income 245 395 368 536
------- -------- -------- ---------
Total other income 1,186 1,170 2,191 1,773
------- -------- -------- ---------
Other expenses:
Salaries and benefits 2,048 1,834 4,081 3,660
Occupancy expenses 290 242 536 440
Furniture and equipment expenses 442 224 746 461
FDIC assessments 15 -- 27 2
Other operating expenses 1,219 1,115 2,398 2,191
------- -------- -------- ---------
Total other expenses 4,014 3,415 7,788 6,754
------- -------- -------- ---------
Income before income taxes 2,446 2,792 4,953 5,169
Income tax expense 444 586 1,014 1,116
------- -------- -------- ---------
Net income $ 2,002 $2,206 $ 3,939 $ 4,053
======= ======== ======== =========
Net income per share of common stock $ 0.56 $ 0.62 $ 1.10 $ 1.14
======= ======== ======== =========
Cash dividends per share of common stock $ 0.36 $ 0.30 $ 0.36 $ 0.30
======= ======== ======== =========
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
Operating activities:
Net income $ 3,939 $ 4,053
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 723 477
Provision for loan losses 420 321
(Gains) losses on sales of securities available for sale 27 66
Gain on sale of other real estate owned (408) 1
(Increase) decrease in other assets (227) (2,309)
Increase in other liabilities (1,105) 896
--------- ----------
Net cash and cash equivalents provided
by operating activities 3,369 3,505
--------- ----------
Investing activities:
Net increase in securities (7,065) 1,863
Net increase in loans (19,345) (19,766)
Acquisition of bank premises and equipment (2,393) (2,297)
Proceeds from sales of other real estate owned 4,282 7
--------- ----------
Net cash and cash equivalents used in
investing activities (24,521) (20,193)
--------- ----------
Financing activities:
Net increase (decrease) in non-interest-bearing deposits 1,051 3,450
Net increase in interest-bearing deposits 11,808 11,491
Net increase in short-term borrowings 4,163 8,819
Purchase of common stock (38) -
Cash dividends paid (1,139) (976)
Proceeds from long-term borrowings 6,800 -
Repayment of long-term borrowings (75) (75)
--------- ----------
Net cash and cash equivalents provided by
financing activities 22,570 22,709
--------- ----------
Increase (decrease) in cash and cash equivalents 1,418 6,021
Cash and cash equivalents at beginning of period 22,453 18,028
--------- ----------
Cash and cash equivalents at end of period $ 23,871 $ 24,049
========= ==========
See accompanying notes to consolidated financial statements.
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
1. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Union
Bankshares Corporation and its subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in
consolidation.
The information contained in the financial statements is unaudited and
does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of the interim periods presented have been
made. Operating results for the three- and six-month periods ended June
30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1996 Annual Report to Stockholders. Certain previously reported
amounts have been reclassified to conform to current period presentation.
2. ALLOWANCE FOR LOAN LOSSES
The following summarizes activity in the allowance for loan losses for the
six months ended June 30, (in thousands):
1997 1996
---- ----
Balance, January 1 $ 4,388 $ 4,060
Provisions charged to operations 420 321
Recoveries credited to allowance 99 294
Loans charged off (610) (399)
------- -------
Balance, June 30 $ 4,297 $ 4,276
======= =======
3. EARNINGS PER SHARE
Earnings per share outstanding has been computed by dividing net income by
the weighted average number of shares outstanding for the period. Weighted
average shares used for the computation were 3,567,258 and 3,562,807 for
the three months ended June 30, 1997 and 1996 and 3,566,683 and 3,562,389
for the six months ended June 30, 1997 and 1996.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Union Bankshares Corporation (the "Company") is a multi-bank holding
company organized under Virginia law which provides financial services through
its wholly-owned subsidiaries, Union Bank & Trust Company, Northern Neck State
Bank, King George State Bank, Union Investment Services, Inc., and Union
Mortgage Company, LLC. The three subsidiary banks, Unon Bank & Trust Company,
Northern Neck State Bank and King George State Bank, are full service retail
commercial banks offering a wide range of banking and related financial
services, including demand and time deposits, as well as commercial, industrial,
residential construction, residential mortgage and consumer loans. Union
Investment Services, Inc., is a full service discount brokerage company which
offers a full range of investment services, and sells mutual funds, bonds and
stocks. Union Mortgage Company, LLC provides a wide array of mortgage products
to customers in the Company's primary trade area.
