Atlantic Union Bankshares Corp - FORM 10-Q

Attached files

file	filename
EX-32.01 - EXHIBIT 32.01 - Atlantic Union Bankshares Corp	v437373_ex32-01.htm
EX-31.01 - EXHIBIT 31.01 - Atlantic Union Bankshares Corp	v437373_ex31-01.htm
EX-15.01 - EXHIBIT 15.01 - Atlantic Union Bankshares Corp	v437373_ex15-01.htm
EX-31.02 - EXHIBIT 31.02 - Atlantic Union Bankshares Corp	v437373_ex31-02.htm
EX-10.1 - EXHIBIT 10.1 - Atlantic Union Bankshares Corp	v437373_ex10-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-20293

UNION BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

VIRGINIA	54-1598552
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1051 East Cary Street

Suite 1200

Richmond, Virginia 23219

(Address of principal executive offices) (Zip Code)

(804) 633-5031

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares of common stock outstanding as of May 2, 2016 was 43,762,691.

UNION BANKSHARES CORPORATION

FORM 10-Q

INDEX

ITEM		PAGE

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	2

	Consolidated Statements of Income for the three months ended March 31, 2016 and 2015	3

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	4

	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2016 and 2015	5

	Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	6

	Notes to Consolidated Financial Statements	7

	Report of Independent Registered Public Accounting Firm	43

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	64

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 6.	Exhibits	66

	Signatures	67

Glossary of Acronyms

AFS	–	Available for sale
ALCO	–	Asset Liability Committee
ALL	–	Allowance for loan losses
ASC	–	Accounting Standards Codification
ASU	–	Accounting Standards Update
ATM	–	Automated teller machine
the Bank	–	Union Bank & Trust, formerly known as Union First Market Bank
bps	–	Basis points
the Company	–	Union Bankshares Corporation
Dodd-Frank Act	–	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS	–	Earnings per share
Exchange Act	–	Securities Exchange Act of 1934
FASB	–	Financial Accounting Standards Board
FDIC	–	Federal Deposit Insurance Corporation
Federal Reserve	–	Board of Governors of the Federal Reserve System
Federal Reserve Bank	–	Federal Reserve Bank of Richmond
FHLB	–	Federal Home Loan Bank of Atlanta
U.S. GAAP or GAAP	–	Accounting principles generally accepted in the United States
HELOC	–	Home equity line of credit
HTM	–	Held to maturity
LIBOR	–	London Interbank Offered Rate
NPA	–	Nonperforming assets
OREO	–	Other real estate owned
OTTI	–	Other than temporary impairment
PCI	–	Purchased credit impaired
StellarOne	–	StellarOne Corporation
TDR	–	Troubled debt restructuring
UMG	–	Union Mortgage Group, Inc.

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

	March 31,		December 31,
	2016		2015
	(Unaudited)		(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	95,462	$	111,323
Interest-bearing deposits in other banks		37,227		29,670
Federal funds sold		650		1,667
Total cash and cash equivalents		133,339		142,660

Securities available for sale, at fair value		939,409		903,292
Securities held to maturity, at carrying value		204,444		205,374
Restricted stock, at cost		58,211		51,828
Loans held for sale		25,109		36,030
Loans held for investment, net of deferred fees and costs		5,780,502		5,671,462
Less allowance for loan losses		34,399		34,047
Net loans held for investment		5,746,103		5,637,415

Premises and equipment, net		125,357		126,028
Other real estate owned, net of valuation allowance		14,246		15,299
Core deposit intangibles, net		21,430		23,310
Goodwill		293,522		293,522
Bank owned life insurance		175,033		173,687
Other assets		96,408		84,846
Total assets	$	7,832,611	$	7,693,291

LIABILITIES
Noninterest-bearing demand deposits	$	1,363,243	$	1,372,937
Interest-bearing deposits		4,582,739		4,590,999
Total deposits		5,945,982		5,963,936

Securities sold under agreements to repurchase		91,977		84,977
Other short-term borrowings		466,000		304,000
Long-term borrowings		291,662		291,198
Other liabilities		56,012		53,813
Total liabilities		6,851,633		6,697,924

Commitments and contingencies (Note 6)

STOCKHOLDERS' EQUITY
Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,854,381 shares and 44,785,674 shares, respectively.		57,850		59,159
Additional paid-in capital		610,084		631,822
Retained earnings		306,685		298,134
Accumulated other comprehensive income		6,359		6,252
Total stockholders' equity		980,978		995,367
Total liabilities and stockholders' equity	$	7,832,611	$	7,693,291

See accompanying notes to consolidated financial statements.

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UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except share data)

	Three Months Ended
	March 31,		March 31,
	2016		2015
Interest and dividend income:
Interest and fees on loans	$	62,947	$	60,452
Interest on deposits in other banks		47		17
Interest and dividends on securities:
Taxable		4,316		3,807
Nontaxable		3,439		3,324
Total interest and dividend income		70,749		67,600

Interest expense:
Interest on deposits		4,195		3,321
Interest on federal funds purchased		2		1
Interest on short-term borrowings		621		249
Interest on long-term borrowings		2,200		2,060
Total interest expense		7,018		5,631

Net interest income		63,731		61,969
Provision for credit losses		2,604		1,750
Net interest income after provision for credit losses		61,127		60,219

Noninterest income:
Service charges on deposit accounts		4,734		4,214
Other service charges and fees		4,156		3,584
Fiduciary and asset management fees		2,138		2,219
Mortgage banking income, net		2,146		2,379
Gains on securities transactions, net		143		193
Bank owned life insurance income		1,372		1,135
Other operating income		1,225		1,330
Total noninterest income		15,914		15,054

Noninterest expenses:
Salaries and benefits		28,048		27,492
Occupancy expenses		4,976		5,133
Furniture and equipment expenses		2,636		2,813
Printing, postage, and supplies		1,139		1,370
Communications expense		1,089		1,179
Technology and data processing		3,814		3,255
Professional services		1,989		1,348
Marketing and advertising expense		1,938		1,687
FDIC assessment premiums and other insurance		1,362		1,398
Other taxes		1,618		1,551
Loan-related expenses		599		684
OREO and credit-related expenses		569		1,186
Amortization of intangible assets		1,880		2,222
Training and other personnel costs		744		721
Other expenses		1,871		1,801
Total noninterest expenses		54,272		53,840

Income before income taxes		22,769		21,433
Income tax expense		5,808		5,732
Net income	$	16,961	$	15,701
Basic earnings per common share	$	0.38	$	0.35
Diluted earnings per common share	$	0.38	$	0.35
Dividends declared per common share	$	0.19	$	0.15
Basic weighted average number of common shares outstanding		44,251,276		45,105,969
Diluted weighted average number of common shares outstanding		44,327,229		45,187,516

See accompanying notes to consolidated financial statements.

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UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)

	Three Months Ended
	March 31,
	2016			2015

Net income	$	16,961		$	15,701
Other comprehensive income (loss):
Cash flow hedges:
Change in fair value of cash flow hedges		(2,681	)		(1,490	)
Reclassification adjustment for losses (gains) included in net income (net of tax, $76 and $146 for the three months ended March 31, 2016 and 2015, respectively)		141			272
AFS securities:
Unrealized holding gains (losses) arising during period (net of tax, $1,633 and $2,037 for the three months ended March 31, 2016 and 2015, respectively)		3,032			3,783
Reclassification adjustment for losses (gains) included in net income (net of tax, $50 and $68 for the three months ended March 31, 2016 and 2015, respectively)		(93	)		(125	)
HTM securities:
Accretion of unrealized gain for AFS securities transferred to HTM (net of tax, $157 and $0 for the three months ended March 31, 2016 and 2015, respectively)		(292	)		-
Other comprehensive income (loss)		107			2,440
Comprehensive income	$	17,068		$	18,141

See accompanying notes to consolidated financial statements.

