Union Bankshares, Inc.

Fourth-quarter earnings were $17.8 million, or $0.40 per share, versus $15.5 million, or $0.34 per share, in the prior-year quarter. Full-year 2015 net income was $67.1 million, or $1.49 per share, versus $65.9 million, or $1.43 per share in 2014. Reported Q4 results included an after-tax OREO valuation adjustment of $2.7 million ($0.06 per share) and an after-tax benefit of $805,000 from the credit card portfolio sale; there were also $538,000 of security gains and an approximately $800,000 payroll tax adjustment. Net interest income was $64.9 million, reported NIM was 3.76%, core NIM was 3.69%, provision for loan losses was $2 million, net charge-offs were $1.2 million, non-interest income was $17 million, and non-interest expense was $54.5 million. Loans ended at $5.7 billion, deposits at $6 billion, non-performing assets at $27.2 million, and the allowance for loan losses at $34 million. Management said it expects core net interest margin to decline modestly over the next several quarters, with 3 to 4 basis points of compression per quarter, and then stabilize toward the end of 2016 into 2017. The company also guided to OREO expense of about $500,000 to $700,000 per quarter, an ongoing expense run rate of about $53 million, and a 26% tax rate. Branch closures are expected to create about $900,000 of run-rate savings, with about $450,000 of non-recurring first-quarter costs related to the branch moves.

Billy Beale framed the quarter as evidence that Union’s strategy is gaining traction: organic growth, deeper customer relationships, and continued digital and technology investments. He emphasized that management made a deliberate decision to write down two long-held OREO properties after concluding the market had not recovered enough, saying the move should give the bank more flexibility to sell faster or in bulk. His tone was upbeat but practical, stressing that the bank is willing to rethink old assumptions and use balance-sheet actions, branch consolidation, and technology to become more efficient.

Rob Gorman walked through the reported figures and noted that fourth-quarter earnings were up 15% year over year, while full-year EPS rose to $1.49 from $1.43. He highlighted the 3.76% reported margin, 3.69% core margin, $2 million provision, $17 million of non-interest income, and $54.5 million of expenses, then explained that excluding the OREO valuation charge, expenses fell 5.8% sequentially. He also pointed to $7.7 billion of assets, $5.7 billion of loans, $6 billion of deposits, $27.2 million of NPAs, a $34 million allowance, 98 basis points of reserve coverage, and $90 million of excess capital, and said capital allocation remains focused on dividends, buybacks, and acquisitions.

Analysts focused heavily on the OREO write-downs, asking what changed and whether the properties had been marked far below appraisal; management said the appraisals and valuation methodology were changed to use projected absorption and discounted cash flows, not just comps, because the lots had been held for years and sales progress was limited. Questions also centered on expense run rate, and Rob Gorman said OREO costs should fall materially to about $500,000 to $700,000 per quarter, with ongoing operating expenses around $53 million and branch-savings benefits layering in through 2016. On mortgage, Jeff Farrar said 2016 should see production growth and a return to profitability, despite industry-wide contraction and a still-normalized 45-day closing cycle. On margin and credit, management said compression of 3 to 4 basis points per quarter is expected, the reserve ratio should stabilize around 98 to 100 basis points, and deposit pricing pressure had not yet emerged after the Fed hike.