The Company's primary trade area stretches from Fredericksburg, south to
Hanover County and east to the Northern Neck area of Virginia. The Corporate
Headquarters are located in Bowling Green, Virginia. Through its banking
subsidiaries, the Company operates 19 branches in its primary trade area.
Management's discussion and analysis is presented to aid the reader in
understanding and evaluating the financial condition and results of operations
of Union Bankshares Corporation and subsidiaries (the "Company"). The analysis
focuses on the Consolidated Financial Statements, the footnotes thereto, and the
other financial data herein. Highlighted in the discussion are material changes
from prior reporting periods and any identifiable trends affecting the Company.
Amounts are rounded for presentation purposes, while the percentages presented
are computed based on unrounded amounts.
Results of Operations
Net income for the second quarter of 1997 was $2.0 million, down from from
$2.2 million for the same period in 1996. Earnings per share amounted to $.56 in
the second quarter of 1997 as compared to $.62 in the second quarter of 1996.
The Company's annualized return on assets for the second quarter of 1997 was
1.43% as compared to 1.69% a year ago. The Company's annualized return on equity
totaled 13.13% and 16.03% for the three months ended June 30, 1997 and 1996,
respectively.
Net income for the first six months of 1997 totaled $3.9 million, down
2.8% from $4.1 million for the same period in 1996. Earnings per share totaled
$1.10 in the first six months of 1997 as compared to $1.14 in 1996. The
Company's annualized return on assets for the first six months of 1997 was 1.43%
as compared to 1.58% a year ago. The Company's annualized return on equity
totaled 13.17% and 14.94% for the six months ended June 30, 1997 and 1996,
respectively.
Net Interest Income
Net interest income on a tax-equivalent basis for the second quarter of
1997 increased by 7.9% to $6.1 million from $5.6 million for the same period a
year ago. By managing its interest rate spread and increasing the volume of
earning assets over interest-bearing liabilities,
the Company has been able to maintain a strong net interest margin. Average
earning assets during the second quarter of 1997 increased by $32.2 million to
$516.4 million from the second quarter of 1996, while average interest-bearing
liabilities grew by $26.9 million to $440.5 million over this same period. The
Company's yield on average earning assets was 8.66%, up slightly from 8.65% a
year ago, while its cost of average interest-bearing liabilities decreased
slightly from 4.66 % to 4.63%.
Union Bankshares Corporation
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent Basis)
-----------------------------------------------------------------------------------------
Quarter Ended June 30,
-----------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------
(Dollars in thousands)
Assets:
Securities:
Taxable . . . . . . . . . . . . $ 81,682 $ 1,371 6.73% $ 70,758 $1,057 6.01% $ 71,305 $ 1,136 6.39%
Tax-exempt(1) . . . . . . . . . 66,392 1,424 8.60% 64,983 1,300 8.05% 59,072 1,181 8.02%
--------- --------- --------- ------ --------- --------- -----------
Total securities . . 148,074 2,795 7.57% 135,741 2,357 6.98% 130,377 2,317 7.13%
Loans, net . . . . . . . . . . . . . . . 364,180 8,305 9.15% 342,680 7,993 9.38% 304,276 7,263 9.57%
Federal funds sold . . . . . . . . . . . . 3,598 46 5.13% 5,399 66 4.92% 7,880 108 5.50%
Interest-bearing deposits -- --
in other banks . . . . . . . . . 630 10 6.37% 433 4 3.72% 698 9 5.17%
--------- --------- --------- ------ --------- --------- -----------
Total earning assets . 516,482 11,156 8.66% 484,253 10,420 8.65% 443,231 9,697 8.78%
Allowance for loan losses . . . . . . . . . (4,425) (4,311) (4,236)