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UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2016 AND 2015

(Dollars in thousands, except share amounts)

	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Total

Balance - December 31, 2014	$	59,795		$	643,443		$	261,676		$	12,255	$	977,169
Net income - 2015								15,701					15,701
Other comprehensive income (net of taxes of $2,115)											2,440		2,440
Dividends on common stock ($0.15 per share)								(6,431	)				(6,431	)
Stock purchased under stock repurchase plan (102,843 shares)		(137	)		(2,250	)							(2,387	)
Issuance of common stock under Dividend Reinvestment Plan (15,781 shares)		21			307			(328	)				-
Issuance of common stock under Equity Compensation Plans (7,686 shares)		10			137								147
Issuance of common stock for services rendered (4,576 shares)		6			94								100
Vesting of restricted stock, including tax effects, under Equity Compensation Plans (19,271 shares)		26			(239	)							(213	)
Stock-based compensation expense					390								390
Balance - March 31, 2015	$	59,721		$	641,882		$	270,618		$	14,695	$	986,916

Balance - December 31, 2015	$	59,159		$	631,822		$	298,134		$	6,252	$	995,367
Net income - 2016								16,961					16,961
Other comprehensive income (net of taxes of $1,502)											107		107
Dividends on common stock ($0.19 per share)								(8,410	)				(8,410	)
Stock purchased under stock repurchase plan (1,040,612 shares)		(1,384	)		(22,344	)							(23,728	)
Issuance of common stock under Equity Compensation Plans (21,804 shares)		29			288								317
Issuance of common stock for services rendered (4,400 shares)		6			94								100
Vesting of restricted stock, including tax effects, under Equity Compensation Plans (30,299 shares)		40			(417	)							(377	)
Stock-based compensation expense					641								641
Balance - March 31, 2016	$	57,850		$	610,084		$	306,685		$	6,359	$	980,978

See accompanying notes to consolidated financial statements.

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UNION BANKSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2016 AND 2015

(Dollars in thousands)

	2016			2015
Operating activities:
Net income	$	16,961		$	15,701
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Depreciation of premises and equipment		2,511			2,705
Writedown of OREO		126			590
Amortization, net		2,958			3,625
Amortization (accretion) related to acquisition, net		734			371
Provision for credit losses		2,604			1,750
Losses (gains) on securities transactions, net		(143	)		(193	)
Decrease (increase) in loans held for sale, net		10,921			(3,529	)
Losses (gains) on sales of other real estate owned, net		(7	)		(38	)
Losses (gains) on sales of premises, net		45			57
Stock-based compensation expenses		641			390
Issuance of common stock for services		100			100
Net decrease (increase) in other assets		(14,594	)		(1,031	)
Net increase (decrease) in other liabilities		(441	)		80
Net cash and cash equivalents provided by (used in) operating activities		22,416			20,578
Investing activities:
Purchases of securities available for sale		(83,735	)		(29,863	)
Proceeds from sales of securities available for sale		14,532			12,499
Proceeds from maturities, calls and paydowns of securities available for sale		29,151			34,133
Net decrease (increase) in loans held for investment		(110,513	)		(44,401	)
Net decrease (increase) in premises and equipment		(1,885	)		(2,346	)
Proceeds from sales of other real estate owned		1,339			2,714
Improvements to other real estate owned		-			(56	)
Cash paid for equity-method investments		-			(355	)
Net cash and cash equivalents provided by (used in) investing activities		(151,111	)		(27,675	)
Financing activities:
Net increase (decrease) in noninterest-bearing deposits		(9,694	)		75,557
Net increase (decrease) in interest-bearing deposits		(8,260	)		(43,024	)
Net increase (decrease) in short-term borrowings		169,000			(12,959	)
Net increase (decrease) in long-term borrowings		526			509
Cash dividends paid - common stock		(8,410	)		(6,431	)
Repurchase of common stock		(23,728	)		(2,387	)
Issuance of common stock		317			147
Vesting of restricted stock, including tax effects		(377	)		(213	)
Net cash and cash equivalents provided by (used in) financing activities		119,374			11,199
Increase (decrease) in cash and cash equivalents		(9,321	)		4,102
Cash and cash equivalents at beginning of the period		142,660			133,260
Cash and cash equivalents at end of the period	$	133,339		$	137,362

Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	6,998		$	6,925
Income taxes		10,500			3,000

Supplemental schedule of noncash investing and financing activities
Unrealized (losses) gains on securities available for sale	$	4,522		$	5,627
Changes in fair value of interest rate swap loss		(2,540	)		(1,218	)
Transfers between loans and other real estate owned		405			124
Transfers from bank premises to other real estate owned		-			402

See accompanying notes to consolidated financial statements.

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UNION BANKSHARES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

ACCOUNTING POLICIES

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Loans

The Company originates commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial and residential real estate loans (including acquisition and development loans and residential construction loans) throughout its market area. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in those markets.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

As of January 1, 2016, the Company enhanced the loan portfolio segmentation to better align with how the Company manages credit risk and to better align with industry practice. Below is a summary of the new loan segmentation.

Construction and Land Development – construction loans generally made to commercial and residential builders for specific construction projects. The successful repayment of these types of loans is generally dependent upon (a) a commitment for permanent financing from the Company, or (b) from the sale of the constructed property. These loans carry more risk than both types of commercial real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. As in commercial real estate term lending, the Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.

Also, included in this category are loans generally made to residential home builders to support their lot and home inventory needs. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk as compared to other commercial lending. This class of lending manages risks related to residential real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s ability to manage inventory and run projects. The Company manages this risk by lending to experienced builders and developers, by using specific underwriting policies and procedures for these types of loans, and by avoiding excessive concentrations with any particular customer or geographic region.

Commercial Real Estate – Owner Occupied - term loans made to support owner occupied real estate properties that rely upon the successful operation of the business occupying the property for repayment. General market conditions and economic activity may affect these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry.

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Commercial Real Estate – Non-Owner Occupied - term loans typically made to borrowers to support income producing properties that rely upon the successful operation of the property for repayment. General market conditions and economic activity may impact the performance of these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, and hotel as well as avoiding concentrations to any one business or industry.

Residential 1-4 Family – loans generally made to both commercial and residential borrowers. Mortgage loan portfolios carry risks associated with the creditworthiness of the borrower or the tenant and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.

Multi-Family Real Estate – loans made to real estate investors to support permanent financing for multifamily family residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk as compared to other commercial lending. In addition, underwriting requirements for multifamily are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.

Commercial and Industrial – generally support the Company’s borrowers’ need for equipment/vehicle purchases and other short-term or seasonal cash flow needs. Repayment relies upon the successful operation of the business. This type of lending carries a lower level of commercial credit risk as compared to other commercial lending. The Company manages this risk by using general underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry.

HELOC – the consumer HELOC portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.

Auto – the consumer indirect auto lending portfolio generally carries certain risks associated with the values of the collateral that management must mitigate. The Company focuses its indirect auto lending on one to two year old used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future. This type of lending places reliance on computer-based loan approval systems to supplement other underwriting standards.

Consumer and all other - portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Also included in this category are loans that generally support small business lines of credit and agricultural lending neither of which are a material source of business for the Company.

Affordable Housing Entities

The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three months ended March 31, 2016 and 2015, the Company recognized amortization of $130,000 and $175,000, respectively, and tax credits of $210,000 and $257,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. The carrying value of the Company’s investments in these qualified affordable housing projects was $8.3 million and $8.5 million as of March 31, 2016 and December 31, 2015, respectively. The Company recorded a liability of $5.5 million for the related unfunded commitments as of March 31, 2016, which are expected to be paid from 2016 to 2019.

Adoption of New Accounting Standards

In February 2015, the FASB issued revised guidance to simplify the consolidation assessment required to evaluate whether organizations should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures. The guidance also removed the indefinite deferral of specialized guidance for certain investment funds. The Company adopted ASU No. 2015-02, “Amendments to the Consolidation Analysis” during the first quarter of 2016. The adoption of ASU 2015-02 did not have a material impact on the Company’s consolidated financial statements.

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Recent Accounting Pronouncements

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk. The Company is currently assessing the impact ASU 2016-01 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” This ASU clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.” This ASU clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is required to perform only the four-step decision sequence in ASC 815-15-25-42 (as amended by the ASU). The entity does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-06 to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” This ASU simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted. The Company does not expect the adoption of ASU 2016-07 to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” This ASU amends the principal-versus-agent implementation guidance and illustrations in the FASB’s new revenue standard (ASU 2014-09) and clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company is currently assessing the impact ASU 2016-08 will have on its consolidated financial statements.

- 9 -

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted; however, if the Company elects to early adopt, then all amendments must be adopted in the same period. The Company is currently assessing the impact ASU 2016-09 will have on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” This ASU amends certain aspects of the FASB’s new revenue standard, specifically the standard’s guidance on identifying performance obligations and the implementation guidance on licensing. The amendments in this update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which is not yet effective. The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). The Company is currently assessing the impact ASU 2016-10 will have on its consolidated financial statements.

