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, 1996
Commission File No. 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1598552
(State of Incorporation) (I.R.S. Employer Identification No.)
211 North Main Street
P.O. Box 446
Bowling Green, Virginia 22427
(Address of principal executive offices)
(804) 633-5031
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON
STOCK, $4 PAR VALUE
Union Bankshares Corporation (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
As of June 30, 1996, Union Bankshares Corporation had 3,292,049 shares of
Common Stock outstanding.
<PAGE>
UNION BANKSHARES CORPORATION
FORM 10-Q
June 30, 1996
INDEX
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995.......................................... 1
Consolidated Statements of Income for the
three and six months ended June 30, 1996 and 1995.............. 2
Consolidated Statements of Cash Flows for the
three and six months ended June 30, 1996 and 1995.............. 3
Notes to Consolidated Financial Statements.......................... 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 5-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................. 12
Signatures................................................................ 12
Index to Exhibits......................................................... 13
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
- -------- ---- ----
<S> <C>
Cash and cash equivalents:
Cash and due from banks $ 15,451 $ 13,448
Interest-bearing deposits in other banks 418 124
Federal funds sold 2,808 2,050
----------- ------------
Total cash and cash equivalents 18,677 15,622
----------- ------------
Securities available for sale, at fair value 121,220 122,937
Investments securities,
fair value of $7,140 and $9,533, respectively 6,698 9,146
----------- ------------
Total securities 127,918 132,083
----------- ------------
Loans, net of unearned income 313,490 294,133
Less allowance for loan losses (note 2) 3,953 3,757
----------- ------------
Net loans 309,537 290,376
----------- ------------
Bank premises and equpiment, net 11,405 9,523
Other real estate owned 3,748 3,288
Other assets 10,402 7,821
----------- ------------
Total assets $ 481,687 $ 458,713
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 47,459 $ 44,276
Interest-bearing deposits:
Savings accounts 49,450 46,453
NOW accounts 42,488 40,856
Money market accounts 51,377 53,184
Time deposits of $100,000 and over 41,331 39,043
Other time deposits 154,777 150,540
----------- ------------
Total interest-bearing deposits 339,423 330,076
----------- ------------
Total deposits 386,882 374,352
----------- ------------
Short-term borrowings 29,927 31,108
Long-term borrowings 11,200 1,275
Other liabilities 2,701 2,686
----------- ------------
Total liabilities 430,710 409,421
----------- ------------
Stockholders' equity:
Common stock, $4 par value. Authorized 12,000,000 shares;
issued and outstanding, 3,286,970 shares 13,168 13,148
Surplus 674 566
Retained earnings 37,427 34,938
Unrealized gains (losses) on securities available for sale,
net of taxes (292) 640
----------- ------------
Total stockholders' equity 50,977 49,292
----------- ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 481,687 $ 458,713
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended Six Months Ended
June 30, June 30,
-------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
Interest Income:
Interest and fees on loans $ 7,224 $ 6,503 $ 14,289 $ 12,777
Interest on securities:
U.S. Treasury securities 42 49 95 107
Obligations of U.S. Government
agencies and corporations 785 933 1,680 1,905
Obligations of states and political subdivisions 841 725 1,690 1,450
Other securities 153 131 288 239
Interest on Federal funds sold 36 108 91 153
Interest on interest-bearing deposits in other banks 2 10 4 16
-------- -------- -------- --------
Total interest income 9,083 8,459 18,137 16,647
-------- -------- -------- --------
Interest expense:
Interest on deposits 3,900 3,697 7,835 6,970
Interest on other borrowings 484 305 867 654
-------- -------- -------- --------
Total interest expense 4,384 4,002 8,702 7,624
-------- -------- -------- --------
Net interest income 4,699 4,457 9,435 9,023
Provision for loan losses (note 2) 150 150 231 300
-------- -------- -------- --------
Net interest income after provision
for loan losses 4,549 4,307 9,204 8,723
-------- -------- -------- --------
Other income:
Service fees 678 467 1,218 886
Gains (losses) on sale of securities available for sale 3 (4) (103) (39)
Gains (losses) on sales of other real estate owned
and bank premises, net 64 - 64 (5)
Other operating income 121 114 246 200
-------- -------- -------- --------
Total other income 866 577 1,425 1,042
-------- -------- -------- --------
Other expenses:
Salaries and wages 1,324 1,100 2,593 2,288
