RICHMOND, Va., April 24, 2018 (GLOBE NEWSWIRE) -- Union Bankshares Corporation (NASDAQ:UBSH) today reported net income of $16.6 million and earnings per share of $0.25 for its first quarter ended March 31, 2018. Net operating earnings(1) were $38.9 million and operating earnings per share(1) were $0.59 for its first quarter ended March 31, 2018; these operating results exclude $22.2 million in after-tax merger-related costs.
The Company's first quarter of 2018 results include the financial results of Xenith Bankshares, Inc. (“Xenith”), which the Company acquired on January 1, 2018.
“Union is off to a strong start to the year as demonstrated by our financial results and the Xenith integration continues to go well,” said John C. Asbury, President and CEO of Union Bankshares Corporation. “With solid loan and deposit growth and meaningful improvements to our profitability metrics, on an operating basis, I believe our first quarter results signal the underlying strength and earnings potential of this uniquely valuable franchise - Virginia’s regional bank.
The ‘new Union’ team is energized and has come together seamlessly. Core systems conversion remains on track to be completed in May and we have a clear line of sight to fully achieve our cost savings target beginning in the fourth quarter of 2018. We remain focused on achieving our 2018 priorities and generating top-tier financial performance for our shareholders.”
Select highlights for the first quarter of 2018 include:
- Performance metrics linked quarter
- Return on Average Assets (“ROA”) was 0.52% compared to 0.66% in the fourth quarter of 2017. The decline was driven by the increased merger-related costs in the first quarter of 2018 compared to the prior quarter. Operating ROA(1) increased to 1.21% compared to 1.00% in the fourth quarter of 2017.
- Return on Average Equity (“ROE”) was 3.70% compared to 5.75% in the fourth quarter of 2017. The decline in ROE was related to the increased merger-related costs in the first quarter of 2018 compared to the prior quarter. Operating ROE(1) was 8.64% compared to 8.63% in the fourth quarter of 2017.
- Return on Average Tangible Common Equity (“ROTCE”) was 6.40% compared to 8.20% in the fourth quarter of 2017. The decline in ROTCE was related to the increased merger-related costs in the first quarter of 2018 compared to the prior quarter. Operating ROTCE(1) increased to 14.95% compared to 12.32% in the fourth quarter of 2017.
- Efficiency ratio increased to 82.5% compared to 66.1% in the fourth quarter of 2017 and the efficiency ratio (FTE) increased to 81.5% compared to 64.2% in the fourth quarter of 2017 driven by the increased merger-related costs in the first quarter of 2018 compared to the prior quarter. Operating efficiency ratio(1) improved to 59.8% compared to 62.1% in the fourth quarter of 2017.
- Segment results
- Net income for the community bank segment was $16.4 million, or $0.25 per share; operating earnings(1) for the community bank segment were $38.7 million, or $0.59 per share.
- Net income for the mortgage segment was $208,000 compared to net income of $199,000 and operating earnings(1), which excludes nonrecurring tax expenses, of $329,000 in the fourth quarter of 2017.
(1) For a reconciliation of the non-GAAP operating measures that exclude merger-related costs and/or nonrecurring tax expenses unrelated to the Company’s normal operations, see Alternative Performance Measures (non-GAAP) section of the Key Financial Results.
NET INTEREST INCOME
For the first quarter of 2018, net interest income was $103.7 million, an increase of $30.4 million from the fourth quarter of 2017. Tax-equivalent net interest income was $105.3 million in the first quarter of 2018, an increase of $29.1 million from the fourth quarter of 2017. The increases in both net interest income and tax-equivalent net interest income were primarily the result of a $3.2 billion increase in average interest-earning assets and a $2.6 billion increase in average interest-bearing liabilities from the full quarter impact of the Xenith acquisition. The first quarter net interest margin increased 16 basis points to 3.67% from 3.51% in the previous quarter, while the tax-equivalent net interest margin increased 8 basis points to 3.72% from 3.64% during the same periods. The increase in the net interest margin was principally due to an increase in the yield on earning assets, partially offset by a smaller increase in cost of funds.
ASSET QUALITY/LOAN LOSS PROVISION
Overview
During the first quarter of 2018, the Company experienced increases in nonperforming asset (“NPA”) balances from the prior quarter, primarily related to nonaccrual additions of mortgage and commercial & industrial loans and acquired other real estate owned (“OREO”). At March 31, 2018, NPAs as a percentage of total outstanding loans declined compared to the prior quarter and same quarter the prior year. Past due loan levels as a percentage of total loans held for investment at March 31, 2018 were fairly consistent with past due loan levels at December 31, 2017 and March 31, 2017. Charge-off levels and the loan loss provision decreased from the fourth quarter of 2017.
All nonaccrual and past due loan metrics discussed below exclude purchased credit impaired (“PCI”) loans totaling $102.9 million (net of fair value mark of $21.7 million).
Past Due Loans
Past due loans still accruing interest totaled $41.6 million, or 0.42% of total loans, at March 31, 2018 compared to $27.8 million, or 0.39% of total loans, at December 31, 2017 and $26.9 million, or 0.41% of total loans, at March 31, 2017. Of the total past due loans still accruing interest, $2.6 million, or 0.03% of total loans, were loans past due 90 days or more at March 31, 2018, compared to $3.5 million, or 0.05% of total loans, at December 31, 2017 and $2.3 million, or 0.04% of total loans, at March 31, 2017.
Net Charge-offs
For the first quarter of 2018, net charge-offs were $1.1 million, or 0.05% of total average loans on an annualized basis, compared to $2.7 million, or 0.15%, for the prior quarter and $788,000, or 0.05%, for the same quarter last year. Of the net charge-offs in the first quarter of 2018, the majority were related to consumer loans.