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SECURITIES

Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of March 31, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):

	Amortized		Gross Unrealized					Estimated
	Cost		Gains		(Losses)			Fair Value
March 31, 2016
Obligations of states and political subdivisions	$	254,851	$	11,267	$	(149	)	$	265,969
Corporate bonds		95,468		287		(1,989	)		93,766
Mortgage-backed securities		561,466		8,502		(1,406	)		568,562
Other securities		11,085		27		-			11,112
Total available for sale securities	$	922,870	$	20,083	$	(3,544	)	$	939,409

December 31, 2015
Obligations of states and political subdivisions	$	257,740	$	10,479	$	(140	)	$	268,079
Corporate bonds		77,628		55		(1,704	)		75,979
Mortgage-backed securities		544,823		6,127		(2,779	)		548,171
Other securities		11,085		-		(22	)		11,063
Total available for sale securities	$	891,276	$	16,661	$	(4,645	)	$	903,292

The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s available for sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired as of March 31, 2016 and December 31, 2015. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	Less than 12 months					More than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
March 31, 2016
Obligations of states and political subdivisions	$	8,407	$	(62	)	$	2,337	$	(87	)	$	10,744	$	(149	)
Mortgage-backed securities		167,203		(1,073	)		27,198		(333	)		194,401		(1,406	)
Corporate bonds and other securities		21,536		(606	)		28,194		(1,383	)		49,730		(1,989	)
Total available for sale	$	197,146	$	(1,741	)	$	57,729	$	(1,803	)	$	254,875	$	(3,544	)

December 31, 2015
Obligations of states and political subdivisions	$	8,114	$	(70	)	$	4,950	$	(70	)	$	13,064	$	(140	)
Mortgage-backed securities		287,113		(2,442	)		21,660		(337	)		308,773		(2,779	)
Corporate bonds and other securities		36,157		(751	)		19,558		(975	)		55,715		(1,726	)
Total available for sale	$	331,384	$	(3,263	)	$	46,168	$	(1,382	)	$	377,552	$	(4,645	)

As of March 31, 2016, there were $57.7 million, or 18 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.8 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2015, there were $46.2 million, or 20 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.4 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities. The Company has determined that these securities are temporarily impaired as of March 31, 2016 and December 31, 2015 for the reasons set out below:

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Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.

Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of available for sale securities as of March 31, 2016 and December 31, 2015, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2016				December 31, 2015
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	9,703	$	9,792	$	8,380	$	8,370
Due after one year through five years		94,153		96,641		65,326		66,996
Due after five years through ten years		316,897		323,902		296,864		301,920
Due after ten years		502,117		509,074		520,706		526,006
Total securities available for sale	$	922,870	$	939,409	$	891,276	$	903,292

The following table presents available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016		December 31, 2015
	Estimated		Estimated
	Fair Value		Fair Value
Public deposits	$	182,313	$	184,635
Repurchase agreements		120,351		126,120
Other purposes ⁽¹⁾		25,486		26,546
Total pledged securities	$	328,150	$	337,301

(1) The "Other purposes" category consists of borrowings, derivatives, and accounts held at the Bank.

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Held to Maturity

During the second quarter of 2015, the Company transferred securities, which it intends and has the ability to hold until maturity, with a fair value of $201.8 million on the date of transfer, from securities available for sale to securities held to maturity. The Company transferred these securities to held to maturity to reduce the impact of price volatility on capital and in consideration of changes to the regulatory environment. The securities included net pre-tax unrealized gains of $8.1 million at the date of transfer with a remaining balance of $6.4 million as of March 31, 2016.

The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains/(losses) are accreted over the remaining life of the security with no impact on future net income.

The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of March 31, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):

	Carrying		Gross Unrealized					Estimated
	Value ⁽¹⁾		Gains		(Losses)			Fair Value
March 31, 2016
Obligations of states and political subdivisions	$	204,444	$	7,436	$	(1,531	)	$	210,349

December 31, 2015
Obligations of states and political subdivisions	$	205,374	$	5,748	$	(1,685	)	$	209,437

⁽¹⁾ The carrying value includes $6.4 million of net unrealized gains present at the time of transfer from available for securities, net of any accretion.

The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of March 31, 2016 and December 31, 2015. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	Less than 12 months					More than 12 months				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Losses			Value		Losses		Value		Losses
March 31, 2016
Obligations of states and political subdivisions	$	3,210	$	(1,531	)	$	-	$	-	$	3,210	$	(1,531	)

December 31, 2015
Obligations of states and political subdivisions	$	7,056	$	(1,685	)	$	-	$	-	$	7,056	$	(1,685	)

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The following table presents the amortized cost and estimated fair value of held to maturity securities as of March 31, 2016 and December 31, 2015, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2016				December 31, 2015
	Carrying		Estimated		Carrying		Estimated
	Value ⁽¹⁾		Fair Value		Value ⁽¹⁾		Fair Value
Due in one year or less	$	1,477	$	1,479	$	1,488	$	1,491
Due after one year through five years		7,907		8,046		4,294		4,348
Due after five years through ten years		49,884		51,178		44,736		45,501
Due after ten years		145,176		149,646		154,856		158,097
Total securities held to maturity	$	204,444	$	210,349	$	205,374	$	209,437

⁽¹⁾ The carrying value includes $6.4 million of net unrealized gains present at the time of transfer from available for securities, net of any accretion.

The following table presents held to maturity securities which were pledged to secure public deposits as permitted or required by law as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016		December 31, 2015
	Estimated		Estimated
	Fair Value		Fair Value
Public deposits	$	210,349	$	207,140
Total pledged securities	$	210,349	$	207,140

Restricted Stock, at cost

Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At March 31, 2016 and December 31, 2015, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both March 31, 2016 and December 31, 2015. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million for both March 31, 2016 and December 31, 2015 and FHLB stock in the amount of $34.4 million and $28.0 million as of March 31, 2016 and December 31, 2015, respectively.

Other-Than-Temporary-Impairment

During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the quarter ended March 31, 2016, and in accordance with the guidance, no OTTI was recognized. For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000. During the quarter ended March 31, 2016, the municipal security was sold. As a result, the Company recognized an additional loss on sale of the previously written down security.

- 14 -

Realized Gains and Losses

The following table presents the gross realized gains and losses on the sale of securities available for sale and the proceeds from the sale of securities during the three months ended March 31, 2016 and 2015 (dollars in thousands). The Company did not sell any investment securities that are held to maturity.

	Three months ended
	March 31, 2016			March 31, 2015
Realized gains (losses):
Gross realized gains	$	239		$	193
Gross realized losses		(96	)		-
Net realized gains	$	143		$	193

Proceeds from sales of securities	$	14,532		$	12,499

LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31,		December 31,
	2016		2015
Construction and Land Development	$	776,698	$	749,720
Commercial Real Estate - Owner Occupied		849,202		860,086
Commercial Real Estate - Non-Owner Occupied		1,296,251		1,270,480
Multifamily Real Estate		323,270		322,528
Commercial & Industrial		453,208		435,365
Residential 1-4 Family		978,478		978,469
Auto		241,737		234,061
HELOC		517,122		516,726
Consumer and all other		344,536		304,027
Total loans held for investment, net⁽¹⁾	$	5,780,502	$	5,671,462

⁽¹⁾ Loans, as presented, are net of deferred fees and costs totaling $3.6 million and $3.0 million as of March 31, 2016 and December 31, 2015, respectively.