Pensions and other employee benefits 372 441 794 782
Occupancy expenses 191 133 360 269
Furniture and equipment expenses 238 257 461 486
FDIC assessments 1 201 2 390
Other operating expenses 978 906 1,960 1,687
-------- -------- -------- --------
Total other expenses 3,104 3,038 6,170 5,902
-------- -------- -------- --------
Income before income taxes 2,311 1,846 4,459 3,863
Income tax expense 513 404 984 873
-------- -------- -------- --------
Net income $ 1,798 $ 1,442 $ 3,475 $ 2,990
======== ======== ======== ========
Net income per share of common stock $ 0.55 $ 0.44 $ 1.06 $ 0.92
======== ======== ======== ========
Cash dividends per share of common stock $ 0.30 $ 0.28 $ 0.30 $ 0.28
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Operating activities:
Net income $ 3,475 $ 2,990
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 412 413
Amortization of intangibles 18 10
Provision for loan losses 231 300
Losses on sales of securities available for sale 66 40
Loss on sale of bank premises and other real estate owned 1 5
(Increase) decrease in other assets (2,435) 413
Decrease (increase) in other liabilities 818 (309)
---------- ---------
Net cash and cash equivalents provided
by operating activities 2,586 3,862
---------- ---------
Investing activities:
Net decrease (increase) in securities 2,200 (1,434)
Net increase in loans (19,859) (11,438)
Acquisition of bank premises and equipment (2,297) (1,617)
Proceeds from sales of bank premises and other real estate owned 7 70
---------- ---------
Net cash and cash equivalents used in
investing activities (19,949) (14,419)
---------- ---------
Financing activities:
Net increase (decrease) in non-interest-bearing deposits 3,183 (1,094)
Net increase in interest-bearing deposits 9,348 13,285
Net decrease in short-term borrowings 8,819 3,772
Repayment of long-term borrowings (75) (75)
Cash dividends paid (858) (802)
---------- ---------
Net cash and cash equivalents provided by
financing activities 20,417 15,086
---------- ---------
Increase in cash and cash equivalents 3,054 4,529
Cash and cash equivalents at beginning of period 15,623 17,002
---------- ---------
Cash and cash equivalents at end of period $ 18,677 $ 21,531
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
1. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Union
Bankshares Corporation and its subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in
consolidation.
The information contained in the financial statements is unaudited and
does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of the interim periods presented have been
made. Operating results for the three- and six-month periods ended June
30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1995 Annual Report to Stockholders. Certain previously reported
amounts have been reclassified to conform to current period presentation.
2. ALLOWANCE FOR LOAN LOSSES
The following summarizes activity in the allowance for loan losses for the
six months ended June 30, (in thousands):
1996 1995
---- ----
Balance, January 1 $ 3,757 $ 3,734
Provisions charged to operations 231 300
Recoveries credited to allowance 283 79
-------- --------
Total 4,271 4,113
Loans charged off (319) (280)
-------- --------
Balance, June 30 $ 3,952 $ 3,833
======== ========
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 3,287,807 and 3,264,906 for
the three months ended June 30, 1996 and 1995, respectively and 3,287,389
and 3,264,514 for the six months ended June 30, 1996 and 1995,
respectively.
<PAGE>
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 and Union Investment Services, Inc. Both subsidiary banks, Union Bank &
Trust Company and Northern Neck State Bank, are full service retail commercial
banks offering a wide range of banking and related financial services, including
demand and time deposits, as well as commercial, industrial, residential
construction, residential mortgage and consumer loans. Union Investment
Services, Inc., is a full service discount brokerage company which offers a full
range of investment services, and sells mutual funds, bonds and stocks.
The Company's primary trade area stretches from Fredericksburg, south to
Hanover County and east to the Northern Neck area of Virginia. The Corporate
Headquarters are located in Bowling Green, Virginia. Through its banking
subsidiaries, the Company operates 16 branches in its primary trade area. In
March 1996, Union Bank & Trust Company opened the first of its three planned
in-store branches in a FasMart convenience store in Stafford County. In
addition, Northern Neck State Bank is scheduled to open a branch located in a
WalMart Superstore in Tappahannock, Virginia. Management feels in-store
branching supplements its existing branch network, providing increased
accessibility for its customers and a competitive advantage for the Company.
