Exhibit 99.1

 

 

Contact:		Robert M. Gorman - (804) 523-7828
		Executive Vice President / Chief Financial Officer

UNION FIRST MARKET BANKSHARES REPORTS FOURTH QUARTER

AND FULL YEAR RESULTS

Richmond, Va., January 23, 2013 - Union First Market Bankshares Corporation (the “Company”) (NASDAQ: UBSH) today reported net income of $9.4 million and earnings per share of $0.37 for its fourth quarter ended December 31, 2012. The quarterly results represent a decrease of $184,000, or 1.9%, in net income from the most recent quarter and an increase of $1.1 million, or 12.9%, from the same quarter ended December 31, 2011. Reported earnings per share of $0.37 for the current quarter were unchanged from the most recent quarter and increased $0.09, or 32.1%, from the prior year’s fourth quarter. Net income for the year ended December 31, 2012 was $35.4 million, an increase of $5.0 million, or 16.3%, from 2011 resulting in earnings per share of $1.37, an increase of $0.30, or 28.0%, from $1.07 for the year ended December 31, 2011. Earnings per share for the quarter and the year ended December 31, 2011 included preferred dividends and discount accretion on preferred stock of $1.1 million and $2.7 million, respectively.

“The fourth quarter and full year results demonstrate the continued success and resilience of our business strategy as Union remains committed to achieving top quartile financial performance nationally and providing our shareholders with above average returns on their investment,” said G. William Beale, Chief Executive Officer of Union First Market Bankshares. “Our disciplined approach to loan and deposit growth and related pricing, focus on increasing revenues through new product and service offerings, our ongoing pursuit to more efficiently deliver best in class service to our customers and to diligently manage expenses, as well as our steadfast focus on asset quality served us well in 2012 and effectively positions us to deliver sustainable top tier financial performance in the future.”

“During the quarter, our growth strategy continued to yield results as the company experienced loan growth for the fifth consecutive quarter, customer deposit levels grew at a strong pace and Union Mortgage continued to increase its contribution to the Company’s bottom line. In addition, asset quality trends remained positive during the quarter as nonperforming assets declined to their lowest levels in three years. As part of our ongoing efforts to improve the Company’s efficiency ratio we completed the implementation of several initiatives that will result in increased non-interest income and expense savings in 2013. Finally, during the quarter we increased the Company’s dividend for the third time in 2012 and repurchased 750,000 shares as part of our commitment to shareholder returns and effective capital management. All in all, it was another solid quarter and year for Union and one that we expect to build upon in the quarters ahead,” Beale concluded.

Select highlights:

 

•

The Company earned a Return on Average Equity (“ROE”) of 8.41% for the quarter ended December 31, 2012 compared to ROE of 8.70% and 7.49% for the prior quarter and the same quarter of the prior year. For the year ended December 31, 2012, ROE was 8.13% compared to 6.90% for the prior year.

---

•

The Company earned a Return on Average Assets (“ROA”) of 0.93% for the quarter ended December 31, 2012 compared to ROA of 0.96% and 0.84% for the prior quarter and the same quarter of the prior year. For the year ended December 31, 2012, ROA was 0.89% compared to 0.79% for the prior year.

 

•

Nonperforming assets (“NPAs”) decreased $7.6 million, or 11.4%, from the third quarter and decreased $18.1 million, or 23.5%, compared to the same period a year ago. NPAs as a percentage of total outstanding loans declined 30 basis points to 1.99% from 2.29% last quarter and 75 basis points from 2.74% a year earlier.

 

•

Loan demand continued to improve with an increase in loans outstanding of $58.3 million, or 2.0% from the prior quarter (8.0% annualized), primarily due to growth in the commercial sector. On an annual basis, loans outstanding increased 5.3%.

 

•

Deposit balances increased $98.0 million or 3.1% from the prior quarter (12.4 % annualized). On an annual basis, deposit balances increased 3.9%.

 

•

Results for the quarter included approximately $594,000, or $0.02 per share, in non-recurring costs related to the previously announced closure of four branches and other efficiency initiatives implemented in the fourth quarter. The completion of these initiatives will result in increased non-interest income and expense savings in 2013.

Fourth quarter net income decreased $184,000, or 1.9%, compared to the third quarter. The decrease was largely a result of additional provision for loan losses of $900,000, and costs incurred related to branch closures and other efficiency initiatives of $594,000, partially offset by increased gains on sales of mortgage loans, net of commissions, of $544,000 driven by higher loan production volume and increased net interest income. The increase in net interest income was driven by higher earning asset balances offset by the impact of lower net interest margin.

Net income for the quarter ended December 31, 2012 increased $1.1 million, or 12.9%, from the same quarter in the prior year. The increase was principally a result of higher gains on sales of mortgage loans, net of commissions, of $2.0 million, an increase in net interest income driven by higher earning asset balances offset by the impact of lower net interest margin as well as lower OREO expenses and lower marketing and advertising costs. These results were partially offset by increased provision for loan losses of $900,000 and higher salaries and benefits expenses due to the addition of mortgage loan originators and support personnel in 2012, increased incentive compensation tied to higher earnings, and severance related costs. Net income available to common shareholders increased $2.2 million, or 30.0%, from the prior year’s fourth quarter, which included preferred dividends and discount accretion on preferred stock of $1.1 million.

Net income for the year ended December 31, 2012 increased $5.0 million, or 16.3%, from the prior year. The increase was principally a result of higher gains on sales of mortgage loans driven by higher origination volumes, lower provision for loan losses, reductions in FDIC insurance expense due to changes in the assessment base and rate, lower core deposit intangible amortization expense, and an increase in account service charges and net interchange fees. Partially offsetting these results were higher salaries and benefits related to the addition of mortgage loan originators and support personnel in 2012 and lower net interest income driven by reductions in interest income on interest-earning assets that outpaced the impact of lower costs on interest-bearing liabilities. Net income available to common shareholders increased $7.6 million, or 27.5%, from the prior year, which included preferred dividends and discount accretion on preferred stock of $2.7 million.

---

NET INTEREST INCOME

 

		Three Months Ended Dollars in thousands
		12/31/12				09/30/12				Change				12/31/11				Change
Average interest-earning assets		$	3,732,684			$	3,671,398			$	61,286			$	3,591,739			$	140,945
Interest income (FTE)		$	46,272			$	46,555			$	(283	)		$	47,386			$	(1,114	)
Yield on interest-earning assets			4.93	%			5.04	%			(11	) bps			5.23	%			(30	) bps
Average interest-bearing liabilities		$	2,944,086			$	2,925,322			$	18,764			$	2,906,758			$	37,328
Interest expense		$	6,022			$	6,740			$	(718	)		$	7,829			$	(1,807	)
Cost of interest-bearing liabilities			0.81	%			0.92	%			(11	) bps			1.07	%			(26	) bps
Cost of funds			0.64	%			0.73	%			(9	) bps			0.86	%			(22	) bps
Net Interest Income (FTE)		$	40,250			$	39,815			$	435			$	39,558			$	692
Net Interest Margin (FTE)			4.29	%			4.31	%			(2	) bps			4.37	%			(8	) bps
Net Interest Margin, core (FTE)1			4.22	%			4.23	%			(1	) bps			4.20	%			2	bps

 

(1)	The core net interest margin, fully taxable equivalent (“FTE”) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.

On a linked quarter basis, tax-equivalent net interest income was $40.2 million, an increase of $435,000, or 1.1%, from the third quarter of 2012. This increase was principally due to higher loan balances offset by the impact of lower net interest margin. The fourth quarter tax-equivalent net interest margin declined by 2 basis points to 4.29% from 4.31% in the previous quarter. The change in net interest margin was principally attributable to the continued decline in net accretion on the acquired net earning assets (1 bps) and lower investment and loan yields outpacing the reduction in the cost of interest-bearing liabilities (1 bps). Loan yields continued to be negatively affected by the low rate environment as new and renewed loans were originated and repriced at lower rates while yields on investment securities were impacted by lower average balances, faster prepayments on mortgage-backed securities, and lower reinvestment rates during the quarter. The cost of interest-bearing deposits declined during the quarter driven by the continued shift in mix from time deposits to transaction deposits, reductions in deposit rates and lower wholesale borrowing costs.