Total non-earning assets . . . . . . . . . 43,461 42,205 34,398
--------- -------- -----------
Total assets . . . . . . . . . . . . . . . $ 555,518 $522,147 $473,393
========= ======== ===========
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking . . . . . . . . . . . . $ 54,518 351 2.58% $ 45,763 289 2.54% 42,748 293 2.75%
Regular savings . . . . . . . . . 47,315 356 3.02% 56,464 495 3.53% 57,419 549 3.84%
Money market savings . . . . . . 50,029 414 3.32% 55,062 448 3.27% 59,217 509 3.45%
Certificates of deposit:
$100,000 and over . . . . . . . . 51,306 679 5.31% 49,232 647 5.29% 41,945 566 5.41%
Under $100,000 . . . . . . . . . 190,094 2,689 5.67% 169,548 2,428 5.76% 151,785 2,157 5.70%
-------- ------- -------- ------ --------- --------- -----------
Total interest-bearing
deposits . . 393,262 4,489 4.58% 376,069 4,307 4.61% 353,114 4,074 4.63%
Other borrowings . . . . . . . . . . . . . 47,269 592 5.02% 37,594 484 5.18% 21,174 319 6.04%
-------- ------- ------- ----- --------- ---------
Total interest-bearing liabilities . . . . 440,531 5,081 4.63% 413,663 4,791 4.66% 374,288 4,393 4.71%
------- ----- ---------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . . 52,060 50,964 47,117
Other liabilities . . . . . . . . 4,402 4,290 4,175
-------- ------
Total liabilities . . 496,993 468,917 425,580
Stockholders' equity . . . . . . . . . . . 58,525 53,230 47,813
-------- -------- ---------
Total liabilities and
stockholders' equity . . . . . . $ 555,518 $522,147 $473,393
======== ======== ========
Net interest income . . . . . . . . . . . . $6,075 $5,629 $5,304
======== ====== ======
Interest rate spread . . . . . . . . . . . 4.04% 4.00% 4.07%
Interest expense as a percent
of average earning assets . . . . 3.95% 3.98% 3.98%
Net interest margin . . . . . . . . . . . . 4.72% 4.68% 4.80%
(1) Income and yields are reported on a taxable equivalent basis.
Union Bankshares Corporation
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent Basis)
--------------------------------------------------------------------------------------------
Six Months Ended June 30,
--------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------
(Dollars in thousands)
Assets:
Securities:
Taxable . . . . . . . . . . . $ 78,158 $2,515 6.49% $ 73,117 $ 2,208 6.07% $ 71,293 $ 2,300 6.51%
Tax-exempt(1) . . . . . . . . 66,414 2,739 8.32% 63,674 2,612 8.25% 59,320 2,374 8.07%
--------------------- ------------------------ -----------------------
Total securities . 144,572 5,254 7.33% 136,791 4,820 7.09% 130,614 4,674 7.22%
Loans, net. . . . . . . . . . . . . . . 360,538 16,524 9.24% 337,391 15,830 9.44% 301,763 14,228 9.51%
Federal funds sold . . . . . . . . . . 4,119 104 5.09% 5,121 135 5.30% 5,848 160 5.52%
Interest-bearing deposits
in other banks . . . . . . . . 815 25 6.19% 579 13 4.52% 558 16 5.78%
--------------------- ------------------------ -----------------------
Total earning
assets . . . . . 510,044 21,907 8.66% 479,881 20,798 8.72% 438,783 19,078 8.77%
Allowance for loan losses . . . . . . . (4,438) (4,213) (4,203)
Total non-earning assets . . . . . . . . 43,916 40,553 32,964
---------- ------------- ------------
Total assets . . . . . . . . . . . . . . $549,522 $516,221 $467,544
========== ============= ============
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking . . . . . . . . . . . $ 53,165 680 2.58% $ 45,556 575 2.54% 43,197 597 2.79%
Regular savings . . . . . . . 46,197 707 3.09% 56,293 999 3.57% 58,842 1,112 3.81%
Money market savings . . . . . 52,254 869 3.35% 55,066 900 3.29% 60,016 1,027 3.45%
Certificates of deposit:
$100,000 and over . . . . . . 50,602 1,324 5.28% 48,196 1,283 5.35% 40,294 1,060 5.30%
Under $100,000 . . . . . . . . 188,610 5,322 5.69% 167,857 4,895 5.86% 145,800 3,935 5.44%
--------------------- ------------------------ -----------------------