On March 13, 1996, the Company announced it had entered into an agreement
which provided for the affiliation of King George State Bank, Inc. with the
Company. King George State Bank is a $50 million bank located in King George,
Virginia adjacent to and encompassing certain of the markets currently served by
the Company. Under the terms of the agreement, the Company would exchange 5.5
shares of its common stock for each outstanding share of King George State Bank,
Inc. stock. The agreement requires the approval of various regulatory agencies
and satisfaction of other standard conditions. Shareholders of King George State
Bank are expected to consider the affiliation at a special shareholder meeting
to be held on August 20, 1996.
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 1996 was $1.8 million, up 24.7% from
$1.4 million for the same period in 1995. Earnings per share increased from $.44
in the second quarter of 1995 to $.55 in the second quarter of 1996. The
Company's annualized return on assets for the second quarter of 1996 was 1.51%
as compared to 1.36% a year ago. The Company's annualized return on equity
totaled 14.26% and 13.22% for the three months ended June 30, 1996 and 1995,
respectively.
<PAGE>
Net income for the first six months of 1996 totaled $3.5 million, up
16.22% from the same period in 1995. Earnings per share increased from $.92 in
the first six months of 1995 to $1.06 in 1996. The Company's annualized return
on assets for the first six months of 1996 was 1.48% as compared to 1.42% a year
ago. The Company's annualized return on equity totaled 13.90% and 14.01% for the
six months ended June 30, 1996 and 1995, respectively. Despite strong asset and
capital growth, these performance ratios remain strong performance ratios by
industry and peer standards.
Net income for the first half of 1996 reflects the continued competition
for funds in the industry and increases in certain growth-related and
infrastructure costs. Management expects increasing returns on these
infrastructure costs through the development of new products and delivery
systems. Such developments include "supermarket" branching, telephone banking,
check cards, a credit card agency program and enhanced mortgage lending.
Net Interest Income
Net interest income on a tax-equivalent basis for the second quarter of
1996 increased by 6.6% to $5.1 million from $4.8 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 1996 increased by $40.2 million to $438.8 million from the second
quarter of 1995, while average interest-bearing liabilities grew by $38.6
million to $376.4 million over this same period. This additional growth in net
earning assets was accomplished principally through continued strong loan demand
over the last year. The industry has generally experienced steady, but slower,
loan demand which, combined with increased competition for deposits, has led to
a compression of interest margins. The Company's yield on average earning assets
was down 17 basis points at 8.67% from 8.84% a year ago, while its cost of
average interest-bearing liabilities decreased by 8 basis points to 4.67%. This
net reduction of 9 basis points lowered the net interest spread to 4.00% and the
net interest margin, or net yield on average earning assets, to 4.66%.
<PAGE>
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates
(Taxable Equivalent Basis)
Three Months Ended June 30,
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ ----------- ----------- ----------- ----------- ----------
<S> <C> (Dollars in thousands)
Assets:
Securities:
Taxable ..................................... $ 63,498 $ 965 6.10% $ 68,603 $ 1,096 6.41%
Tax-exempt(1) ............................... 62,503 1,259 8.08% 50,451 1,072 8.52%
------------ ----------- ----------- ----------
Total securities .......................... 126,001 2,224 7.08% 119,054 2,168 7.30%
Loans, net ...................................... 309,669 7,223 9.36% 271,738 6,503 9.60%
Federal funds sold .............................. 2,711 34 5.03% 7,170 107 5.99%
Interest-bearing deposits
in other banks ............................... 433 4 3.71% 698 9 5.17%
------------ ----------- ----------- ----------
Total earning assets ....................... 438,814 9,485 8.67% 398,660 8,787 8.84%
Allowance for loan losses ....................... (3,983) (3,787)
Total non-earning assets ........................ 38,385 30,781
------------ -----------
Total assets .................................... $ 473,216 $ 425,654
============ ===========