For the three months ended December 31, 2012, tax-equivalent net interest income increased $692,000, or 1.7%, when compared to the same period last year. The tax-equivalent net interest margin decreased by 8 basis points to 4.29% from 4.37% in the prior year. The decline in net interest margin was principally due to the continued decline in accretion on the acquired net earning assets (10 bps) partially offset by declines in the cost of interest-bearing liabilities that exceeded the decrease in earning asset yields (2 bps). Lower interest-earning asset income was principally due to lower yields on loans as new and renewed loans were originated and repriced at lower rates, faster prepayments on mortgage backed securities, and cash flows from securities investments reinvested at lower yields. The cost of interest-bearing deposits declined from the prior year’s fourth quarter driven by a shift in mix from time deposits to transaction deposits, reductions in deposit rates, and lower wholesale borrowing costs.

The Company believes that its net interest margin will continue to decline modestly over the next several quarters as decreases in earning asset yields are projected to outpace declines in interest-bearing liabilities rates.

---

		Year-over-year results Dollars in thousands Twelve Months Ended
		12/31/12				12/31/11				Change
Average interest-earning assets		$	3,649,865			$	3,518,643			$	131,222
Interest income (FTE)		$	186,086			$	193,399			$	(7,313	)
Yield on interest-earning assets			5.10	%			5.50	%			(40	) bps
Average interest-bearing liabilities		$	2,922,373			$	2,875,242			$	47,131
Interest expense		$	27,508			$	32,713			$	(5,205	)
Cost of interest-bearing liabilities			0.94	%			1.14	%			(20	) bps
Cost of funds			0.75	%			0.93	%			(18	) bps
Net Interest Income (FTE)		$	158,577			$	160,686			$	(2,109	)
Net Interest Margin (FTE)			4.34	%			4.57	%			(23	) bps
Net Interest Margin, core (FTE)1			4.24	%			4.37	%			(13	) bps

 

(1)	The core net interest margin, fully taxable equivalent (“FTE”) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.

For the year ended December 31, 2012, tax-equivalent net interest income was $158.6 million, a decrease of $2.1 million, or 1.3%, when compared to the same period last year. The tax-equivalent net interest margin decreased by 23 basis points to 4.34% from 4.57% in the prior year. The decline in the net interest margin was principally due to the continued decline in accretion on the acquired net earning assets (10 bps) and a decline in the yield on interest-earning assets that outpaced the reduction in the cost of interest-bearing liabilities (13 bps). Lower interest-earning asset income was principally due to lower yields on loans and investment securities as new loans and renewed loans were originated and repriced at lower rates, faster prepayments on mortgage backed securities, and cash flows from securities investments reinvested at lower yields.

The Company’s fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments that were recorded during 2010 and 20ll. The 2012 and remaining estimated discount/premium and net accretion impact are reflected in the following table (dollars in thousands):

 

		Loan Accretion				Certificates of Deposit				Investment Securities				Borrowings				Total
For the quarter ended December 31, 2012		$	717			$	2			$	46			$	(122	)		$	643
For the year ended December 31, 2012			3,719				233				201				(489	)			3,664
For the years ending:
2013			2,059				7				15				(489	)			1,592
2014			1,459				4				—				(489	)			974
2015			1,002				—				—				(489	)			513
2016			557				—				—				(163	)			394
2017			172				—				—				—				172
Thereafter			120				—				—				—				120

ASSET QUALITY/LOAN LOSS PROVISION

Overview

During the fourth quarter, the Company continued to experience improvement in asset quality. Improving market conditions in the Company’s local markets led to a reduction in nonperforming assets, which are at their lowest levels since the fourth quarter of 2009. The Company’s reduction in nonperforming assets and impaired loans, lower past due loan levels, stable levels of troubled debt restructurings, and decreased allowance to total loans ratio demonstrate that its diligent efforts to improve asset quality are having a positive impact. The allowance to nonperforming loans coverage ratio has continued to increase and is at its highest level since the fourth quarter of 2009. The magnitude of any change in the real estate market and its impact on the Company is still largely dependent upon continued recovery of residential housing and commercial real estate and the pace at which the local economies in the Company’s operating markets improve.

---

Nonperforming Assets (“NPAs”)

At December 31, 2012, nonperforming assets totaled $59.0 million, a decline of $7.6 million, or 11.4%, from the third quarter and a decrease of $18.1 million, or 23.5%, from a year ago. In addition, NPAs as a percentage of total outstanding loans declined 30 basis points to 1.99% from 2.29% last quarter and 75 basis points from 2.74% a year earlier. The reduction in NPAs from the third quarter related to a net decrease in nonaccrual loans, excluding purchased impaired loans, of $6.0 million as well as a net decrease in OREO of $1.6 million.

Nonperforming assets at December 31, 2012 included $26.2 million in nonaccrual loans (excluding purchased impaired loans), a net decrease of $6.0 million, or 18.6%, from the prior quarter and a reduction of $18.6 million, or 41.5%, from December 31, 2011. The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands):

 

		December 31, 2012				September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011
Beginning Balance		$	32,159			$	39,171			$	42,391			$	44,834			$	51,965
Net customer payments			(1,898	)			(5,774	)			(3,174	)			(2,778	)			(6,556	)
Additions			2,306				2,586				2,568				2,805				5,364
Charge-offs			(3,388	)			(3,012	)			(561	)			(1,549	)			(2,304	)
Loans returning to accruing status			(840	)			(812	)			(1,803	)			—				(1,950	)
Transfers to OREO			(2,133	)			—				(250	)			(921	)			(1,685	)
Ending Balance		$	26,206			$	32,159			$	39,171			$	42,391			$	44,834

The following table presents the composition of nonaccrual loans (excluding purchased impaired loans) and the coverage ratio, which is the allowance for loan losses expressed as a percentage of nonaccrual loans, at the quarter ended (dollars in thousands):

 

		December 31, 2012				September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011
Raw Land and Lots		$	8,760			$	10,995			$	12,139			$	13,064			$	13,322
Commercial Construction			5,781				7,846				9,763				9,835				10,276
Commercial Real Estate			3,018				2,752				5,711				6,299				7,993
Single Family Investment Real Estate			3,420				4,081				3,476				4,507				5,048
Commercial and Industrial			2,036				2,678				4,715				5,318				5,297
Other Commercial			193				195				231				233				238
Consumer			2,998				3,612				3,136				3,135				2,660
Total		$	26,206			$	32,159			$	39,171			$	42,391			$	44,834
			133.24	%			124.05	%			104.63	%			94.84	%			88.04	%

Coverage Ratio

Impairment analyses provided appropriate reserves on these nonperforming loans while appropriate reserves on homogenous pools continue to be maintained. The increase in the coverage ratio is primarily related to a decline in nonperforming loans.

---

Nonperforming assets at December 31, 2012 also included $32.8 million in OREO, a net decrease of $1.6 million, or 4.7%, from the prior quarter and an increase of $571,000, or 1.8%, from the prior year. The following table shows the activity in OREO for the quarter ended (dollars in thousands):

 

		December 31, 2012				September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011
Beginning Balance		$	34,440			$	35,802			$	37,663			$	32,263			$	34,464
Additions			2,866				929				3,887				6,593				2,543
Capitalized Improvements			22				16				23				319				197
Valuation Adjustments			(301	)			—				—				—				(530	)
Proceeds from sales			(4,004	)			(2,071	)			(5,592	)			(1,485	)			(3,674	)
Gains (losses) from sales			(189	)			(236	)			(179	)			(27	)			(737	)
Ending Balance		$	32,834			$	34,440			$	35,802			$	37,663			$	32,263

The additions to OREO were principally related to raw land and developed commercial and residential lots; sales from OREO were principally related to residential real estate, land previously held for branch sites, and closed branch property.

The following table presents the composition of the OREO portfolio at the quarter ended (dollars in thousands):

 

		December 31, 2012				September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011
Land		$	8,657			$	6,953			$	6,953			$	6,327			$	6,327
Land Development			10,886				11,034				11,313				11,559				11,309
Residential Real Estate			7,939				9,729				10,431				12,482				11,024
Commercial Real Estate			5,352				5,640				6,085				6,275				2,583
Former Bank Premises (1)			—				1,084				1,020				1,020				1,020
Total		$	32,834			$	34,440			$	35,802			$	37,663			$	32,263

 

(1)	Includes closed branch property and land previously held for branch sites.

Included in land development is $9.2 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 by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment.