Total interest
bearing
deposits . . . . 390,829 8,902 4.59% 372,966 8,652 4.67% 348,148 7,731 4.48%
Other borrowings . . . . . . . . . . . . 43,745 1,117 5.15% 36,485 874 4.82% 22,504 668 5.99%
--------------------- ------------------------ -----------------------
Total interest-
bearing
liabilities . . . . 434,573 10,019 4.65% 409,451 9,526 4.68% 370,652 8,399 4.57%
----------- ----------- -----------
Non-interest bearing liabilities:
Demand deposits . . . . . . . 52,463 49,983 45,985
Other liabilities . . . . . . 4,530 4,066 4,151
---------- ------------- ------------
Total liabilities . 491,566 463,499 420,788
Stockholders' equity . . . . . . . . . . 57,956 52,722 46,757
---------- ------------- ------------
Total liabilities and
stockholders' equity . . . . . $549,522 $516,221 $467,544
========== ============= ============
Net interest income . . . . . . . . . . $11,888 $ 11,272 $ 10,679
=========== =========== ===========
Interest rate spread . . . . . . . . . . 4.01% 4.04% 4.20%
Interest expense as a percent
of average earning assets . . 3.96% 3.99% 3.86%
Net interest margin . . . . . . . . . . 4.70% 4.72% 4.91%
(1) Income and yields are reported on a taxable equivalent basis.
COMBINED
The following table presents the Company's interest sensitivity position at
March 31, 1997. This one-day position, which is continually changing, is not
necessarily indicative of the Company's position at any other time.
Interest Sensitivity Analysis
June 30, 1997
---------------------------------------------------------------------
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
------------- -------------- -------- ----------- -----------
(In thousands)
Earning Assets:
Loans, net of unearned income (3) $ 99,835 $ 45,154 $ 128,163 $ 97,418 $370,570
Investment securities . . . . . . 724 592 8,320 1,167 10,803
Securities available for sale. . .. 1,747 4,016 36,662 95,733 138,158
Federal funds sold . . . . . . . .. 2,722 - - - 2,722
Other short-term investments . . .. 645 - - - 645
--------------- ----------- ---------- --------- -----------
Total earning assets . . . . . . .. 105,673 49,762 173,145 194,318 522,898
--------------- ----------- ---------- --------- -----------
Interest-Bearing Liabilities:
Interest checking (2) . . . . . . - 499 56,828 - 57,327
Regular savings (2) . . . . . . . - 1,675 44,209 - 45,884
Money market savings . . . . . . .. 46,783 168 673 - 47,624
Certificates of deposit:
$100,000 and over . . . . . 12,104 25,804 16,089 - 53,997
Under $100,000 . . . . . . .. 34,952 96,573 60,053 - 191,578
Short-term borrowings. . . . . . .. 19,566 12,000 - - 31,566
Long-term borrowings . . . . . . .. 105 195 16,080 1,470 17,850
--------------- ----------- ---------- --------- -----------
Total interest-bearing
liabilities . . . . . . . . 113,510 136,914 193,932 1,470 445,826
-----------------------------------------------------------------------
Period gap . . . . . . . . . . . .. (7,837) (87,152) (20,787) 192,848
Cumulative gap . . . . . . . . . .. $ (7,837) $ (94,989) $(115,776) $ 77,072 $ 77,072
=============== =========== ========== ========= ===========
Ratio of cumulative gap to
total earning assets . . . .. -1.50% -18.17% -22.14% 14.74%
=============== =========== ========== =========
(1) The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.
(2) The Company has found that interest-bearing checking deposits and regular
savings deposits are not sensitive to changes in related market rates and
therefore, it has placed them predominantly in the "1-5 Years" column.
(3) Excludes non-accrual loans
Provision for Possible Loan Losses
The provision for possible loan losses totaled $220,000 for the second
quarter of 1997, up from $190,000 for the second quarter of 1996. The provision
for the first six months of 1997 totaled $420,000, up from $321,000 a year ago.