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The following table shows the aging of the Company’s loan portfolio, by segment, at March 31, 2016 (dollars in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	2,676	$	724	$	544	$	5,137	$	2,156	$	765,461	$	776,698
Commercial Real Estate - Owner Occupied		1,787		963		196		27,260		2,816		816,180		849,202
Commercial Real Estate - Non-Owner Occupied		24		276		723		13,636		-		1,281,592		1,296,251
Multifamily Real Estate		155		-		-		2,132		-		320,983		323,270
Commercial & Industrial		985		284		422		1,571		810		449,136		453,208
Residential 1-4 Family		13,711		1,111		2,247		18,305		5,696		937,408		978,478
Auto		1,519		126		53		-		162		239,877		241,737
HELOC		1,870		388		1,315		1,535		973		511,041		517,122
Consumer and all other		736		1,996		223		529		479		340,573		344,536
Total Loans Held For Investment	$	23,463	$	5,868	$	5,723	$	70,105	$	13,092	$	5,662,251	$	5,780,502

The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2015 (dollars in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	3,155	$	380	$	128	$	5,986	$	2,113	$	737,958	$	749,720
Commercial Real Estate - Owner Occupied		1,714		118		103		27,388		3,904		826,859		860,086
Commercial Real Estate - Non-Owner Occupied		771		-		723		13,519		100		1,255,367		1,270,480
Multifamily Real Estate		-		-		272		1,555		-		320,701		322,528
Commercial & Industrial		1,056		27		124		1,813		429		431,916		435,365
Residential 1-4 Family		15,023		6,774		3,638		21,159		3,563		928,312		978,469
Auto		2,312		233		60		-		192		231,264		234,061
HELOC		2,589		1,112		762		1,791		1,348		509,124		516,726
Consumer and all other		1,167		689		19		526		287		301,339		304,027
Total Loans Held For Investment	$	27,787	$	9,333	$	5,829	$	73,737	$	11,936	$	5,542,840	$	5,671,462

- 16 -

The following table shows the PCI loan portfolios, by segment and their delinquency status, at March 31, 2016 (dollars in thousands):

	30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	354	$	239	$	4,544	$	5,137
Commercial Real Estate - Owner Occupied		1,401		1,425		24,434		27,260
Commercial Real Estate - Non-Owner Occupied		745		205		12,686		13,636
Multifamily Real Estate		-		-		2,132		2,132
Commercial & Industrial		196		39		1,336		1,571
Residential 1-4 Family		1,917		1,048		15,340		18,305
HELOC		163		546		826		1,535
Consumer and all other		-		-		529		529
Total	$	4,776	$	3,502	$	61,827	$	70,105

The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, 2015 (dollars in thousands):

	30-89 Days Past Due		Greater than 90 Days		Current		Total
Construction and Land Development	$	369	$	241	$	5,376	$	5,986
Commercial Real Estate - Owner Occupied		1,139		1,412		24,837		27,388
Commercial Real Estate - Non-Owner Occupied		755		202		12,562		13,519
Multifamily Real Estate		-		-		1,555		1,555
Commercial & Industrial		209		21		1,583		1,813
Residential 1-4 Family		2,143		1,923		17,093		21,159
HELOC		410		458		923		1,791
Consumer and all other		-		-		526		526
Total	$	5,025	$	4,257	$	64,455	$	73,737

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The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans related to the StellarOne acquisition, by segment at March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016						December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans without a specific allowance
Construction and Land Development	$	28,854	$	29,141	$	-	$	33,250	$	33,731	$	-
Commercial Real Estate - Owner Occupied		14,081		15,627		-		7,781		8,983		-
Commercial Real Estate - Non-Owner Occupied		3,931		3,931		-		5,328		5,325		-
Multifamily Real Estate		3,803		3,803		-		3,828		3,828		-
Commercial & Industrial		1,233		1,559		-		711		951		-
Residential 1-4 Family		10,196		11,113		-		7,564		8,829		-
Auto		-		-		-		7		7		-
HELOC		1,944		2,054		-		1,786		2,028		-
Consumer and all other		716		819		-		211		211		-
Total impaired loans without a specific allowance	$	64,758	$	68,047	$	-	$	60,466	$	63,893	$	-

Loans with a specific allowance
Construction and Land Development	$	1,925	$	2,139	$	500	$	3,167	$	3,218	$	538
Commercial Real Estate - Owner Occupied		1,945		1,983		81		3,237		3,239		358
Commercial Real Estate - Non-Owner Occupied		272		272		1		907		907		75
Commercial & Industrial		2,068		2,242		467		1,952		1,949		441
Residential 1-4 Family		4,362		4,541		414		6,065		6,153		418
Auto		162		214		1		192		199		1
HELOC		889		942		28		769		925		76
Consumer and all other		53		361		1		363		512		95
Total impaired loans with a specific allowance	$	11,676	$	12,694	$	1,493	$	16,652	$	17,102	$	2,002
Total impaired loans	$	76,434	$	80,741	$	1,493	$	77,118	$	80,995	$	2,002

The following table shows the year-to-date average balance and interest income recognized for the Company’s impaired loans, excluding PCI loans related to the StellarOne acquisition, by segment for the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31, 2016				Three Months Ended March 31, 2015
	YTD Average Investment		Interest Income Recognized		YTD Average Investment		Interest Income Recognized
Construction and Land Development	$	30,569	$	484	$	49,087	$	556
Commercial Real Estate - Owner Occupied		16,510		157		23,757		265
Commercial Real Estate - Non-Owner Occupied		4,214		41		18,664		147
Multifamily Real Estate		3,817		60		4,596		69
Commercial & Industrial		3,663		37		6,054		50
Residential 1-4 Family		15,301		106		14,566		116
Auto		218		-		4		-
HELOC		2,933		21		1,411		7
Consumer and all other		982		6		1,177		11
Total impaired loans without a specific allowance	$	78,207	$	912	$	119,316	$	1,221

- 18 -

The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. TDRs totaled $13.0 million and $12.7 million as of March 31, 2016 and December 31, 2015, respectively. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for loan loss methodology and are included in the preceding impaired loan tables. For the quarter ended March 31, 2016, the recorded investment in restructured loans prior to modifications was not materially impacted by the modification.

The following table provides a summary, by segment, of modified loans that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and modified loans that have been placed on nonaccrual status, which are considered to be nonperforming, as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31, 2016						December 31, 2015
	No. of Loans		Recorded Investment		Outstanding Commitment		No. of Loans		Recorded Investment		Outstanding Commitment
Performing
Construction and Land Development		6	$	3,320	$	-		6	$	3,349	$	-
Commercial Real Estate - Owner Occupied		6		2,223		-		5		1,530		-
Commercial Real Estate - Non-Owner Occupied		2		2,390		-		2		2,390		-
Commercial & Industrial		4		229		-		5		261		-
Residential 1-4 Family		26		3,249		-		27		3,173		-
Consumer and all other		1		75		-		1		77		-
Total performing		45	$	11,486	$	-		46	$	10,780	$	-

Nonperforming
Construction and Land Development		2	$	215	$	-		2	$	321	$	-
Commercial Real Estate - Owner Occupied		1		132		-		1		137		-
Commercial & Industrial		-		-		-		1		2		-
Residential 1-4 Family		6		1,123		-		6		1,142		-
HELOC		-		-		-		1		319		-
Total nonperforming		9	$	1,470	$	-		11	$	1,921	$	-

Total performing and nonperforming		54	$	12,956	$	-		57	$	12,701	$	-

The Company considers a default of a restructured loan to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the three months ended March 31, 2016 and 2015, the Company did not identify any restructured loans that went into default that had been restructured in the twelve-month period prior to default.

The following table shows, by segment and modification type, TDRs that occurred during the three months ended March 31, 2016 and 2015 (dollars in thousands):

	Three months ended				Three months ended
	March 31, 2016				March 31, 2015
	No. of Loans		Recorded Investment at Period End		No. of Loans		Recorded Investment at Period End
Term modification, at a market rate
Commercial Real Estate - Owner Occupied		1	$	709		-	$	-
Commercial & Industrial		-		-		1		19
Residential 1-4 Family		1		378		-		-
Total loan term extended at a market rate		2	$	1,087		1	$	19

Total		2	$	1,087		1	$	19

- 19 -

The following table shows the allowance for loan loss activity, balances for allowance for loan losses, and loan balances based on impairment methodology by segment for the three months ended and as of March 31, 2016. The table below includes the provision for loan losses. As discussed in Note 1 “Accounting Policies,” the Company enhanced its loan segmentation for purposes of the allowance calculation as well as its disclosures. The impact of this enhancement is reflected in the provision amounts in the table below. In addition, a $100,000 provision was recognized during the three months ended March 31, 2016 for unfunded loan commitments for which the reserves are recorded as a component of “Other Liabilities” on the Company’s Consolidated Balance Sheets. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):

	Allowance for loan losses
	Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period