Past Due Loans

At December 31, 2012, total accruing past due loans were $32.4 million, or 1.09% of total loans, a decrease from $39.0 million, or 1.34%, at September 30, 2012 and from $39.3 million, or 1.40%, a year ago. The favorable trend in decreased past due loans is a result of management’s diligence in handling problem loans and an improving economy.

Charge-offs

For the quarter ended December 31, 2012, net charge-offs of loans were $8.3 million, or 1.11% on an annualized basis, compared to $3.5 million, or 0.48%, for the third quarter and $4.2 million, or 0.59%, for the same quarter last year. The uptick in charge-offs from the prior quarter and prior year quarter relate to loans that were previously considered impaired and specifically reserved for in prior periods. Of the $8.3 million in net charge-offs in the current quarter, $6.7 million, or 81%, related to impaired loans specifically reserved for in prior periods including two loan relationships totaling $5.6 million that were charged off. Net charge-offs in the current quarter included commercial loans of $6.8 million and consumer loans of $1.5 million.

---

For the year ended December 31, 2012, net charge-offs of loans were $16.8 million, or 0.56%, compared to $15.7 million, or 0.56%, for the year ended December 31, 2011. The increase in charge-offs relates to impaired loans reserved for in prior periods, as management has continued to work diligently to mitigate risks within the portfolio.

Provision

The provision for loan losses for the current quarter was $3.3 million, an increase of $900,000 from both the third quarter and from the same quarter a year ago. The higher provision was due to the increased levels of charge offs, which negatively impacted the historical loss factor used in the Company’s allowance for loan losses model, and higher period end loan balances. The provision to loans ratio for the quarter ended December 31, 2012 was 0.44% on an annualized basis compared to 0.33% last quarter and 0.34% the same quarter a year ago.

Allowance for Loan Losses

The allowance for loan losses (“ALLL”) as a percentage of the total loan portfolio, adjusted for acquired loans (non-GAAP), was 1.40% at December 31, 2012, a decrease from 1.66% at September 30, 2012 and 1.83% from a year ago. In acquisition accounting, there is no carryover of previously established allowance for loan losses. The allowance for loan losses as a percentage of the total loan portfolio was 1.18% at December 31, 2012, 1.37% at September 30, 2012, and 1.40% at December 31, 2011. The decrease in the allowance and related ratios was primarily attributable to the charge off of impaired loans specifically reserved for in prior periods as shown in the following table:

 

		December 31, 2012				September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011				December 31, 2010
Loans individually evaluated for impairment			142,415				161,196				189,399				230,789				242,833				274,932
Related allowance			6,921				11,438				11,500				11,288				10,298				11,257
ALLL to loans individually evaluated for impairment			4.86	%			7.10	%			6.07	%			4.89	%			4.24	%			4.09	%

The Company continued to see favorable trends in both past due loans and impaired loans during the current quarter. Past due loans have decreased, as previously described, and impaired loans (individually and collectively evaluated for impairment) have declined from $177.9 million at September 30, 2012 and from $255.1 million at December 31, 2011 to $155.4 million at December 31, 2012. The nonaccrual loan coverage ratio also improved, as it increased to 133.24% at December 31, 2012 from 124.05% at September 30, 2012 and from 88.04% the same quarter last year. The rise in the coverage ratio, which is at the highest level since the fourth quarter of 2009, further shows that management’s proactive diligence in working through problem credits is having a positive impact on asset quality. 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 in assessing the adequacy of the allowance for loan losses.

Troubled Debt Restructurings (“TDRs”)

The total recorded investment in TDRs as of December 31, 2012 was $63.5 million, a decrease of $300,000, or 0.5%, from $63.8 million at September 30, 2012 and a decline of $49.1 million, or 43.6%, from $112.6 million at December 31, 2011. Of the $63.5 million of TDRs at December 31, 2012, $51.5 million, or 81.1%, were considered performing while the remaining $12.0 million were considered nonperforming. The decline in the TDR balance from the prior quarter is attributable to $1.8 million being removed from TDR status, $3.1 million in net payments, and $300,000 in charge-offs, partially offset by additions of $4.9 million. The decline in the TDR balance from the prior year is attributable to $42.2 million being removed from TDR status, $19.9 million in net payments, and $300,000 in charge-offs, partially offset by additions of $13.3 million. Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring, which were performing in accordance with their modified terms for a consecutive twelve month period and that were no longer considered impaired.

---

The following table shows the Company’s performing and nonperforming TDRs by modification type for the quarter ended (dollars in thousands):

 

		December 31, 2012				September 30, 2012				June 30, 2012				March 31, 2012				December 31, 2011
Performing
Modified to interest only		$	1,877			$	1,437			$	2,191			$	1,812			$	699
Term modification, at a market rate			38,974				39,195				53,905				75,455				87,920
Term modification, below market rate			8,227				8,911				9,004				8,797				10,215
Interest rate modification, below market rate			2,390				2,390				2,390				—				—
Total performing		$	51,468			$	51,933			$	67,490			$	86,064			$	98,834
Nonperforming
Modified to interest only		$	672			$	920			$	642			$	649			$	1,190
Term modification, at a market rate			3,653				3,288				3,451				4,290				3,660
Term modification, below market rate			7,666				7,672				8,587				8,804				8,954
Total nonperforming		$	11,991			$	11,880			$	12,680			$	13,743			$	13,804
Total performing & nonperforming		$	63,459			$	63,813			$	80,170			$	99,807			$	112,638

NONINTEREST INCOME

 

		For the Three Months Ended Dollars in thousands
		12/31/12				09/30/12				$				%				12/31/11				$				%
Noninterest income:
Service charges on deposit accounts		$	2,390			$	2,222				168				7.6	%		$	2,258			$	132				5.8	%
Other service charges, commissions and fees			2,784				2,769				15				0.5	%			2,521				263				10.4	%
Losses (gains) on securities transactions, net			185				(1	)			186				NM				430				(245	)			–57.0	%
Gains on sales of mortgage loans, net of commissions			5,299				4,755				544				11.4	%			3,270				2,029				62.0	%
Gains (losses) on bank premises, net			(32	)			(308	)			276				NM				(351	)			319				NM
Other operating income			1,209				1,067				142				13.3	%			1,119				90				8.0	%
Total noninterest income		$	11,835			$	10,504			$	1,331				12.7	%		$	9,247			$	2,588				28.0	%
Mortgage segment operations		$	(5,303	)		$	(4,756	)		$	(547	)			11.5	%		$	(3,266	)		$	(2,037	)			62.4	%
Intercompany eliminations			117				117				—				0.0	%			117				—				0.0	%
		$	6,649			$	5,865			$	784				13.4	%		$	6,098			$	551				9.0	%

NM - Not Meaningful

On a linked quarter basis, noninterest income increased $1.3 million, or 12.7%, to $11.8 million from $10.5 million in the third quarter. Of this increase, gains on sales of mortgage loans, net of commissions, increased $544,000 or 11.4%, driven by an increase in loan origination volume as mortgage rates remained at historically low levels. Gains on bank premises increased $276,000 largely due to the write down of a former branch location in the prior quarter. Gains on securities increased $186,000. Service charges on deposit accounts and other account fees increased $183,000 from the prior quarter. Excluding mortgage segment operations, noninterest income increased $784,000, or 13.4%.

For the quarter ended December 31, 2012, noninterest income increased $2.6 million, or 28.0%, to $11.8 million from $9.2 million in the prior year’s fourth quarter. Gains on sales of mortgage loans, net of commissions, increased $2.0 million, or 62.0%, due to higher origination volume, a result of additional loan originators hired in 2012 and historically low interest rates. Service charges on deposit accounts and other account fees increased $395,000 or 8.3%, driven by higher net interchange fee income and higher brokerage commissions. Gains on bank premises increased $319,000 due to a loss incurred in the fourth quarter of 2011 related to the disposal of bank owned property. Gains on securities transactions decreased $245,000 as a result of higher gains recorded in the prior year. Excluding mortgage segment operations, noninterest income increased $551,000, or 9.0%, from the same period a year ago.