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking .................................... 41,388 265 2.57% 38,162 270 2.84%
Regular savings ............................. 47,117 416 3.54% 45,643 454 3.99%
Money market savings ........................ 53,808 440 3.28% 58,047 503 3.48%
Certificates of deposit:
$100,000 and over ........................... 40,577 566 5.59% 35,190 488 5.56%
Under $100,000 .............................. 155,907 2,213 5.69% 139,557 1,982 5.70%
------------ ----------- ----------- ----------
Total interest-bearing
deposits ........................ 338,797 3,900 4.62% 316,599 3,697 4.68%
Other borrowings ................................ 37,594 484 5.16% 21,174 305 5.78%
------------ ----------- ----------- ----------
Total interest-bearing
liabilities ..................... 376,391 4,384 4.67% 337,773 4,002 4.75%
----------- ----------
Non-interest bearing liabilities:
Demand deposits ............................. 44,918 40,847
Other liabilities ........................... 3,343 3,335
------------ -----------
Total liabilities ......................... 424,652 381,955
Stockholders' equity ............................ 48,564 43,699
------------ -----------
Total liabilities and
stockholders' equity ........................ $ 473,216 $ 425,654
============ ===========
Net interest income ............................. $ 5,101 $ 4,785
=========== ==========
Interest rate spread ............................ 4.00% 4.09%
Interest expense as a percent
of average earning assets ................... 4.01% 4.03%
Net interest margin ............................. 4.66% 4.81%
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
1994
----------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
----------- ---------- ---------
<S> <C>
Assets:
Securities:
Taxable ..................................... $ 70,111 1,085 6.21%
Tax-exempt(1) ............................... 50,875 1,029 8.11%
----------- ----------
Total securities .......................... 120,986 2,114 7.01%
Loans, net ...................................... 234,591 5,119 8.75%
Federal funds sold .............................. 3,463 33 3.82%
Interest-bearing deposits
in other banks ............................... 965 18 7.48%
----------- ----------
Total earning assets ....................... 360,005 7,284 8.12%
Allowance for loan losses ....................... (3,520)
Total non-earning assets ........................ 26,646
-----------
Total assets .................................... $ 383,131
===========
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking .................................... 43,372 244 2.26%
Regular savings ............................. 37,729 486 5.17%
Money market savings ........................ 59,371 484 3.27%
Certificates of deposit:
$100,000 and over ........................... 25,873 265 4.11%
Under $100,000 .............................. 120,980 1,158 3.84%
----------- ----------
Total interest-bearing
deposits ........................ 287,325 2,637 3.72%
Other borrowings ................................ 14,730 136 3.74%
----------- ----------
Total interest-bearing
liabilities ..................... 302,055 2,773 3.72%
----------
Non-interest bearing liabilities:
Demand deposits ............................. 37,223
Other liabilities ........................... 3,336
-----------
Total liabilities ......................... 342,614
Stockholders' equity ............................ 40,517
-----------
Total liabilities and
stockholders' equity ........................ $ 383,131
===========
Net interest income ............................. $ 4,511
==========
Interest rate spread ............................ 4.39%
Interest expense as a percent
of average earning assets ................... 3.12%
Net interest margin ............................. 5.08%
</TABLE>
<PAGE>
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates
(Taxable Equivalent Basis)
Six Months Ended June 30,
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
--------------------------------------- ------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield
Balance Expense Rate Balance Expense Rate
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> (Dollars in thousands)
Assets:
Securities:
Taxable.................................. $ 66,029 $ 2,032 6.22% $ 68,438 $ 2,217 6.53%
Tax-exempt (1)........................... 61,093 2,530 8.37% 50,227 2,148 8.62%
---------- ---------- ---------- ----------
Total securities...................... 127,121 4,562 7.26% 118,665 4,365 7.42%