Construction and Land Development	$	6,040	$	19	$	(93	)	$	5,055		$	11,021
Commercial Real Estate - Owner Occupied		4,614		46		(772	)		(477	)		3,411
Commercial Real Estate - Non-Owner Occupied		6,929		-		-			(2,445	)		4,484
Multifamily Real Estate		1,606		-		-			(204	)		1,402
Commercial & Industrial		3,163		238		(617	)		1,441			4,225
Residential 1-4 Family		5,414		243		(153	)		471			5,975
Auto		1,703		84		(365	)		(615	)		807
HELOC		2,934		83		(409	)		(1,325	)		1,283
Consumer and all other		1,644		115		(571	)		603			1,791
Total	$	34,047	$	828	$	(2,980	)	$	2,504		$	34,399

	Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL

Construction and Land Development	$	30,779	$	500	$	740,782	$	10,521	$	5,137	$	-	$	776,698	$	11,021
Commercial Real Estate - Owner Occupied		16,026		81		805,916		3,330		27,260		-		849,202		3,411
Commercial Real Estate - Non-Owner Occupied		4,203		1		1,278,412		4,483		13,636		-		1,296,251		4,484
Multifamily Real Estate		3,803		-		317,335		1,402		2,132		-		323,270		1,402
Commercial & Industrial		3,301		467		448,336		3,758		1,571		-		453,208		4,225
Residential 1-4 Family		14,558		414		945,615		5,561		18,305		-		978,478		5,975
Auto		162		1		241,575		806		-		-		241,737		807
HELOC		2,833		28		512,754		1,255		1,535		-		517,122		1,283
Consumer and all other		769		1		343,238		1,790		529		-		344,536		1,791
Total loans held for investment, net	$	76,434	$	1,493	$	5,633,963	$	32,906	$	70,105	$	-	$	5,780,502	$	34,399

- 20 -

The following table shows the allowance for loan loss activity, balances for allowance for loan losses, and loan balances based on impairment methodology by segment for the three months ended and as of March 31, 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):

	Allowance for loan losses
	Balance, beginning of the year		Recoveries credited to allowance		Loans charged off			Provision charged to operations			Balance, end of period

Construction and Land Development	$	4,856	$	64	$	-		$	(111	)	$	4,809
Commercial Real Estate - Owner Occupied		4,640		2		(33	)		260			4,869
Commercial Real Estate - Non-Owner Occupied		7,256		40		(2,253	)		894			5,937
Multifamily Real Estate		1,374		-		-			81			1,455
Commercial & Industrial		2,610		97		(671	)		781			2,817
Residential 1-4 Family		5,607		159		(250	)		(330	)		5,186
Auto		1,297		82		(183	)		131			1,327
HELOC		2,675		42		(60	)		(52	)		2,605
Consumer and all other		2,069		186		(379	)		96			1,972
Total	$	32,384	$	672	$	(3,829	)	$	1,750		$	30,977

	Loans individually evaluated for impairment				Loans collectively evaluated for impairment				Loans acquired with deteriorated credit quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL

Construction and Land Development	$	48,624	$	132	$	599,428	$	4,677	$	9,529	$	-	$	657,581	$	4,809
Commercial Real Estate - Owner Occupied		24,577		526		842,641		4,343		31,004		-		898,222		4,869
Commercial Real Estate - Non-Owner Occupied		14,949		146		1,148,867		5,791		16,648		-		1,180,464		5,937
Multifamily Real Estate		4,591		-		291,039		1,455		3,021		-		298,651		1,455
Commercial & Industrial		5,743		440		400,873		2,377		3,251		-		409,867		2,817
Residential 1-4 Family		13,484		432		932,790		4,754		24,654		-		970,928		5,186
Auto		1		-		211,292		1,327		-		-		211,293		1,327
HELOC		1,226		12		511,635		2,593		1,889		-		514,750		2,605
Consumer and all other		910		16		243,739		1,956		1,350		-		245,999		1,972
Total loans held for investment, net	$	114,105	$	1,704	$	5,182,304	$	29,273	$	91,346	$	-	$	5,387,755	$	30,977

- 21 -

The Company uses a risk rating system and past due status as the primary credit quality indicators for the loan categories. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for loan losses; on those loans without a risk rating, the Company uses past due status to determine risk level. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

Risk rated 0 loans have little or no risk and are generally secured by General Obligation Municipal Credits;

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan; or

Loans that are not risk rated but that are 0 to 29 days past due.

Special Mention is determined by the following criteria:

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay;

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position; or

Loans that are not risk rated but that are 30 to 89 days past due.

Substandard is determined by the following criteria:

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected; or

Loans that are not risk rated but that are 90 to 149 days past due.

Doubtful is determined by the following criteria:

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined;

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted; or

Loans that are not risk rated but that are over 149 days past due.

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of March 31, 2016 (dollars in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	698,360	$	43,994	$	29,207	$	-	$	771,561
Commercial Real Estate - Owner Occupied		791,197		22,297		6,685		1,763		821,942
Commercial Real Estate - Non-Owner Occupied		1,253,617		24,794		4,204		-		1,282,615
Multifamily Real Estate		315,361		1,975		3,802		-		321,138
Commercial & Industrial		434,139		14,668		2,740		90		451,637
Residential 1-4 Family		918,919		30,514		8,170		2,570		960,173
Auto		239,838		1,688		77		134		241,737
HELOC		509,833		3,283		1,535		936		515,587
Consumer and all other		339,759		3,573		223		452		344,007
Total	$	5,501,023	$	146,786	$	56,643	$	5,945	$	5,710,397

- 22 -

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of December 31, 2015 (dollars in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	663,067	$	52,650	$	27,980	$	37	$	743,734
Commercial Real Estate - Owner Occupied		800,979		20,856		8,931		1,932		832,698
Commercial Real Estate - Non-Owner Occupied		1,228,956		22,341		5,664		-		1,256,961
Multifamily Real Estate		315,128		2,017		3,828		-		320,973
Commercial & Industrial		414,333		16,724		2,396		99		433,552
Residential 1-4 Family		912,839		34,728		8,037		1,706		957,310
Auto		230,670		3,109		194		88		234,061
HELOC		507,514		4,801		1,611		1,009		514,935
Consumer and all other		299,014		3,996		231		260		303,501
Total	$	5,372,500	$	161,222	$	58,872	$	5,131	$	5,597,725

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of March 31, 2016 (dollars in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,539	$	1,918	$	1,441	$	239	$	5,137
Commercial Real Estate - Owner Occupied		5,495		15,014		6,751		-		27,260
Commercial Real Estate - Non-Owner Occupied		5,943		6,457		1,236		-		13,636
Multifamily Real Estate		357		1,775		-		-		2,132
Commercial & Industrial		127		326		1,098		20		1,571
Residential 1-4 Family		8,794		5,470		3,593		448		18,305
HELOC		826		163		-		546		1,535
Consumer and all other		52		408		69		-		529
Total	$	23,133	$	31,531	$	14,188	$	1,253	$	70,105

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, 2015 (dollars in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	2,059	$	1,778	$	1,908	$	241	$	5,986
Commercial Real Estate - Owner Occupied		5,260		15,530		6,598		-		27,388
Commercial Real Estate - Non-Owner Occupied		4,442		7,827		1,250		-		13,519
Multifamily Real Estate		356		1,199		-		-		1,555
Commercial & Industrial		144		359		1,289		21		1,813
Residential 1-4 Family		9,098		6,380		4,605		1,076		21,159
HELOC		923		410		20		438		1,791
Consumer and all other		57		379		90		-		526
Total	$	22,339	$	33,862	$	15,760	$	1,776	$	73,737

Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows.

- 23 -

The following shows changes in the accretable yield for loans accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, for the periods presented (dollars in thousands):

	For the Three Months Ended
	March 31,
	2016			2015
Balance at beginning of period	$	22,139		$	28,956
Additions		-			-
Accretion		(1,390	)		(1,501	)
Reclass of nonaccretable difference due to improvement in expected cash flows		1,266			2,695
Other, net ⁽¹⁾		(1,510	)		(5,619	)
Balance at end of period	$	20,505		$	24,531

⁽¹⁾ This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate PCI loans, and discounted payoffs that occurred in the quarter.

The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, totaled $70.1 million at March 31, 2016 and $73.7 million at December 31, 2015. The outstanding balance of the Company’s PCI loan portfolio totaled $86.3 million at March 31, 2016 and $90.3 million at December 31, 2015. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, totaled $1.3 billion at March 31, 2016 and $1.4 billion at December 31, 2015; the remaining discount on these loans totaled $20.0 million at March 31, 2016 and $20.8 million at December 31, 2015.