---

		For the Twelve Months Ended Dollars in thousands
		12/31/12				12/31/11				$				%
Noninterest income:
Service charges on deposit accounts		$	9,033			$	8,826				207				2.3	%
Other service charges, commissions and fees			10,898				9,736				1,162				11.9	%
Losses (gains) on securities transactions, net			190				913				(723	)			NM
Other-than-temporary impairment losses			—				(400	)			400				–100.0	%
Gains on sales of mortgage loans, net of commissions			16,651				11,052				5,599				50.7	%
Gains (losses) on bank premises, net			2				(996	)			998				NM
Other operating income			4,294				3,833				461				12.0	%
Total noninterest income		$	41,068			$	32,964			$	8,104				24.6	%
Mortgage segment operations		$	(16,660	)		$	(11,050	)		$	(5,610	)			50.8	%
Intercompany eliminations			468				468				—				0.0	%
		$	24,876			$	22,382			$	2,494				11.1	%

NM - Not Meaningful

For the year ending December 31, 2012, noninterest income increased $8.1 million, or 24.6%, to $41.1 million, from $33.0 million a year ago. Gains on sales of mortgage loans, net of commissions, increased $5.6 million driven by an increase in loan origination volume, a result of additional loan originators hired in 2012 and historically low interest rates. Service charges on deposit accounts and other account fees increased $1.4 million primarily related to higher net interchange fee income, higher brokerage commissions, and higher ATM fee income. In addition, gains on bank premises increased $998,000 as the Company sold a former branch building and recorded a loss on the sale of $626,000 during 2011. Gains on securities transactions decreased $723,000 as a result of a gain on the sale of municipal securities in the prior year. Also, other-than-temporary losses of $400,000 related to a single issuer Trust Preferred security was recorded in the prior year. Excluding mortgage segment operations, noninterest income increased $2.5 million, or 11.1%, from the same period a year ago.

NONINTEREST EXPENSE

 

		For the Three Months Ended Dollars in thousands
		12/31/12				09/30/12				$				%				12/31/11				$				%
Noninterest expense:
Salaries and benefits		$	17,620			$	17,116			$	504				2.9	%		$	15,904			$	1,716				10.8	%
Occupancy expenses			3,149				3,262				(113	)			–3.5	%			2,797				352				12.6	%
Furniture and equipment expenses			1,811				1,809				2				0.1	%			1,823				(12	)			–0.7	%
OREO and related costs (1)			1,366				1,036				330				31.9	%			2,279				(913	)			–40.1	%
Other operating expenses			10,390				10,045				345				3.4	%			11,073				(683	)			–6.2	%
Total noninterest expense		$	34,336			$	33,268			$	1,068				3.2	%		$	33,876				460				1.4	%
Mortgage segment operations		$	(4,256	)		$	(3,676	)		$	(580	)			15.8	%		$	(2,531	)		$	(1,726	)			68.2	%
Intercompany eliminations			117				117				—				0.0	%			117				—				0.0	%
		$	30,197			$	29,709			$	488				1.6	%		$	31,462			$	(1,265	)			–4.0	%

NM - Not Meaningful

 

(1)	OREO related costs include foreclosure related expenses, gains/losses on the sale of OREO, valuation reserves, and asset resolution related legal expenses.

On a linked quarter basis, noninterest expense increased $1.1 million, or 3.2%, to $34.4 million from $33.3 million when compared to the third quarter. This increase was primarily driven by salaries and benefit expense, which increased $504,000 due to increased incentive awards related to higher earnings and severance payments related to branch closures and other efficiency initiatives. OREO and related costs increased $330,000, due to a $301,000 valuation adjustment recorded in the fourth quarter. The Company reviews the carrying value of OREO on a quarterly basis and records valuation reserves as necessary based on current available information. In addition, other operating expenses increased $345,000 largely due to contract

---

termination expenses related to branch closures and other efficiency initiatives of $363,000 in the fourth quarter. Excluding mortgage segment operations, noninterest expense increased $488,000, or 1.6% compared to the third quarter.

For the quarter ended December 31, 2012, noninterest expense increased $460,000, or 1.4%, to $34.4 million from $33.9 million for the fourth quarter of 2011. Salaries and benefits expenses increased $1.7 million primarily related to the costs associated with the addition of mortgage loan originators and support personnel in 2012 and severance payments related to branch closures and other efficiency initiatives in 2012. Occupancy expenses increased $352,000 primarily due to the addition of mortgage offices in the first quarter of 2012 and increases in bank branch lease costs. These increases were offset by lower OREO and related costs and other operating expenses. OREO and related costs decreased $913,000 from the prior year’s fourth quarter due to lower valuation adjustments and losses on sales of OREO and declines in problem loan legal fees as asset quality continues to improve. Other operating expenses were lower by $682,000, attributable to lower marketing and advertising expense, reduced FDIC insurance expense and declining core deposit intangible amortization expense. Excluding mortgage segment operations, noninterest expense decreased $1.3 million, or 4.0%, compared to the fourth quarter of 2011.

 

		For the Twelve Months Ended
		Dollars in thousands
		12/31/12				12/31/11				$				%
Noninterest expense:
Salaries and benefits		$	68,648			$	62,865			$	5,783				9.2	%
Occupancy expenses			12,150				11,104				1,046				9.4	%
Furniture and equipment expenses			7,251				6,920				331				4.8	%
OREO and related costs (1)			4,639				5,668				(1,029	)			–18.2	%
Other operating expenses			40,791				44,258				(3,467	)			–7.8	%
Total noninterest expense		$	133,479			$	130,815			$	2,664				2.0	%
Mortgage segment operations		$	(13,971	)		$	(9,793	)		$	(4,178	)			42.7	%
Intercompany eliminations			468				468				—				0.0	%
		$	119,976			$	121,490			$	(1,514	)			–1.2	%

NM - Not Meaningful

 

(1)	OREO related costs include foreclosure related expenses, gains/losses on the sale of OREO, valuation reserves, and asset resolution related legal expenses.

For the year ending December 31, 2012, noninterest expense increased $2.7 million, or 2.0% to $133.5 million, from $130.8 million a year ago. Salaries and benefits expense increased $5.8 million due to the addition of mortgage loan originators and support personnel hired in 2012, group insurance cost increases, and severance expense recorded in the current quarter. Occupancy costs increased $1.0 million primarily due to the addition of mortgage offices in the first quarter of 2012 and increases in bank branch lease costs. Furniture and equipment expense increased $331,000, primarily related to equipment maintenance contracts and software amortization. Partially offsetting these increases were other operating expenses which decreased $3.5 million, or 7.8% primarily due to reductions in FDIC insurance expense of $2.6 million resulting from changes in the assessment base and rate as well as lower core deposit intangible amortization expense of $1.2 million. OREO and related costs decreased $1.0 million, or 18.2%, during the current year due to lower valuation adjustments and losses on sales of OREO and declines in problem loan legal fees as asset quality continues to improve. Excluding mortgage segment operations, noninterest expense decreased $1.5 million, or 1.2%, compared to the same period in 2011.

---

BALANCE SHEET

At December 31, 2012, total assets were $4.1 billion, an increase of $188.8 million from December 31, 2011. Total cash and cash equivalents were $82.9 million at December 31, 2012, a decrease of $13.8 million from the same period last year. Investment in securities decreased $34.8 million, or 5.6%, from $620.2 million at December 31, 2011 to $585.4 million at December 31, 2012, respectively. At December 31, 2012, loans (net of unearned income) were $3.0 billion, an increase of $148.3 million, or 5.3%, from December 31, 2011. Mortgage loans held for sale were $167.7 million, an increase of $92.9 million from December 31, 2011 driven by an increase in mortgage origination volume resulting from the addition of mortgage loan originators and offices during 2012 and historically low mortgage interest rates.

As of December 31, 2012, total deposits were $3.3 billion, an increase of $122.7 million, or 3.9%, when compared to December 31, 2011. Total short-term borrowings, including FHLB borrowings and repurchase agreements, increased $69.3 million from December 31, 2011, as the Company relied on short-term borrowings to fund growth in mortgage loans held for sale balances and customer preference for repurchase agreements increased. As of December 31, 2012, long-term borrowings declined $18.6 million when compared to December 31, 2011. During the third quarter, the Company modified its fixed rate convertible Federal Home Loan Bank of Atlanta (“FHLB”) advances to floating rate advances, which resulted in reducing the Company’s FHLB borrowing costs. In connection with this modification, the Company incurred a prepayment penalty of $19.6 million on the original advances which is being amortized, as a component of interest expense on borrowing, over the life of the advances. The prepayment amount is reported as a component of long-term borrowings in the Company’s consolidated balance sheet.