Loans, net................................. 304,336 14,288 9.49% 269,668 12,777 9.55%
Federal funds sold......................... 3,229 82 5.14% 5,138 153 6.00%
Interest-bearing deposits
in other banks............................ 579 13 4.54% 558 16 5.78%
---------- ---------- ---------- ----------
Total earning assets.................... 435,266 18,945 8.80% 394,029 17,311 8.86%
Allowance for loan losses.................. (3,890) - (3,785)
Total non-earning assets................... 36,636 - 29,483
---------- ----------
Total assets............................... $ 468,011 $ 419,727
========== ==========
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking................................. 41,293 528 2.59% 38,667 548 2.86%
Regular savings.......................... 46,926 839 3.62% 46,062 902 3.95%
Money market savings..................... 53,837 885 3.32% 58,820 1,013 3.47%
Certificates of deposit:
$100,000 and over........................ 39,969 1,124 5.69% 34,155 918 5.42%
Under $100,000........................... 154,255 4,459 5.85% 133,793 3,589 5.41%
---------- ---------- ---------- ----------
Total interest-bearing
deposits............................ 336,279 7,835 4.71% 311,497 6,970 4.51%
Other borrowings........................... 36,485 867 4.81% 22,504 654 5.86%
---------- ---------- ---------- ----------
Total interest-bearing
liabilities......................... 372,763 8,702 4.72% 334,001 7,624 4.60%
---------- ----------
Non-interest bearing liabilities:
Demand deposits.......................... 43,953 39,734
Other liabilities........................ 3,137 3,318
---------- ----------
Total liabilities..................... 418,853 377,053
Stockholders' equity....................... 48,159 42,674
---------- ----------
Total liabilities and
stockholders' equity...................... $ 468,011 $ 419,727
========== ==========
Net interest income........................ $ 10,243 $ 9,687
========== ==========
Interest rate spread....................... 4.08% 4.26%
Interest expense as a percent
of average earning assets................. 4.04% 3.90%
Net interest margin........................ 4.76% 4.97%
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
1994
---------------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
---------- ---------- ----------
<S> <C>
Assets:
Securities:
Taxable.................................. $ 69,616 $ 2,161 6.26%
Tax-exempt (1)........................... 50,560 2,129 8.49%
---------- ----------
Total securities...................... 120,176 4,290 7.20%
Loans, net................................. 232,410 9,993 8.67%
Federal funds sold......................... 3,812 67 3.54%
Interest-bearing deposits
in other banks............................ 662 25 7.62%
---------- ----------
Total earning assets.................... 357,060 14,375 8.12%
Allowance for loan losses.................. (3,459)
Total non-earning assets................... 26,556
----------
Total assets............................... $ 380,157
==========
Liabilities & Stockholders' Equity:
Interest-bearing deposits:
Checking................................. 43,262 480 2.24%
Regular savings.......................... 37,377 783 4.22%
Money market savings..................... 59,539 952 3.22%
Certificates of deposit:
$100,000 and over........................ 26,212 528 4.06%
Under $100,000........................... 121,002 2,512 4.19%
---------- ----------
Total interest-bearing
deposits............................ 287,392 5,255 3.69%
Other borrowings........................... 14,271 231 3.26%
---------- ----------
Total interest-bearing
liabilities......................... 301,663 5,486 3.67%
----------
Non-interest bearing liabilities:
Demand deposits.......................... 35,465
Other liabilities........................ 2,968
----------
Total liabilities..................... 340,096
Stockholders' equity....................... 40,061
----------
Total liabilities and
stockholders' equity...................... $ 380,157
==========
Net interest income........................ $ 8,889
==========
Interest rate spread....................... 4.45%
Interest expense as a percent
of average earning assets................. 3.10%
Net interest margin........................ 5.03%
</TABLE>
<PAGE>
The following table presents the Company's interest sensitivity position at June
30, 1996. This one-day position, which is continually changing, is not
necessarily indicative of the Company's position at any other time.