Provision for Loan Losses
The provision for loan losses for the first quarter of 2018 was $3.5 million, a decrease of $211,000 compared to the previous quarter and an increase of $1.5 million compared to the same quarter in 2017. The decrease in provision from the fourth quarter of 2017 was primarily driven by lower levels of charge-offs partially offset by the impact of loan growth in the current quarter. The increase in the provision for loan losses compared to the first quarter of 2017 was primarily driven by loan growth and higher levels of charge-offs in the first quarter of 2018.
Allowance for Loan Losses (“ALL”)
The ALL increased $2.4 million from December 31, 2017 to $40.6 million at March 31, 2018 primarily due to organic loan growth during the quarter. The ALL as a percentage of the total loan portfolio was 0.41% at March 31, 2018, 0.54% at December 31, 2017, and 0.59% at March 31, 2017. The decline in the allowance ratio was primarily attributable to the acquisition of Xenith. In acquisition accounting, there is no carryover of previously established allowance for loan losses.
The ratio of the ALL to nonaccrual loans was 161.6% at March 31, 2018, compared to 175.7% at December 31, 2017 and 172.0% at March 31, 2017. The current level of the allowance for loan losses reflects specific reserves related to nonperforming loans, current risk ratings on loans, net charge-off activity, loan growth, delinquency trends, and other credit risk factors that the Company considers important in assessing the adequacy of the allowance for loan losses.
NONINTEREST INCOME
Noninterest income increased $5.1 million, or 29.4%, to $22.3 million for the quarter ended March 31, 2018 from $17.2 million in the prior quarter, primarily driven by the acquisition of Xenith. Other operating income includes a gain of $1.4 million related to the sale of the Company's ownership interest in a payments-related company.
Mortgage banking income decreased $77,000, or 3.6%, to $2.0 million in the first quarter of 2018 compared to the fourth quarter of 2017, primarily related to declines in mortgage loan originations offset by unrealized gains on mortgage banking derivatives in the first quarter of 2018 compared to losses in the fourth quarter of 2017. Mortgage loan originations declined by $29.4 million, or 24.1%, in the first quarter of 2018 to $92.5 million from $121.9 million in the fourth quarter of 2017. Of the mortgage loan originations in the first quarter of 2018, 38.5% were refinances compared with 34.4% in the prior quarter.
NONINTEREST EXPENSE
Noninterest expense increased $44.1 million to $104.0 million for the quarter ended March 31, 2018 from $59.9 million in the prior quarter. Excluding merger-related costs of $27.7 million and $1.9 million in the first quarter of 2018 and the fourth quarter of 2017, respectively, operating noninterest expense increased $18.3 million to $76.3 million when compared to the fourth quarter of 2017. The increase in operating noninterest expense was primarily related to the acquisition of Xenith.
INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. Among other things, the Tax Act permanently reduced the corporate tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, companies are required to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the fourth quarter of 2017. The Company continues to evaluate the impact on its 2017 tax expense of the revaluation required by the lower corporate tax rate implemented by the Tax Act, which management has estimated to fall between $5.0 million and $8.0 million. During the fourth quarter of 2017, the Company recorded $6.3 million in additional tax expense based on the Company's preliminary analysis of the impact of the Tax Act. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. The actual results may differ from the current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company has preliminarily made. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment. No additional adjustments related to the Tax Act were recorded in the first quarter of 2018.
The effective tax rate for the three months ended March 31, 2018 was 10.3%. During the first quarter of 2018, tax benefits related to stock compensation of approximately $1.2 million were recorded in accordance with ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
BALANCE SHEET
At March 31, 2018, total assets were $13.1 billion, an increase of $3.8 billion from December 31, 2017, reflecting the impact of the Xenith acquisition.
On January 1, 2018 the Company completed its acquisition of Xenith. Below is a summary of the transaction and related impact on the Company's balance sheet.
- The fair value of assets acquired equaled $3.249 billion, and the fair value of liabilities assumed equaled $2.868 billion.
- Loans held for investment acquired totaled $2.507 billion with a fair value of $2.459 billion.
- Total deposits assumed totaled $2.546 billion with a fair value of $2.550 billion.
- Total goodwill arising from the transaction equaled $419.6 million.
- Core deposit intangibles acquired totaled $38.5 million.
Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with ASC 805, Business Combinations. Xenith's 12/31/17 balance sheet can be found at the end of this release.
At March 31, 2018, loans held for investment (net of deferred fees and costs) were $9.8 billion, an increase of $2.7 billion, or 37.3%, from December 31, 2017, while average loans increased $2.7 billion, or 39.0%, from the prior quarter. Loans held for investment increased $3.3 billion, or 49.6%, from March 31, 2017, while average loans increased $3.3 billion, or 51.6%, from the prior year.
At March 31, 2018, total deposits were $9.7 billion, an increase of $2.7 billion, or 38.4%, from December 31, 2017, while average deposits increased $2.5 billion, or 36.1%, from the prior quarter. Total deposits grew $3.1 billion, or 46.3%, from March 31, 2017, while average deposits increased $3.1 billion, or 47.7%, from the prior year.
ABOUT UNION BANKSHARES CORPORATION
Headquartered in Richmond, Virginia, Union Bankshares Corporation (NASDAQ: UBSH) is the holding company for Union Bank & Trust, which has 150 branches, 39 of which are operated as Xenith Bank, a division of Union Bank & Trust of Richmond, Virginia, and approximately 216 ATMs located throughout Virginia and in portions of Maryland and North Carolina. Union Bank & Trust also operates Shore Premier Finance, a specialty marine lender. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products, Old Dominion Capital Management, Inc. and Dixon, Hubard, Feinour, & Brown, Inc., which both provide investment advisory services, and Union Insurance Group, LLC, which offers various lines of insurance products.