The Company’s capital ratios continued to be considered “well capitalized” for regulatory purposes. The Company’s ratio of total capital to risk-weighted assets was 14.57% and 14.51% on December 31, 2012 and 2011, respectively. The Company’s ratio of Tier 1 capital to risk-weighted assets was 13.14% and 12.85% at December 31, 2012 and 2011, respectively. During the fourth quarter of 2011, the Company paid the U.S. Treasury $35.7 million to redeem the Preferred Stock issued to the U.S. Treasury and assumed in the FMB acquisition. In December 2012, the Company repurchased and retired 750,000 shares of its common stock for an aggregate purchase price of $11,580,000, or $15.44 per share. The repurchase was funded with cash on hand. The Company’s common equity to asset ratios at December 31, 2012 and 2011 were 10.64% and 10.79%, respectively, while its tangible common equity to tangible assets ratio increased to 8.97% from 8.91% at December 31, 2011.

MORTGAGE SEGMENT INFORMATION

On a linked quarter basis, the mortgage segment net income for the fourth quarter increased $122,000, or 14.2%, from $859,000 in the third quarter to $981,000. Mortgage loan originations increased by $8.7 million or 2.7% in the current quarter to $331.8 million from $323.1 million in the third quarter aided by historically low interest rates. As a result, gains on the sale of loans, net of commission expenses, increased $544,000, or 11.4% to $5.3 million. Salary and benefit expenses increased $263,000, or 11.6% to $2.5 million from $2.3 million primarily due to increased incentive awards and other benefit costs. Operating expenses increased $330,000, or 39.2%, from the prior quarter due to increased supplies and other costs related to mortgage offices added in 2012, higher loan-related expenses due to volume, higher employee training, travel, and licensure costs, and contract termination costs of $78,000 related to cost saving initiatives. Refinanced loans represented 57.0% of the originations during the fourth quarter compared to 57.6% during the third quarter.

For the three months ended December 31, 2012, the mortgage segment net income increased $327,000 or 50.0% from $654,000 to $981,000 compared to the same period last year. Originations increased by $145.2 million, or 77.8%, to $331.8 million from $186.6 million in the prior year due to the additions in production personnel in 2012 and the sustained low interest rate environment. In early 2012, the Company significantly increased its mortgage loan production capacity by hiring additional loan originators and support personnel who were formerly employed by a national mortgage company that exited the mortgage origination business.

---

During the current quarter, the Company recorded gains on the sale of mortgage loans, net of commission expenses, that were $2.0 million, or 62.0%, higher than the same period last year. Salaries and benefits increased $1.2 million, or 92.6%, primarily due to the personnel additions noted above in 2012. Refinanced loans represented 57.0% of originations during the fourth quarter of 2012 compared to 52.2% during the same period a year ago.

For the year ended December 31, 2012, the mortgage segment net income increased $933,000, or 57.8%, from $1.6 million during the same period last year to $2.5 million. Originations increased by $436.8 million, or 66.2%, to $1.1 billion from $659.4 million during the same period last year due to the addition of mortgage loan originators in 2012 noted above and the historically low interest rate environment. Gains on sales of loans, net of commission expenses, increased $5.6 million, or 50.7%, while salary and benefit expenses increased $3.0 million, or 55.4%, primarily due to the addition of mortgage loan originators and support personnel in early 2012. Refinanced loans represented 54.3% of originations during the year compared to 37.4% during 2011.

* * * * * * *

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 90 branches and more than 150 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, L.L.C.

Additional information is available on the Company’s website at http://investors.bankatunion.com. Shares of the Company’s common stock are traded on the NASDAQ Global Select Market under the symbol UBSH.

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 and 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 and bank industry conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, inflation, changes in the stock and bond markets, accounting standards or interpretations of existing standards, mergers and acquisitions, 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 press release. 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.

---

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

KEY FINANCIAL RESULTS

(in thousands, except share data)

 

		Three Months Ended												Twelve Months Ended
		12/31/12				09/30/12				12/31/11				12/31/12				12/31/11
Results of Operations
Interest and dividend income		$	45,183			$	45,503			$	46,319			$	181,863			$	189,073
Interest expense			6,023				6,741				7,828				27,508				32,713
Net interest income			39,160				38,762				38,491				154,355				156,360
Provision for loan losses			3,300				2,400				2,400				12,200				16,800
Net interest income after provision for loan losses			35,860				36,362				36,091				142,155				139,560
Noninterest income (1)			11,835				10,504				9,247				41,068				32,964
Noninterest expenses (1)			34,336				33,270				33,876				133,479				130,815
Income before income taxes			13,359				13,596				11,462				49,744				41,709
Income tax expense			3,917				3,970				3,102				14,333				11,264
Net income		$	9,442			$	9,626			$	8,360			$	35,411			$	30,445
Interest earned on loans (FTE)		$	40,981			$	40,913			$	41,584			$	162,956			$	168,991
Interest earned on securities (FTE)			5,286				5,638				5,734				23,067				24,284
Interest earned on earning assets (FTE)			46,272				46,555				47,386				186,086				193,399
Net interest income (FTE)			40,250				39,815				39,558				158,577				160,686
Interest expense on certificates of deposit			3,425				3,710				4,183				15,015				17,658
Interest expense on interest-bearing deposits			4,362				4,725				5,572				19,446				24,347
Core deposit intangible amortization			1,188				1,212				1,448				4,936				6,122
Net income - community bank segment		$	8,461			$	8,767			$	7,707			$	32,867			$	28,833
Net income - mortgage segment			981				859				654				2,544				1,612
Key Ratios
Return on average assets (ROA)			0.93	%			0.96	%			0.84	%			0.89	%			0.79	%
Return on average equity (ROE)			8.41	%			8.70	%			7.49	%			8.13	%			6.90	%
Efficiency ratio (FTE) (1)			65.92	%			66.12	%			69.41	%			66.86	%			67.55	%
Efficiency ratio - community bank segment (FTE) (1)			64.93	%			65.52	%			69.38	%			65.88	%			66.84	%
Efficiency ratio - mortgage bank segment (FTE) (1)			74.72	%			72.23	%			70.76	%			77.66	%			79.20	%
Net interest margin (FTE)			4.29	%			4.31	%			4.37	%			4.34	%			4.57	%
Net interest margin, core (FTE) (2)			4.22	%			4.23	%			4.20	%			4.24	%			4.37	%
Yields on earning assets (FTE)			4.93	%			5.04	%			5.23	%			5.10	%			5.50	%
Cost of interest-bearing liabilities (FTE)			0.81	%			0.92	%			1.07	%			0.94	%			1.14	%
Cost of funds			0.64	%			0.73	%			0.86	%			0.75	%			0.93	%
Noninterest expense less noninterest income / average assets			2.21	%			2.27	%			2.49	%			2.32	%			2.53	%
Capital Ratios
Tier 1 risk-based capital ratio			13.14	%			13.44	%			12.85	%			13.14	%			12.85	%
Total risk-based capital ratio			14.57	%			15.00	%			14.51	%			14.57	%			14.51	%
Leverage ratio (Tier 1 capital to average assets)			10.29	%			10.53	%			10.15	%			10.52	%			10.34	%
Common equity to total assets			10.64	%			11.00	%			10.79	%			10.64	%			10.79	%
Tangible common equity to tangible assets			8.97	%			9.27	%			8.91	%			8.97	%			8.91	%
Per Share Data
Earnings per common share, basic		$	0.37			$	0.37			$	0.28			$	1.37			$	1.07
Earnings per common share, diluted			0.37				0.37				0.28				1.37				1.07
Cash dividends paid per common share			0.12				0.10				0.07				0.37				0.28
Market value per share			15.77				15.56				13.29				15.77				13.29
Book value per common share			17.30				17.11				16.17				17.30				16.17
Tangible book value per common share			14.31				14.15				13.08				14.31				13.08
Price to earnings ratio, diluted			10.71				10.57				11.96				11.51				12.42
Price to book value per common share ratio			0.91				0.91				0.82				0.91				0.82
Price to tangible common share ratio			1.10				1.10				1.02				1.10				1.02
Weighted average common shares outstanding, basic			25,809,667				25,880,894				26,011,465				25,872,316				25,981,222
Weighted average common shares outstanding, diluted			25,854,623				25,907,909				26,036,922				25,900,863				26,009,839
Common shares outstanding at end of period			25,270,970				25,967,705				26,134,830				25,270,970				26,134,830