These provisions reflect increased charge-offs, principally in the consumer loan
portfolio and management's assessment of the credit risk in the portfolio. (See
Asset Quality)
Non-Interest Income
Non-interest income for 1997 totaled $2.2 million, up from $1.8 million a
year ago. This figure reflects $408,000 in gains on sales of real estate owned
including $299,000 in the second quarter. The second quarter of 1996 included
approximately $261,000 in proceeds from life insurance. This remaining increase
in non-interest income is due to increases in service fees on deposit accounts,
increases in other service fees and increased brokerage commissions. Management
continues to seek additional sources of non-interest income, including increased
emphasis on its credit card operations, mortgage banking activities and discount
brokerage services.
Non-Interest Expense
Non-interest expense increased by 17.5% for the second quarter of 1997,
totaling $4.0 million as compared to $3.4 million for the quarter ended June 30,
1996. Personnel costs comprised much of this change, increasing approximately
11.7% over the second quarter of 1996. In addition, occupancy and furniture and
equipment expenses increased significantly over 1996 levels for the same period.
Much of these costs are attributable to infrastructure associated with the
consolidation of certain functions and the development and introduction of new
products and delivery systems, which are expected to enhance future earnings
through increased revenue and/or improved efficiencies. The Company expects to
have consolidated data processing operations for all subsidiaries to a single
in-house system by the end of the third quarter. Northern Neck State Bank and
Union Bank and Trust Company were converted to this system in November 1996 and
April 1997, respectively, with King George State Bank to convert in July 1997.
The personnel, equipment and other costs associated with these conversions are
reflected in 1997 results. Management expects to begin to realize increased
operating efficiencies through improved access to information and economies of
scale beginning in early 1998.
The Company continues to stress budgetary expense controls and operates at
considerably more efficient levels than its peers, as measured by the efficiency
ratio (ratio of non-interest expenses to net interest income plus non-interest
income). For the first half of 1997 the Company's efficiency ratio was 57.0%.
Financial Condition
Total assets as of June 30, 1997 were $567.6 million, an increase of 4.9%
from $540.9 million at December 31, 1996 and 6.8% from $531.2 million at June
30, 1996. Asset growth
continued to be fueled by steady loan demand, as loans totaled $370.6 million at
June 30, 1997, an increase of 5.2% from $352.3 million at December 31, 1996, and
7.0% from $346.3 million at June 30, 1996. Stockholders' equity totaled $62.1
million at June 30, 1997 which represents a book value of $ 17.42 per share.
Deposit growth, though outpaced by loan growth, remained steady. Total
deposits at June 30, 1997 were $452.5 million, up 2.9% from $439.6 million at
December 31, 1996 and 5.1% from $430.7 million a year earlier. Other borrowings
totaled $49.4 million a 28.2% increase over $38.5 million at the end of 1996 and
a 20.25% increase from $41.1 million at June 30, 1996. The Company continues to
utilize other borrowings to supplement deposit growth and, periodically, in
wholesale leverage transactions. These wholesale leverage transactions are
typically executed at spreads of approximately 150 to 200 basis points and,
although they negatively impact the Company's net interest margin, they have a
positive effect on earnings and return on equity.
Continued competition for deposits, particularly as it impacts certificate
of deposit rates, is reflected in the deposit mix. Management continues to focus
on increasing lower cost deposit products, including non-interest bearing demand
deposits and savings accounts. Increased competition for funds, particularly by
non-banks, continues to contribute to a narrowing of the net interest margin
which has been largely offset by increases in the volume of earning assets.
Asset Quality
The allowance for credit losses is an estimate of an amount adequate to
provide for potential losses in the loan portfolio. The level of credit losses
is affected by general economic trends as well as conditions affecting
individual borrowers. The allowance is also subject to regulatory examinations
and determination as to adequacy, which may take in to account such factors as
the methodology used to calculate the allowance and comparison to peer groups.
The allowance for loan losses totaled $4.3 million at June 30, 1997 or
1.16% of total loans, as compared to 1.25% at December 31, 1996 and 1.23% at
June 30, 1996. At June 30, 1997, non-performing assets of $4.0 million included
foreclosed properties of $1.7 million and a $2.0 million investment in
income-producing property. The decrease from December 31, 1996 is principally
due to the sale of a single property comprising over 1800 acres in King George
County and which had been carried at $1.9 million.