INTANGIBLE ASSETS

The Company’s intangible assets consist of core deposits and goodwill arising from previous acquisitions. The Company has determined that core deposit intangibles have finite lives and amortizes them over their estimated useful lives. Core deposit intangible assets are being amortized over the period of expected benefit, which ranges from 4 to 14 years, using an accelerated method. On January 1, 2014, the Company completed the acquisition of StellarOne and acquired intangible assets of $29.6 million and recorded $234.1 million of goodwill.

In accordance with ASC 350, Intangibles-Goodwill and Other, the Company reviews the carrying value of indefinite lived intangible assets at least annually or more frequently if certain impairment indicators exist. The Company performed its annual impairment testing in the second quarter of 2015 and determined that there was no impairment to its goodwill or intangible assets.

Information concerning intangible assets with a finite life is presented in the following table (dollars in thousands):

	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
March 31, 2016
Amortizable core deposit intangibles	$	76,185	$	54,755	$	21,430

December 31, 2015
Amortizable core deposit intangibles	$	76,185	$	52,875	$	23,310

March 31, 2015
Amortizable core deposit intangibles	$	76,185	$	46,652	$	29,533

- 24 -

Amortization expense of core deposit intangibles for the three months ended March 31, 2016 and 2015, and for the year ended December 31, 2015 totaled $1.9 million, $2.2 million, and $8.4 million, respectively. As of March 31, 2016, the estimated remaining amortization expense of core deposit intangibles is as follows (dollars in thousands):

For the remaining nine months of 2016	$	5,052
For the year ending December 31, 2017		5,590
For the year ending December 31, 2018		4,144
For the year ending December 31, 2019		3,093
For the year ending December 31, 2020		2,028
For the year ending December 31, 2021		1,035
Thereafter		488
Total estimated amortization expense	$	21,430

BORROWINGS

Short-term Borrowings

The Company classifies all borrowings that will mature within a year from the date on which the Company enters into them as short-term borrowings. Total short-term borrowings consist primarily of advances from the FHLB, federal funds purchased (which are secured overnight borrowings from other financial institutions), and other lines of credit. Also included in total short-term borrowings are securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold. Total short-term borrowings consist of the following as of March 31, 2016 and December 31, 2015 (dollars in thousands):

	March 31,			December 31,
	2016			2015
Securities sold under agreements to repurchase	$	91,977		$	84,977
Other short-term borrowings		466,000			304,000
Total short-term borrowings	$	557,977		$	388,977

Maximum month-end outstanding balance	$	574,050		$	445,761
Average outstanding balance during the period		525,503			379,783
Average interest rate during the period		0.48	%		0.25	%
Average interest rate at end of period		0.36	%		0.27	%

Other short-term borrowings:
Federal funds purchased	$	3,000		$	-
FHLB	$	447,000		$	304,000
Other lines of credit		16,000			-

The Bank maintains federal funds lines with several correspondent banks; the remaining available balance was $172.0 million and $175.0 million at March 31, 2016 and December 31, 2015, respectively. The Company has certain restrictive covenants related to certain asset quality, capital, and profitability metrics associated with these lines and is considered to be in compliance with these covenants. Additionally, the Company had a collateral dependent line of credit with the FHLB of up to $1.5 billion at March 31, 2016 and December 31, 2015, respectively.

- 25 -

Long-term Borrowings

In connection with two bank acquisitions prior to 2006, the Company issued trust preferred capital notes to fund the cash portion of those acquisitions, collectively totaling $58.5 million. In connection with the acquisition of StellarOne, the Company acquired trust preferred capital notes totaling $32.0 million with a remaining fair value discount of $6.9 million at March 31, 2016. The trust preferred capital notes currently qualify for Tier 1 capital of the Company for regulatory purposes.

	Trust Preferred Capital Securities⁽¹⁾		Investment⁽¹⁾		Spread to 3-Month LIBOR			Rate			Maturity
Trust Preferred Capital Note - Statutory Trust I	$	22,500,000	$	696,000		2.75	%		3.38	%	6/17/2034
Trust Preferred Capital Note - Statutory Trust II		36,000,000		1,114,000		1.40	%		2.03	%	6/15/2036
VFG Limited Liability Trust I Indenture		20,000,000		619,000		2.73	%		3.36	%	3/18/2034
FNB Statutory Trust II Indenture		12,000,000		372,000		3.10	%		3.73	%	6/26/2033
Total	$	90,500,000	$	2,801,000

(1) The total of the trust preferred capital securities and investments in the respective trusts represents the principal asset of the Company's junior subordinated debt securities with like maturities and like interest rates to the capital securities. The Company's investment in the trusts is reported in "Other Assets" within the Consolidated Balance Sheets.

As part of a prior acquisition, the Company assumed subordinated debt with terms of LIBOR plus 1.45% and a maturity date of April 2016. At March 31, 2016, the carrying value of the subordinated debt was $17.5 million, with a remaining fair value discount of $41,000.

On August 23, 2012, the Company modified its fixed rate 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 included as a component of long-term borrowings in the Company’s Consolidated Balance Sheets. In accordance with ASC 470-50, Modifications and Extinguishments, the Company will amortize this prepayment penalty over the term of the modified advances using the effective rate method. The amortization expense is included as a component of interest expense on long-term borrowings in the Company’s Consolidated Statements of Income. Amortization expense for the three months ended March 31, 2016 and 2015 was $463,000 and $447,000, respectively.

In connection with the StellarOne acquisition, the Company assumed $70.0 million in long-term borrowings with the FHLB of which there is $60.0 million remaining at March 31, 2016 that had a remaining fair value premium of $1.1 million.

As of March 31, 2016, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):

Long-term Type	Spread to 3-Month LIBOR			Interest Rate			Maturity Date	Advance Amount

Adjustable Rate Credit		0.44	%		1.07	%	8/23/2022	$	55,000
Adjustable Rate Credit		0.45	%		1.08	%	11/23/2022		65,000
Adjustable Rate Credit		0.45	%		1.08	%	11/23/2022		10,000
Adjustable Rate Credit		0.45	%		1.08	%	11/23/2022		10,000
Fixed Rate		-			3.62	%	11/28/2017		10,000
Fixed Rate		-			3.75	%	7/30/2018		5,000
Fixed Rate		-			3.97	%	7/30/2018		5,000
Fixed Rate Hybrid		-			2.11	%	10/5/2016		25,000
Fixed Rate Hybrid		-			0.91	%	7/25/2016		15,000
								$	200,000

- 26 -

As of December 31, 2015, the Company had long-term advances from the FHLB consisting of the following (dollars in thousands):

Long-term Type	Spread to 3-Month LIBOR			Interest Rate			Maturity Date	Advance Amount

Adjustable Rate Credit		0.44	%		1.05	%	8/23/2022	$	55,000
Adjustable Rate Credit		0.45	%		1.07	%	11/23/2022		65,000
Adjustable Rate Credit		0.45	%		1.07	%	11/23/2022		10,000
Adjustable Rate Credit		0.45	%		1.07	%	11/23/2022		10,000
Fixed Rate		-			3.62	%	11/28/2017		10,000
Fixed Rate		-			3.75	%	7/30/2018		5,000
Fixed Rate		-			3.97	%	7/30/2018		5,000
Fixed Rate Hybrid		-			2.11	%	10/5/2016		25,000
Fixed Rate Hybrid		-			0.91	%	7/25/2016		15,000
								$	200,000

The carrying value of the loans and securities pledged as collateral for FHLB advances totaled $1.9 billion as of March 31, 2016 and December 31, 2015, respectively.