---

		Three Months Ended												Twelve Months Ended
		12/31/12				09/30/12				12/31/11				12/31/12				12/31/11
Financial Condition
Assets		$	4,095,865			$	4,028,194			$	3,907,087			$	4,095,865			$	3,907,087
Loans, net of unearned income			2,966,847				2,908,510				2,818,583				2,966,847				2,818,583
Earning Assets			3,752,089				3,703,468				3,566,480				3,752,089				3,566,480
Goodwill			59,400				59,400				59,400				59,400				59,400
Core deposit intangibles, net			15,778				16,966				20,714				15,778				20,714
Deposits			3,297,767				3,199,779				3,175,105				3,297,767				3,175,105
Stockholders’ equity			435,863				442,949				421,639				435,863				421,639
Tangible common equity			360,652				366,450				341,092				360,652				341,092
Averages
Assets		$	4,058,455			$	3,994,830			$	3,929,529			$	3,975,225			$	3,861,629
Loans, net of unearned income			2,935,214				2,890,666				2,804,500				2,875,916				2,818,022
Loans held for sale			157,177				119,190				68,587				104,632				53,463
Securities			628,626				651,855				619,228				642,973				595,261
Earning assets			3,732,684				3,671,398				3,591,739				3,649,865				3,518,643
Deposits			3,252,380				3,192,239				3,156,596				3,203,177				3,098,818
Certificates of deposit			1,066,491				1,080,022				1,158,561				1,099,251				1,177,448
Interest-bearing deposits			2,627,741				2,604,760				2,617,459				2,625,437				2,585,466
Borrowings			316,345				320,562				289,299				296,935				289,776
Interest-bearing liabilities			2,944,086				2,925,322				2,906,758				2,922,373				2,875,242
Stockholders’ equity			446,604				440,122				442,580				435,774				441,040
Tangible common equity			370,777				362,996				336,076				357,985				326,090
Asset Quality
Allowance for Loan Losses (ALLL)
Beginning balance		$	39,894			$	40,985			$	41,290			$	39,470			$	38,406
Add: Recoveries			340				680				569				1,711				2,130
Less: Charge-offs			8,618				4,171				4,789				18,465				17,866
Add: Provision for loan losses			3,300				2,400				2,400				12,200				16,800
Ending balance		$	34,916			$	39,894			$	39,470			$	34,916			$	39,470
Components of ALLL:
ALLL for Loans individually evaluated for impairment		$	6,921			$	11,309				10,213			$	6,921				10,213
ALLL for Loans collectively evaluated for impairment			27,995				28,585			$	29,257				27,995			$	29,257
		$	34,916			$	39,894			$	39,470			$	34,916			$	39,470
ALLL / total outstanding loans			1.18	%			1.37	%			1.40	%			1.18	%			1.40	%
ALLL / total outstanding loans, adjusted for acquired (3)			1.40	%			1.66	%			1.83	%			1.40	%			1.83	%
Net charge-offs / total outstanding loans			1.11	%			0.48	%			0.59	%			0.56	%			0.56	%
Provision/ total outstanding loans			0.44	%			0.33	%			0.34	%			0.41	%			0.60	%
Nonperforming Assets
Commercial		$	23,208			$	28,547			$	42,174			$	23,208			$	42,174
Consumer			2,998				3,612				2,660				2,998				2,660
Nonaccrual loans			26,206				32,159				44,834				26,206				44,834
Other real estate owned			32,834				34,440				32,263				32,834				32,263
Total nonperforming assets (NPAs)			59,040				66,599				77,097				59,040				77,097
Commercial			3,191				1,931				12,865				3,191				12,865
Consumer			5,652				7,165				7,047				5,652				7,047
Loans ³ 90 days and still accruing			8,843				9,096				19,912				8,843				19,912
Total nonperforming assets and loans ³ 90 days		$	67,883			$	75,695			$	97,009			$	67,883			$	97,009
NPAs / total outstanding loans			1.99	%			2.29	%			2.74	%			1.99	%			2.74	%
NPAs / total assets			1.44	%			1.65	%			1.97	%			1.44	%			1.97	%
ALLL / nonperforming loans			133.24	%			124.05	%			88.04	%			133.24	%			88.04	%
ALLL / nonperforming assets			59.14	%			59.90	%			51.20	%			59.14	%			51.20	%

---

		Three Months Ended												Twelve Months Ended
		12/31/12				09/30/12				12/31/11				12/31/12				12/31/11
Past Due Detail
Commercial		$	929			$	382			$	1,468			$	929			$	1,468
Consumer			3,748				4,625				2,797				3,748				2,797
Loans 60-89 days past due		$	4,677			$	5,007			$	4,265			$	4,677			$	4,265
Commercial		$	5,643			$	15,421			$	2,184			$	5,643			$	2,184
Consumer			13,195				9,486				12,934				13,195				12,934
Loans 30-59 days past due		$	18,838			$	24,907			$	15,118			$	18,838			$	15,118
Commercial		$	3,594			$	5,431			$	8,828			$	3,594			$	8,828
Consumer			971				1,006				1,069				971				1,069
Purchased impaired		$	4,565			$	6,437			$	9,897			$	4,565			$	9,897
Other Data
Mortgage loan originations		$	334,734			$	323,077			$	186,559			$	1,096,140			$	659,441
% of originations that are refinances			57.00	%			57.60	%			52.20	%			54.30	%			37.40	%
End of period full-time employees			1,044				1,054				1,045				1,044				1,045
Number of full-service branches			90				94				99				90				99
Number of full automatic transaction machines (ATMs)			155				158				165				155				165
Alternative Performance Measures
Cash basis earnings (4)
Net income		$	9,442			$	9,626			$	8,360			$	35,411			$	30,445
Plus: Core deposit intangible amortization, net of tax			772				788				941				3,208				3,979
Plus: Trademark intangible amortization, net of tax			65				65				65				260				260
Cash basis operating earnings		$	10,279			$	10,479			$	9,366			$	38,879			$	34,684
Average assets		$	4,058,455			$	3,994,831			$	3,929,529			$	3,975,225			$	3,861,628
Less: Average trademark intangible			82				181				482				231				631
Less: Average goodwill			59,400				59,400				59,400				59,400				58,494
Less: Average core deposit intangibles			16,346				17,546				21,408				18,159				23,654
Average tangible assets		$	3,982,627			$	3,917,704			$	3,848,239			$	3,897,435			$	3,778,849
Average equity		$	446,604			$	440,122			$	442,580			$	435,774			$	441,040
Less: Average trademark intangible			82				181				482				231				631
Less: Average goodwill			59,400				59,400				59,400				59,400				58,494
Less: Average core deposit intangibles			16,346				17,546				21,408				18,159				23,654
Less: Average preferred equity			—				—				25,215				—				32,171
Average tangible common equity		$	370,776			$	362,995			$	336,075			$	357,984			$	326,090
Cash basis operating earnings per share, diluted		$	0.40			$	0.40			$	0.36			$	1.50			$	1.33
Cash basis operating return on average tangible assets			1.03	%			1.06	%			0.97	%			1.00	%			0.92	%
Cash basis operating return on average tangible common equity			11.03	%			11.48	%			11.06	%			10.86	%			10.64	%

 

(1)

Certain amounts in the 2012 and 2011 consolidated financial statements have been reclassified to conform to the presentation adopted in the fourth quarter of 2012. Commissions paid on the origination of mortgages held for sale have been netted against the related gains on sales of mortgage loans revenue amounts for both 2012 and 2011. In addition, debit and credit card interchange costs incurred have been netted against the related debit and credit card interchange income. Management considers the net presentation to more accurately reflect the net contribution to the consolidated financial results for the mortgage segment and the debit and credit card products. These changes had no impact on previously reported earnings and the following shows the impact on the Company’s efficiency ratio:

 

Efficiency Ratio (FTE) - prior to reclassification			69.01	%			69.21	%			71.30	%			69.59	%			69.43	%
Impact of Reclassification			–3.09	%			–3.09	%			–1.89	%			–2.73	%			–1.88	%
Efficiency Ratio (FTE) - as reported			65.92	%			66.12	%			69.41	%			66.86	%			67.55	%

 

(2)	The core net interest margin, fully taxable equivalent (“FTE”) excludes the impact of acquisition accounting accretion and amortization adjustments in net interest income.

(3)

The allowance for loan losses, adjusted for acquired loans (non-GAAP) ratio includes the allowance for loan losses to the total loan portfolio less acquired loans without additional credit deterioration above the original credit mark. Loans with credit deterioration subsequent to being acquired have been provided for in accordance with the Company’s ALLL methodology. GAAP requires the acquired allowance for loan losses not be carried over in an acquisition or merger. The Company believes the presentation of the allowance for loan losses, adjusted for acquired loans ratio is useful to investors because the acquired loans were purchased at a market discount with no allowance for loan losses carried over to the Company. Therefore, acquired loans without additional credit deterioration above the original credit mark are adjusted out of the loan balance denominator.