June 30, December 31, June 30,
1997 1996 1996
----- ---- ----
Non-accrual loans $ 284 $ 420 $ 954
Foreclosed properties 1,779 4,056 3,976
Real estate investment 2,017 2,970 --
------ ------ ------
Non-performing assets $4,080 $7,446 $4,930
====== ====== ======
Allowance for loan losses $4,297 $4,388 $4,276
Allowance as % of total loans 1.16% 1.25% 1.23%
Capital Resources
Capital resources represent funds, earned or obtained, over which
financial institutions can exercise greater or longer control in comparison with
deposits and borrowed funds. The adequacy of the Company's capital is reviewed
by management on an ongoing basis with reference to the size, composition, and
quality of the Company's resources and consistency with regulatory requirements
and industry standards. Management seeks to maintain a capital structure that
will assure an adequate level of capital to support anticipated asset growth and
absorb potential losses.
The Federal Reserve, along with the Comptroller of the Currency and the
Federal Deposit Insurance Corporation, has adopted capital guidelines to
supplement the existing definitions of capital for regulatory purposes and to
establish minimum capital standards. Specifically, the guidelines categorize
assets and off-balance sheet items into four risk-weighted categories. The
minimum ratio of qualifying total assets is 8.0%, of which 4.0% must be Tier 1
capital, consisting of common equity and retained earnings, less certain
goodwill items.
At June 30, 1997, the Company's ratio of total capital to risk-weighted assets
was 15.59% and its ratio of Tier 1 capital to risk-weighted assets was 14.56%.
Both ratios exceed the fully phased-in capital requirements. The following
summarizes the Company's regulatory capital and related ratios at June 30, 1997:
Tier 1 capital $ 60,803
Tier 2 capital $ 4,296
Total risk-based capital $ 65,099
Total risk-weighted assets $417,668
Capital Ratios:
Tier 1 risk-based capital ratio 14.56%
Total risk-based capital ratio 15.59%
Leverage ratio (Tier I capital to
average adjusted total assets) 10.91%
Equity to assets ratio 10.95%
The Company's book value per share at June 30, 1997 was $17.42. Dividends
to stockholders are typically declared and paid semi-annually in June and
December.
Liquidity
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. Additional sources of liquidity available to the Company include its
capacity to borrow additional funds when necessary through Federal funds lines
with several regional banks and a line of credit with the Federal Home Loan
Bank. Management considers the Company's overall
liquidity to be sufficient to satisfy its depositors' requirements and to meet
its customers' credit needs.
At June 30, 1997, cash, interest-bearing deposits in other banks, federal
funds sold, securities available for sale and loans maturing or repricing in one
year were 58.7% of total earning assets. At June 30, 1997 approximately $145.0
million or 39.1% of total loans would mature or reprice within the next year.
The Company utilizes federal funds purchased, FHLB advances, securities sold
under agreements to repurchase and customer repurchase agreements, in addition
to deposits, to fund the growth in its loan portfolio, and to fund securities
purchases, periodically in wholesale leverage transactions.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) No Form 8-K was required to be filed during the most recently
completed quarter.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Union Bankshares Corporation
(Registrant)
August 14, 1996 s/ G. William Beale
----------------- ------------------------------
(Date) G. William Beale,
President, Chief Executive Officer
and Director
August 14, 1996 s/ D. Anthony Peay
------------------ ----------------------
(Date) D. Anthony Peay,
Vice President and Chief Financial Officer
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Index to Exhibits
Form 10-Q / June 30, 1997
Exhibit
No. Description
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession - Not Applicable
4 Instruments defining the rights of security holders,
including indentures Not Applicable
10 Material contracts Not Applicable
11 Statement re: computation of per share earnings Not Applicable
15 Letter re: unaudited interim financial
information Not Applicable
18 Letter re: change in accounting principles Not Applicable
19 Previously unfiled documents Not Applicable
20 Report furnished to security holders Not Applicable
22 Published report re: matters submitted to
vote of security holders None
23 Consents of experts and counsel Not Applicable
24 Power of Attorney Not Applicable
99 Additional Exhibits None