As of March 31, 2016, the contractual maturities of long-term debt are as follows for the years ending (dollars in thousands):

	Trust Preferred Capital Notes		Subordinated Debt		FHLB Advances		Fair Value Premium (Discount)			Prepayment Penalty			Total Long-term Borrowings
Remaining nine months in 2016	$	-	$	17,500	$	40,000	$	271		$	(1,418	)	$	56,353
2017		-		-		10,000		170			(1,922	)		8,248
2018		-		-		10,000		(143	)		(1,970	)		7,887
2019		-		-		-		(286	)		(2,018	)		(2,304	)
2020		-		-		-		(301	)		(2,074	)		(2,375	)
2021		-		-		-		(316	)		(2,119	)		(2,435	)
Thereafter		93,301		-		140,000		(5,306	)		(1,707	)		226,288
Total Long-term borrowings	$	93,301	$	17,500	$	200,000	$	(5,911	)	$	(13,228	)	$	291,662

COMMITMENTS AND CONTINGENCIES

Litigation Matters

In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business, financial condition, or results of operations of the Company.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the Company’s Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

- 27 -

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support off-balance sheet financial instruments with credit risk. The Company considers credit losses related to off-balance sheet commitments by undergoing a similar process in evaluating losses for loans that are carried on balance sheet. The Company considers historical loss rates, current economic conditions, risk ratings, and past due status among other factors in the consideration of whether credit losses are inherent in the Company’s off-balance sheet commitments to extend credit. The Company does not expect credit losses arising from off-balance sheet commitments to have a material adverse impact on the Company’s consolidated financial statements.

Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Letters of credit are conditional commitments issued by the Company to guarantee the performance of customers to third parties. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

UMG, a wholly owned subsidiary of the Bank, uses rate lock commitments and best efforts contracts during the origination process and for loans held for sale. These best efforts contracts are designed to mitigate UMG’s exposure to fluctuations in interest rates in connection with rate lock commitments and loans held for sale.

The following table presents the balances of commitments and contingencies (dollars in thousands):

	March 31,		December 31,
	2016		2015
Commitments with off-balance sheet risk:
Commitments to extend credit⁽¹⁾	$	1,506,231	$	1,557,350
Standby letters of credit		74,814		139,371
Mortgage loan rate lock commitments		62,975		50,369
Total commitments with off-balance sheet risk	$	1,644,020	$	1,747,090
Commitments with balance sheet risk:
Loans held for sale	$	25,109	$	36,030
Total other commitments	$	1,669,129	$	1,783,120

(1) Includes unfunded overdraft protection.

The Company must maintain a reserve against its deposits in accordance with Regulation D of the Federal Reserve Act. For the final weekly reporting period in the periods ended March 31, 2016 and December 31, 2015, the aggregate amount of daily average required reserves was approximately $48.3 million and $48.7 million, respectively.

As of March 31, 2016, the Company had approximately $38.1 million in deposits in other financial institutions, of which $15.1 million and $9.8 million serve as collateral for the cash flow hedges and loan swaps, respectively, as discussed in Note 7 “Derivatives”. The Company had approximately $11.7 million in deposits in other financial institutions that were uninsured at March 31, 2016. On an annual basis, the Company’s management evaluates the loss risk of its uninsured deposits in financial counterparties.

For asset/liability management purposes, the Company uses interest rate swap agreements to hedge various exposures or to modify the interest rate characteristics of various balance sheet accounts. See Note 7 “Derivatives” for additional information.

In the ordinary course of business, the Company records an indemnification reserve relating to mortgage loans previously sold based on historical statistics and loss rates; as of March 31, 2016 and December 31, 2015, the Company’s indemnification reserve for such mortgage loans was $423,000 and $450,000, respectively.

- 28 -

DERIVATIVES

The Company is exposed to economic risks arising from its business operations and uses derivatives primarily to manage risk associated with changing interest rates, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge). The remaining are classified as free standing derivatives consisting of customer accommodation loan swaps and interest rate lock commitments that do not qualify for hedge accounting.

Cash Flow Hedges

The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows related to forecasted transactions on variable rate borrowings such as trust preferred capital notes, FHLB borrowings, and prime commercial loans. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging a notional amount, equal to the principal amount of the borrowings, for fixed-rate interest based on benchmarked interest rates.

All swaps were entered into with counterparties that met the Company’s credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contract is not significant.

The terms and conditions of the interest rate swaps vary and amounts receivable or payable are recognized as accrued under the terms of the agreements. The Company assesses the effectiveness of each hedging relationship on a periodic basis using statistical regression analysis. The Company also measures the ineffectiveness of each hedging relationship using the change in variable cash flows method which compares the cumulative changes in cash flows of the hedging instrument relative to cumulative changes in the hedged item’s cash flows. In accordance with ASC 815, Derivatives and Hedging, the effective portions of the derivatives’ unrealized gains or losses are recorded as a component of other comprehensive income. Based on the Company’s assessment its cash flow hedges are highly effective, but to the extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income and interest expense in the Company’s Consolidated Statements of Income.

Fair Value Hedge

Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates. During the normal course of business, the Company enters into interest rate swaps to convert certain long-term fixed-rate loans to floating rates to hedge the Company’s exposure to interest rate risk. The Company pays a fixed interest rate to the counterparty and receives a floating rate from the same counterparty calculated on the aggregate notional amount. At March 31, 2016 and December 31, 2015, the aggregate notional amount of the related hedged items was $61.2 million for both periods, with fair value amounts of $3.3 million and $689,000, respectively.

The Company applies hedge accounting in accordance with ASC 815 and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded in the Company’s Consolidated Statements of Income. Statistical regression analysis is used to assess hedge effectiveness, both at inception of the hedging relationship and on an ongoing basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against the periodic changes in fair value of the asset being hedged due to changes in the hedged risk. The Company’s fair value hedges continue to be highly effective and had no material impact on the Consolidated Statements of Income, but if any ineffectiveness exists, portions of the unrealized gains or losses would be recorded in interest income and interest expense in the Company’s Consolidated Statements of Income.

Loan Swaps

During the normal course of business, the Company enters into interest rate swap loan relationships (“loan swaps”) with borrowers to meet their financing needs. Upon entering into the loan swaps, the Company enters into offsetting positions with a third party in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with fair values as reported in “Other Assets” and “Other Liabilities” in the Company’s Consolidated Balance Sheets.

Interest Rate Lock Commitments

During the normal course of business, the Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (“rate lock commitments”). Rate lock commitments on mortgage loans that are intended to be sold in the secondary market are considered to be derivatives. The period of time between issuance of a loan commitment, closing, and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. The correlation between the rate lock commitments and the best efforts contracts is high due to their similarity.

- 29 -

The market values of rate lock commitments and best efforts forward delivery commitments is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments will close. The fair value of the rate lock commitments is reported as a component of “Other Assets” in the Company’s Consolidated Balance Sheets; the fair value of the Company’s best efforts forward delivery commitments is recorded as a component of “Other Liabilities” in the Company’s Consolidated Balance Sheets. Any impact to income is recorded in current period earnings as a component of “Mortgage banking income, net” in the Company’s Consolidated Statements of Income.

The following table summarizes key elements of the Company’s derivative instruments as of March 31, 2016 and December 31, 2015, segregated by derivatives that are considered accounting hedges and those that are not (dollars in thousands):

	March 31, 2016										December 31, 2015
			Derivative ⁽²⁾										Derivative ⁽²⁾
	Notional or Contractual Amount ⁽¹⁾		Positions		Assets		Liabilities		Collateral Pledged ⁽³⁾		Notional or Contractual Amount ⁽¹⁾		Positions		Assets		Liabilities		Collateral Pledged⁽³⁾
Derivatives designated as accounting hedges:
Interest rate contracts:
Cash flow hedges	$	263,000		11	$	1,797	$	15,279	$	18,562	$	263,000		11	$	946	$	10,352	$	14,449
Fair value hedges		61,150		4		-		3,418		-		61,150		4		-		888		-
Total		324,150		15		1,797		18,697		18,562		324,150		15		946		11,240		14,449

Derivatives not designated as accounting hedges:
Interest rate contracts:
Loan Swaps		153,107		74		7,540		7,540		11,296		138,969		68		3,758		3,758		5,983
Other contracts:
Interest rate lock commitments		62,975		258		1,252		-		-		50,369		199		701		-		-
Total		216,082		332		8,792		7,540		11,296		189,338		267		4,459		3,758		5,983
Total derivatives	$	540,232		347	$	10,589	$	26,237	$	29,858	$	513,488		282	$	5,405	$	14,998	$	20,432

(1) Notional amounts are not recorded on the balance sheet and are generally used only as a basis on which interest and other payments are determined.

(2) Balances represent fair value of derivative financial instruments.

