AUB

Business Context and Reporting Period

This summary covers the Form 10-Q filed by Union First Market Bankshares Corporation (Note: The input metadata listed "Atlantic Union Bankshares Corp," but the filing text explicitly identifies the registrant as Union First Market Bankshares Corporation) for the quarterly period ended September 30, 2010. The Company is a Virginia-based community banking organization. A significant event during this period was the completion of the acquisition of First Market Bank, FSB ("FMB") on February 1, 2010, which substantially increased the Company's asset base and loan portfolio.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net income increased 188% year-over-year for the quarter and 236% for the nine-month period. This growth is primarily attributed to the acquisition of FMB and an improved net interest margin.
• Balance Sheet Expansion: Total assets increased by approximately $1.3 billion compared to the prior year, driven by the acquisition of $1.4 billion in assets from FMB. Net loans grew by $952.7 million (51.4%) year-over-year.
• Net Interest Margin (NIM): The tax-equivalent NIM improved to 4.47% in Q3 2010 from 3.69% in Q3 2009. This was driven by lower costs of interest-bearing liabilities and accretion from purchased performing loans, partially offset by lower yields on investment securities.
• Expense Increases: Noninterest expenses rose 61% year-over-year to $34.0 million, largely due to increased salaries and benefits from the acquisition, higher amortization of intangible assets, and acquisition-related costs of $7.8 million for the nine-month period.
• Asset Quality: Nonperforming assets (NPAs) increased to $78.0 million from $43.4 million a year ago. Nonperforming loans (NPLs) totaled $51.6 million. The allowance for loan losses to NPLs ratio was 72.4%.

Guidance, Outlook, and Risks

• Outlook: Management expects to achieve further operating cost savings and synergies from the FMB acquisition. The Company anticipates redeeming its Series B Preferred Stock (acquired from FMB) during 2011, subject to regulatory approval.
• Asset Quality Risks: The Company continues to experience deterioration in asset quality due to the soft economy, particularly in the residential home builder market and commercial real estate sectors. Management notes that while the recession has technically ended, signals are mixed, and additional softening in asset quality is possible in the near term.
• Interest Rate Risk: The Company utilizes earnings simulation and economic value simulation to manage interest rate risk. A 200 basis point increase in rates is projected to increase net interest income by 1.84%, while a 200 basis point decrease would decrease it by 1.64%.
• Acquisition Accounting: The Company recorded $1.1 million in goodwill and $26.4 million in core deposit intangibles from the FMB acquisition. The slower prepayment speed on acquired land loans resulted in a $994,000 cumulative reduction in discount accretion during the quarter.

Investor Verification Checklist

• Acquisition Integration: Verify the realization of projected cost synergies and the timeline for the redemption of the Series B Preferred Stock acquired from FMB.
• Asset Quality Trends: Monitor the trajectory of nonperforming assets, specifically in the commercial real estate and land development sectors, and the adequacy of the allowance for loan losses (currently 1.32% of total loans).
• Net Interest Margin Sustainability: Assess the sustainability of the current NIM as the accretion from purchased performing loans and fair value adjustments on liabilities diminishes over time.
• Capital Ratios: Confirm that the Company maintains "well-capitalized" status under regulatory guidelines, noting the Tier 1 risk-based capital ratio of 12.75%.
• Non-GAAP Measures: Review the "Cash basis operating earnings" ($9.4 million for Q3) to understand performance excluding intangible amortization.