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
June 30, 1996
----------------------------------------------------------------
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
----------- ------------ ------------ ---------- -----------
(In thousands)
<S> <C>
Earning Assets:
Loans, net of unearned income (3)... $ 72,348 $ 59,949 $ 117,822 $ 62,688 $ 312,807
Investment securities............... 400 517 4,941 840 6,698
Securities available for sale....... 6,289 2,181 30,239 82,511 121,220
Federal funds sold.................. 2,808 - - - 2,808
Other short-term investments........ 418 - - - 418
----------- ------------ ------------ ----------- -----------
Total earning assets................ 82,263 62,647 153,002 146,039 443,951
----------- ------------ ------------ ----------- -----------
Interest-Bearing Liabilities:
Interest checking (2)............... - - 42,488 - 42,488
Regular savings (2)................. - 1,978 47,472 - 49,450
Money market savings................ 25,103 - 26,274 - 51,377
Certificates of deposit:
$100,000 and over................ 10,047 13,898 17,386 - 41,331
Under $100,000................... 22,628 69,699 62,450 - 154,777
Short-term borrowings............... 18,267 11,660 - - 29,927
Long-term borrowings................ 75 75 10,600 450 11,200
----------- ------------ ------------ ----------- -----------
Total interest-bearing
liabilities...................... 76,120 97,310 206,670 450 380,550
----------------------------------------------------------------
Period gap.......................... 6,143 (34,663) (53,668) 145,589
Cumulative gap...................... $ 6,143 $ (28,520) $ (82,188 $ 63,401 $ 63,401
=========== ============ ============ =========== ==========
Ratio of cumulative gap to
total earning assets............. 1.38% -6.42% -18.51% 14.28%
=========== ============ ============ ===========
</TABLE>
Balance Sheet Totals
---------------------------
Total Difference
---------------------------
Earning Assets:
Loans, net of unearned income (3)... 313,490 683 Non-accrual loans
Investment securities............... 6,698 -
Securities available for sale....... 121,220 - includes $1119 UBSH
securities
Federal funds sold.................. 2,808 -
Other short-term investments........ 418 -
----------
Total earning assets................ 444,634 683
---------- -
-
Interest-Bearing Liabilities: -
Interest checking (2)............... 42,448 -
Regular savings (2)................. 49,450 -
Money market savings................ 51,377 -
Certificates of deposit: -
$100,000 and over................ 41,331 -
Under $100,000................... 154,777 -
Short-term borrowings............... 29,927 -
Long-term borrowings................ 11,200 -
---------- -
Total interest-bearing -
liabilities...................... 380,550 -
Period gap..........................
Cumulative gap......................
Ratio of cumulative gap to
total earning assets.............
(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 totaling $545
<PAGE>
Provision for Possible Loan Losses
The provision for possible loan losses totaled $150,000 for the second
quarter of both 1996 and 1995. Provisions for the first six months of 1996 and
1995 totaled $231,000 and $300,000, respectively. These provisions reflect
recoveries of $283,000 on loans previously charged off, including approximately
$230,000 related to a single real estate loan. It is also reflective of the
performance of the loan portfolio and management's assessment of the credit risk
in the portfolio. (See Asset Quality)
Non-Interest Income
Non-interest income for the second quarter of 1996 totaled $866,000, up
from $577,000 a year ago. Non-interest income for the first six months of 1996
totaled $1.43 million, up from $1.04 million in 1995. This increase is due
principally to the increases in income from service fees on deposit accounts,
increased brokerage commissions and additional fee income on mortgage loans
originated for the secondary market. Fees generated by the Company's brokerage
subsidiary increased by $104,000 over 1995 levels. Management continues to seek
additional sources of non-interest income, including increased emphasis on its
credit card operations, mortgage banking activities and discount brokerage
services.
Non-Interest Expense
Non-interest expense increased by 2.17% for the second quarter of 1996,
totaling $3.1 million as compared to $3.04 million for the quarter ended June
30, 1995. Personnel costs comprised much of this change, increasing
approximately 10.0% over the second quarter of 1995, consistent with the loan
and asset growth for the same period of 13.6% and 11.1%, respectively.
Much of this cost is attributable to infrastructure associated with the
development and introduction of new products and delivery systems, which are
expected to enhance future earnings through increased revenue and/or improved
efficiencies. The Company continues to stress budgetary expense controls and
operates at considerably more efficient levels than its peers, as measured by
the efficiency ratio (ratio of non-interest expenses to net interest income plus
non-interest income). For the second quarter of 1996 the Company's efficiency
ratio was 55.8%.
Financial Condition
Total assets as of June 30, 1996 were $481.7 million, an increase of 5.0%
from $458.7 million at December 31, 1995 and 11.1% from $433.6 million at June
30, 1995. Asset growth continued to be fueled by strong loan demand, as loans
totaled $ 313.5 million at June 30, 1996, an increase of 6.6% from $294.1
million at December 31, 1995, and 13.6% from $275.9 million at June 30, 1995.
Stockholders' equity totaled $51.0 million at June 30, 1996 which represents a
book value of $ 15.49 per share.
<PAGE>
Deposit growth, though outpaced by loan growth, remained steady. Total
deposits at June 30, 1996 were $386.9 million, up 3.4% from December 31, 1995
and 7.7% from $359.2 million a year earlier. Other borrowings totaled $41.1
million a 27.0% increase over $32.4 million at the end of 1995 and a 60.2%
increase from $25.7 million at June 30, 1995. The Company continues to utilize
other borrowings to supplement deposit growth and, periodically, in wholesale
leverage transactions.