 

Gross Loans		$	2,966,847			$	2,908,510			$	2,818,583			$	2,966,847			$	2,818,583
less acquired loans without additional credit deterioration			(474,252	)			(505,362	)			(661,531	)			(474,252	)			(661,531	)
Gross Loans, adjusted for acquired			2,492,595				2,403,148				2,157,052				2,492,595				2,157,052
Allowance for loan losses			34,916				39,894				39,470				34,916				39,470
ALLL / gross loans, adjusted for acquired			1.40	%			1.66	%			1.83	%			1.40	%			1.83	%

 

(4)

As a supplement to GAAP, management also reviews operating performance based on its “cash basis earnings” to fully analyze its core business. Cash basis earnings exclude amortization expense attributable to intangibles (goodwill and core deposit intangibles) that do not qualify as regulatory capital. Financial ratios based on cash basis earnings exclude the amortization of nonqualifying intangible assets from earnings and the unamortized balance of nonqualifying intangibles from assets and equity.

In management’s opinion, cash basis earnings are useful to investors because by excluding non-operating adjustments they allow investors to see clearly the economic impact on the results of Company. These non-GAAP disclosures should not, however, be viewed in direct comparison with non-GAAP measures of other companies.

---

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2012 AND 2011

(Dollars in thousands, except share amounts)

 

		2012				2011
		(Unaudited)				(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks		$	71,426			$	64,412
Interest-bearing deposits in other banks			11,320				31,930
Money market investments			1				155
Federal funds sold			155				162
Total cash and cash equivalents			82,902				96,659
Securities available for sale, at fair value			585,382				620,166
Restricted stock, at cost			20,687				20,661
Loans held for sale			167,698				74,823
Loans, net of unearned income			2,966,847				2,818,583
Less allowance for loan losses			34,916				39,470
Net loans			2,931,931				2,779,113
Bank premises and equipment, net			85,409				90,589
Other real estate owned, net of valuation allowance			32,834				32,263
Core deposit intangibles, net			15,778				20,714
Goodwill			59,400				59,400
Other assets			113,844				112,699
Total assets		$	4,095,865			$	3,907,087
LIABILITIES
Noninterest-bearing demand deposits			645,901				534,535
Interest-bearing deposits:
NOW accounts			454,150				412,605
Money market accounts			957,130				904,893
Savings accounts			207,846				179,157
Time deposits of $100,000 and over			508,630				551,555
Other time deposits			524,110				592,360
Total interest-bearing deposits			2,651,866				2,640,570
Total deposits			3,297,767				3,175,105
Securities sold under agreements to repurchase			54,270				62,995
Other short-term borrowings			78,000				—
Long-term borrowings			136,815				155,381
Trust preferred capital notes			60,310				60,310
Other liabilities			32,840				31,657
Total liabilities			3,660,002				3,485,448
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock, $1.33 par value, shares authorized 36,000,000; issued and outstanding, 25,270,970 shares at December 31, 2012 and 26,134,830 shares at December 31, 2011			33,510				34,672
Surplus			176,635				187,493
Retained earnings			215,634				189,824
Accumulated other comprehensive income			10,084				9,650
Total stockholders’ equity			435,863				421,639
Total liabilities and stockholders’ equity		$	4,095,865			$	3,907,087

---

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

 

		Three Months Ended December 31								Twelve Months Ended December 31
		2012				2011				2012				2011
		(Unaudited)				(Unaudited)				(Unaudited)				(Audited)
Interest and dividend income:
Interest and fees on loans		$	40,894			$	41,480			$	162,637			$	168,479
Interest on Federal funds sold			—				—				1				1
Interest on deposits in other banks			7				70				70				130
Interest and dividends on securities:
Taxable			2,422				2,980				11,904				13,380
Nontaxable			1,860				1,789				7,251				7,083
Total interest and dividend income			45,183				46,319				181,863				189,073
Interest expense:
Interest on deposits			4,362				5,572				19,446				24,346
Interest on Federal funds purchased			21				—				50				7
Interest on short-term borrowings			74				99				234				352
Interest on long-term borrowings			1,566				2,157				7,778				8,008
Total interest expense			6,023				7,828				27,508				32,713
Net interest income			39,160				38,491				154,355				156,360
Provision for loan losses			3,300				2,400				12,200				16,800
Net interest income after provision for loan losses			35,860				36,091				142,155				139,560
Noninterest income:
Service charges on deposit accounts			2,390				2,258				9,033				8,826
Other service charges, commissions and fees			2,784				2,521				10,898				9,736
Gains (losses) on securities transactions, net			185				430				190				913
Other-than-temporary impairment losses			—				—				—				(400	)
Gains on sales of mortgage loans			5,299				3,270				16,651				11,052
Losses (gains) on sales of bank premises			(32	)			(351	)			2				(996	)
Other operating income			1,209				1,119				4,294				3,833
Total noninterest income			11,835				9,247				41,068				32,964
Noninterest expenses:
Salaries and benefits			17,620				15,904				68,648				62,865
Occupancy expenses			3,149				2,797				12,150				11,104
Furniture and equipment expenses			1,811				1,823				7,251				6,920
Other operating expenses			11,756				13,352				45,430				49,926
Total noninterest expenses			34,336				33,876				133,479				130,815
Income before income taxes			13,359				11,462				49,744				41,709
Income tax expense			3,917				3,102				14,333				11,264
Net income		$	9,442			$	8,360			$	35,411			$	30,445
Dividends paid and accumulated on preferred stock			—				113				—				1,499
Accretion of discount on preferred stock			—				983				—				1,177
Net income available to common shareholders		$	9,442			$	7,264			$	35,411			$	27,769
Earnings per common share, basic		$	0.37			$	0.28			$	1.37			$	1.07
Earnings per common share, diluted		$	0.37			$	0.28			$	1.37			$	1.07

---

UNION FIRST MARKET BANKSHARES CORPORATION AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

(Dollars in thousands)

 

		Community Bank				Mortgage				Eliminations				Consolidated
Three Months Ended December 31, 2012
Net interest income		$	38,767			$	393			$	—			$	39,160
Provision for loan losses			3,300				—				—				3,300
Net interest income after provision for loan losses			35,467				393				—				35,860
Noninterest income			6,649				5,303				(117	)			11,835
Noninterest expenses			30,197				4,256				(117	)			34,336
Income before income taxes			11,919				1,440				—				13,359
Income tax expense			3,458				459				—				3,917
Net income		$	8,461			$	981			$	—			$	9,442
Total assets		$	4,081,544			$	187,836			$	(173,515	)		$	4,095,865
Three Months Ended September 30, 2012
Net interest income		$	38,428			$	334			$	—			$	38,762
Provision for loan losses			2,400				—				—				2,400
Net interest income after provision for loan losses			36,028				334				—				36,362
Noninterest income			5,865				4,756				(117	)			10,504
Noninterest expenses			29,709				3,678				(117	)			33,270
Income before income taxes			12,184				1,412				—				13,596
Income tax expense			3,415				555				—				3,970
Net income		$	8,769			$	857			$	—			$	9,626
Total assets		$	4,020,661			$	154,181			$	(146,649	)		$	4,028,193
Three Months Ended December 31, 2011
Net interest income		$	38,181			$	310			$	—			$	38,491
Provision for loan losses			2,400				—				—				2,400
Net interest income after provision for loan losses			35,781				310				—				36,091
Noninterest income			6,098				3,266				(117	)			9,247
Noninterest expenses			31,462				2,531				(117	)			33,876
Income before income taxes			10,417				1,045				—				11,462
Income tax expense			2,710				392				—				3,102
Net income		$	7,707			$	653			$	—			$	8,360
Total assets		$	3,904,013			$	84,445			$	(81,371	)		$	3,907,087
Twelve Months Ended December 31, 2012
Net interest income		$	153,024			$	1,331			$	—			$	154,355
Provision for loan losses			12,200				—				—				12,200
Net interest income after provision for loan losses			140,824				1,331				—				142,155
Noninterest income			24,876				16,660				(468	)			41,068
Noninterest expenses			119,976				13,971				(468	)			133,479
Income before income taxes			45,724				4,020				—				49,744
Income tax expense			12,858				1,475				—				14,333
Net income		$	32,866			$	2,545			$	—			$	35,411
Total assets		$	4,081,544			$	187,836			$	(173,515	)		$	4,095,865
Twelve Months Ended December 31, 2011
Net interest income		$	155,045			$	1,315			$	—			$	156,360
Provision for loan losses			16,800				—				—				16,800
Net interest income after provision for loan losses			138,245				1,315				—				139,560
Noninterest income			22,382				11,050				(468	)			32,964
Noninterest expenses			121,490				9,793				(468	)			130,815
Income before income taxes			39,137				2,572				—				41,709
Income tax (benefit) expense			10,304				960				—				11,264
Net income		$	28,833			$	1,612			$	—			$	30,445
Total assets		$	3,904,013			$	84,445			$	(81,371	)		$	3,907,087