Continued competition for deposits, particularly as it impacts certificate
of deposit rates, is reflected in the deposit mix. Management's focus on
increasing lower costs deposit products has resulted in improved growth in those
products, including non-interest bearing demand deposits and savings accounts.
Increased competition for funds, particularly by non-banks, continues to
contribute to a narrowing of the net interest margin which has been largely
offset by increases in the volume of earning assets.
Asset Quality
The allowance for credit losses is an estimate of an amount adequate to
provide for potential losses in the loan portfolio. The level of credit losses
is affected by general economic trends as well as conditions affecting
individual borrowers. The allowance is also subject to regulatory examinations
and determination as to adequacy, which may take in to account such factors as
the methodology used to calculate the allowance and comparison to peer groups.
The allowance for loan losses totaled $3.95 million at June 30, 1996 or
1.26% of total loans, as compared to 1.28% at December 31, 1995 and 1.39% at
June 30, 1995. Non-performing assets of $4.5 million included foreclosed
properties of $3.6 million at June 30, 1996. The increase from the prior year is
principally due to the addition of a single property comprising over 1800 acres
in King George County and carried at $1.9 million.
June 30 December 31, June 30,
1996 1995 1995
----- ---- ----
Non-accrual loans $ 795 $ 596 $ 373
Foreclosed properties 3,748 3,288 1,488
------ ----- ------
Non-performing assets $ 4,543 $ 3,884 $ 1,861
====== ====== ======
Allowance for loan losses $ 3,952 $ 3,757 $ 3,833
Allowance as % of total loans 1.26% 1.28% 1.39%
Non-performing assets to loans
and foreclosed properties 1.43% 1.31% .67%
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.
<PAGE>
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, 1996, the Company's ratio of total capital to risk-weighted assets
was 15.77% and its ratio of Tier 1 capital to risk-weighted assets was 14.61%.
Both ratios exceed the fully phased-in capital requirements. The following
summarizes the Company's regulatory capital and related ratios at June 30, 1996
(dollars in thousands):
Tier 1 capital $ 50,996
Tier 2 capital $ 3,953
Total risk-based capital $ 54,949
Total risk-weighted assets $ 349,938
Capital Ratios:
Tier 1 risk-based capital ratio 14.28%
Total risk-based capital ratio 15.70%
Leverage ratio (Tier I capital to
average adjusted total assets) 10.65%
Equity to assets ratio 10.67%
The Company's book value per share at June 30, 1996 was $15.48. 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, 1996, cash, interest-bearing deposits in other banks, federal
funds sold, securities available for sale and loans maturing or repricing in one
year were 62.7% of total earning assets. At June 30, 1996 approximately $138.3
million or 44.2% of total loans would mature or reprice within the next year.
The Company utilizes federal funds purchased, FHLB advances, securities sold
under agreements to repurchase and customer repurchase agreements, in addition
to deposits, to fund the growth in its loan portfolio, and to fund securities
purchases.
<PAGE>
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 13, 1996 /s/ G. William Beale
(Date) G. William Beale,
President, Chief Executive Officer
and Director
August 13, 1996 /s/ D. Anthony Peay
----------------------- ---------------------
(Date) D. Anthony Peay,
Vice President and Chief Financial Officer
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Index to Exhibits
Form 10-Q / June 30, 1996
Exhibit
No. Description
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession - Not Applicable
4 Instruments defining the rights of security holders,
including indentures Not Applicable
10 Material contracts Not Applicable
11 Statement re: computation of per share earnings Not Applicable
15 Letter re: unaudited interim financial
information Not Applicable
18 Letter re: change in accounting principles Not Applicable
19 Previously unfiled documents Not Applicable
20 Report furnished to security holders Not Applicable
22 Published report re: matters submitted to
vote of security holders None
23 Consents of experts and counsel Not Applicable
24 Power of Attorney Not Applicable
99 Additional Exhibits None
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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<FED-FUNDS-SOLD> 2,808
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<INVESTMENTS-HELD-FOR-SALE> 121,220
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<OTHER-SE> 37,809
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