---

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

 

		For the Three Months Ended December 31,
		2012												2011												2010
		Average Balance				Interest Income / Expense				Yield / Rate (1)				Average Balance				Interest Income / Expense				Yield / Rate (1)				Average Balance				Interest Income / Expense				Yield / Rate (1)
Assets:
Securities:
Taxable		$	438,399			$	2,424				2.20	%		$	447,327			$	2,982				2.64	%		$	423,417			$	3,740				3.50	%
Tax-exempt			190,227				2,862				5.98	%			171,901				2,752				6.35	%			157,173				2,585				6.53	%
Total securities (2)			628,626				5,286				3.35	%			619,228				5,734				3.67	%			580,590				6,325				4.32	%
Loans, net (3) (4)			2,935,214				39,831				5.40	%			2,804,500				40,949				5.79	%			2,830,435				42,673				5.98	%
Loans held for sale			157,177				1,150				2.91	%			68,587				635				3.67	%			93,325				832				3.54	%
Federal funds sold			352				0				0.24	%			451				—				0.24	%			3,240				1				0.03	%
Money market investments			(25	)			—				0.00	%			26				—				0.00	%			202				—				0.00	%
Interest-bearing deposits in other banks			11,341				5				0.16	%			98,947				68				0.27	%			6,575				3				0.19	%
Other interest-bearing deposits			—				—				0.00	%			—				—				0.00	%			—				—				0.00	%
Total earning assets			3,732,684				46,272				4.93	%			3,591,739				47,386				5.23	%			3,514,367				49,834				5.63	%
Allowance for loan losses			(40,058	)											(41,304	)											(37,865	)
Total non-earning assets			365,828												379,094												378,216
Total assets		$	4,058,455											$	3,929,529											$	3,854,718
Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
Checking		$	431,267				98				0.09	%		$	398,313				132				0.13	%		$	363,779				186				0.20	%
Money market savings			925,309				690				0.30	%			883,467				1,086				0.49	%			776,638				1,569				0.80	%
Regular savings			204,673				150				0.29	%			177,118				171				0.38	%			153,669				120				0.31	%
Certificates of deposit: (5)
$100,000 and over			535,519				1,814				1.35	%			561,392				2,177				1.54	%			642,838				3,003				1.85	%
Under $100,000			530,971				1,611				1.21	%			597,169				2,006				1.33	%			652,389				2,807				1.71	%
Total interest-bearing deposits			2,627,741				4,361				0.66	%			2,617,459				5,572				0.84	%			2,589,313				7,685				1.18	%
Other borrowings (6)			316,345				1,661				2.09	%			289,299				2,256				3.09	%			305,900				1,855				2.41	%
Total interest-bearing liabilities			2,944,086				6,022				0.81	%			2,906,758				7,828				1.07	%			2,895,213				9,540				1.31	%
Noninterest-bearing liabilities:
Demand deposits			624,639												539,137												497,165
Other liabilities			43,127												41,054												31,592
Total liabilities			3,611,852												3,486,949												3,423,970
Stockholders’ equity			446,604												442,580												430,748
Total liabilities and stockholders’ equity		$	4,058,455											$	3,929,529											$	3,854,718
Net interest income						$	40,250											$	39,558											$	40,294
Interest rate spread (7)											4.12	%											4.16	%											4.32	%
Interest expense as a percent of average earning assets											0.64	%											0.86	%											1.08	%
Net interest margin (8)											4.29	%											4.37	%											4.55	%

 

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

(2)	Interest income on securities includes $46 thousand in accretion of the fair market value adjustments related to the acquisition of FMB.

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

(4)	Interest income on loans includes $717 thousand in accretion of the fair market value adjustments related to the acquisitions.

(5)	Interest expense on certificates of deposits includes $2 thousand in accretion of the fair market value adjustments related to the Harrisonburg branch.

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

(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 4.22% for the quarter ended 12/31/12.

---

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

 

		For the Year Ended December 31,
		2012												2011												2010
		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		$	462,996			$	11,912				2.57	%		$	427,443			$	13,387				3.13	%		$	407,975			$	13,958				3.42	%
Tax-exempt			179,977				11,155				6.20	%			167,818				10,897				6.49	%			142,099				9,569				6.73	%
Total securities (2)			642,973				23,067				3.59	%			595,261				24,284				4.08	%			550,074				23,527				4.28	%
Loans, net (3) (4)			2,875,916				159,682				5.55	%			2,818,022				166,869				5.92	%			2,750,756				167,615				6.09	%
Loans held for sale			104,632				3,273				3.13	%			53,463				2,122				3.97	%			68,414				2,671				3.90	%
Federal funds sold			365				1				0.24	%			351				1				0.24	%			12,910				17				0.13	%
Money market investments			(0	)			—				0.00	%			96				—				0.00	%			171				—				0.00	%
Interest-bearing deposits in other banks			25,980				63				0.24	%			51,450				123				0.24	%			29,444				74				0.25	%
Other interest-bearing deposits			—				—				0.00	%			—				—				0.00	%			726				—				0.00	%
Total earning assets			3,649,865				186,086				5.10	%			3,518,643				193,399				5.50	%			3,412,495				193,904				5.68	%
Allowance for loan losses			(40,460	)											(40,105	)											(34,539	)
Total non-earning assets			365,820												383,090												374,613
Total assets		$	3,975,225											$	3,861,628											$	3,752,569
Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
Checking		$	419,550				445				0.11	%		$	385,715				621				0.16	%		$	345,927				765				0.22	%
Money market savings			909,408				3,325				0.37	%			849,676				5,430				0.64	%			724,802				6,422				0.89	%
Regular savings			197,228				662				0.34	%			172,627				638				0.37	%			151,169				560				0.37	%
Certificates of deposit: (5)
$100,000 and over			540,501				7,958				1.47	%			573,276				9,045				1.58	%			639,406				12,000				1.88	%
Under $100,000			558,751				7,058				1.26	%			604,172				8,613				1.43	%			645,110				10,995				1.70	%
Total interest-bearing deposits			2,625,437				19,446				0.74	%			2,585,466				24,347				0.94	%			2,506,414				30,742				1.23	%
Other borrowings (6)			296,935				8,062				2.72	%			289,776				8,366				2.89	%			331,786				7,503				2.26	%
Total interest-bearing liabilities			2,922,373				27,508				0.94	%			2,875,242				32,713				1.14	%			2,838,200				38,245				1.35	%
Noninterest-bearing liabilities:
Demand deposits			577,740												513,352												468,631
Other liabilities			39,339												31,994												29,161
Total liabilities			3,539,451												3,420,588												3,335,992
Stockholders’ equity			435,774												441,040												416,577
Total liabilities and stockholders’ equity		$	3,975,225											$	3,861,628											$	3,752,569
Net interest income						$	158,577											$	160,686											$	155,659
Interest rate spread (7)											4.16	%											4.36	%											4.33	%
Interest expense as a percent of average earning assets											0.75	%											0.93	%											1.12	%
Net interest margin (8)											4.34	%											4.57	%											4.56	%

 

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

(2)	Interest income on securities includes $201 thousand in accretion of the fair market value adjustments related to the acquisition of FMB.

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

(4)	Interest income on loans includes $3.7 million in accretion of the fair market value adjustments related to the acquisitions.

(5)	Interest expense on certificates of deposits includes $233 thousand in accretion of the fair market value adjustments related to the acquisitions.

(6)	Interest expense on borrowings includes $489 thousand in amortization of the fair market value adjustments related to the acquisition of FMB.

(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 4.24% for the year ended 12/31/12.