(3) Collateral pledged is comprised of both cash and securities.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The change in accumulated other comprehensive income (loss) for the three months ended March 31, 2016 is summarized as follows, net of tax (dollars in thousands):

	Unrealized Gains (Losses) on AFS Securities			Unrealized Gain for AFS Securities Transferred to HTM			Change in Fair Value of Cash Flow Hedge			Total
Balance - December 31, 2015	$	7,777		$	4,432		$	(5,957	)	$	6,252

Other comprehensive income (loss)		3,032			(292	)		(2,681	)		59
Amounts reclassified from accumulated other comprehensive income		(93	)		-			141			48
Net current period other comprehensive income (loss)		2,939			(292	)		(2,540	)		107

Balance - March 31, 2016	$	10,716		$	4,140		$	(8,497	)	$	6,359

The change in accumulated other comprehensive income (loss) for the three months ended March 31, 2015 is summarized as follows, net of tax (dollars in thousands):

	Unrealized Gains (Losses) on AFS Securities			Change in Fair Value of Cash Flow Hedge			Total
Balance - December 31, 2014	$	17,439		$	(5,184	)	$	12,255

Other comprehensive income (loss)		3,783			(1,490	)		2,293
Amounts reclassified from accumulated other comprehensive income		(125	)		272			147
Net current period other comprehensive income (loss)		3,658			(1,218	)		2,440

Balance - March 31, 2015	$	21,097		$	(6,402	)	$	14,695

Reclassifications of unrealized gains (losses) on available for sale securities are reported in the Company’s Consolidated Statements of Income as “Gains on securities transactions, net” with the corresponding income tax effect being reflected as a component of income tax expense. The Company reported gains of $143,000 and $193,000 for the three months ended March 31, 2016 and 2015, respectively, related to the sale of securities. The tax effect of these transactions during the three months ended March 31, 2016 and 2015 were $50,000 and $68,000, respectively, which amounts were included as a component of income tax expense.

Reclassifications of the change in fair value of cash flow hedges are reported in interest income and interest expense in the Company’s Consolidated Statements of Income with the corresponding income tax effect being reflected as a component of income tax expense. The Company reported net interest expense of $217,000 and $418,000 for the three months ended March 31, 2016 and 2015, respectively. The tax effect of these transactions during the three months ended March 31, 2016 and 2015 were $76,000 and $146,000, respectively, which were included as a component of income tax expense.

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FAIR VALUE MEASUREMENTS

The Company follows ASC 820, Fair Value Measurements and Disclosures, to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. This codification clarifies that fair value of certain assets and liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy under ASC 820 based on these two types of inputs are as follows:

	Level 1		Valuation is based on quoted prices in active markets for identical assets and liabilities.

	Level 2		Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the markets.

	Level 3		Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market. These unobservable inputs reflect the Company’s assumptions about what market participants would use and information that is reasonably available under the circumstances without undue cost and effort.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Derivative instruments

As discussed in Note 7 “Derivatives”, the Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third party valuations are validated by the Company using Bloomberg Valuation Service’s derivative pricing functions. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

During the ordinary course of business, the Company enters into interest rate lock commitments related to the origination of mortgage loans held for sale as well as best effort forward delivery commitments to mitigate interest rate risk; these instruments are recorded at estimated fair value based on the value of the underlying loan, which in turn is based on quoted prices for similar loans in the secondary market. However, this value is adjusted by a pull-through rate which considers the likelihood that the loan in a lock position will ultimately close. The pull-through rate is derived from the Company’s internal data and is adjusted using significant management judgment. The pull-through rate is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. As such, interest rate lock commitments are classified as Level 3. An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitment derivative will result in positive fair value adjustments while a decrease in the pull-through rate will result in a negative fair value adjustment. The Company’s weighted average pull-through rate was approximately 80% as of March 31, 2016 and December 31, 2015. As of March 31, 2016, the interest rate lock commitments are recorded as a component of “Other Assets” on the Company’s Consolidated Balance Sheets.

Securities available for sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data (Level 2). If the inputs used to provide the evaluation for certain securities are unobservable and/or there is little, if any, market activity, then the security would fall to the lowest level of the hierarchy (Level 3).

- 32 -

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is Interactive Data Corporation (“IDC”), which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

The vendor utilizes proprietary valuation matrices for valuing all municipals securities. The initial curves for determining the price, movement, and yield relationships within the municipal matrices are derived from industry benchmark curves or sourced from a municipal trading desk. The securities are further broken down according to issuer, credit support, state of issuance, and rating to incorporate additional spreads to the industry benchmark curves.

The Company primarily uses Bloomberg Valuation Service, an independent information source that draws on quantitative models and market data contributed from over 4,000 market participants, to validate third party valuations. Any material differences between valuation sources are researched by further analyzing the various inputs that are utilized by each pricing source. No material differences were identified during the validation as of March 31, 2016 and December 31, 2015.

The carrying value of restricted Federal Reserve Bank and FHLB stock approximates fair value based on the redemption provisions of each entity and is therefore excluded from the following table.

Loans held for sale

Loans held for sale are carried at fair value. These loans currently consist of residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). Gains and losses on the sale of loans are recorded within the mortgage segment and are reported on a separate line item in the Company’s Consolidated Statements of Income.

- 33 -

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015 (dollars in thousands):

	Fair Value Measurements at March 31, 2016 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Securities available for sale:
Obligations of states and political subdivisions	$	-	$	265,969	$	-	$	265,969
Corporate and other bonds		-		93,766		-		93,766
Mortgage-backed securities		-		568,562		-		568,562
Other securities		-		11,112		-		11,112
Loans held for sale		-		25,109		-		25,109
Derivatives:
Interest rate swap		-		7,540		-		7,540
Cash flow hedges		-		1,797		-		1,797
Interest rate lock commitments		-		-		1,252		1,252

LIABILITIES
Derivatives:
Interest rate swap	$	-	$	7,540	$	-	$	7,540
Cash flow hedges		-		15,279		-		15,279
Fair value hedges		-		3,418		-		3,418

	Fair Value Measurements at December 31, 2015 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Securities available for sale:
Obligations of states and political subdivisions	$	-	$	268,079	$	-	$	268,079
Corporate and other bonds		-		75,979		-		75,979
Mortgage-backed securities		-		548,171		-		548,171
Other securities		-		11,063		-		11,063
Loans held for sale		-		36,030		-		36,030
Derivatives:
Interest rate swap		-		3,758		-		3,758
Cash flow hedges		-		946		-		946
Interest rate lock commitments		-		-		701		701

LIABILITIES
Derivatives:
Interest rate swap	$	-	$	3,758	$	-	$	3,758
Cash flow hedges		-		10,352		-		10,352
Fair value hedges		-		888		-		888

- 34 -

Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Impaired loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreements will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is solely from the underlying value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company’s collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser using observable market data. When evaluating the fair value, management may discount the appraisal further if, based on their understanding of the market conditions, it is determined the collateral is further impaired below the appraised value (Level 3). For the periods ending March 31, 2016 and December 31, 2015, the Level 3 weighted averages related to impaired loans were 0.0% and 7.0%, respectively. The value of business equipment is based upon an outside appraisal, of one year or less, if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Collateral dependent impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Company’s Consolidated Statements of Income.

Other real estate owned

OREO is evaluated for impairment at least quarterly by the Bank’s Special Asset Loan Committee and any necessary write downs to fair values are recorded as impairment and included as a component of noninterest expense. Fair values of OREO are carried at fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as Level 3 valuation. For the periods ending March 31, 2016 and December 31, 2015, the Level 3 weighted averages related to OREO were approximately 31.0% and 32.0%, respectively.

Total valuation expenses related to OREO properties for the three months ended March 31, 2016 and 2015 totaled $126,000 and $590,000, respectively.

- 35 -

The following tables summarize the Company’s financial assets that were measured at fair value on a nonrecurring basis at March 31, 2016 and December 31, 2015 (dollars in thousands):

	Fair Value Measurements at March 31, 2016 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	-	$	-	$	4,191	$	4,191
Other real estate owned		-		-		14,246		14,246

	Fair Value Measurements at December 31, 2015 using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3		Balance
ASSETS
Impaired loans	$	-	$	-	$	2,214	$	2,214
Other real estate owned		-		-		15,299		15,299

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments for interim periods and excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash and cash equivalents

For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Held to Maturity Securities

The Company’s investment portfolio is primarily valued using fair value measurements that are considered to be Level 2. The Company has contracted with a third party portfolio accounting service vendor for valuation of its securities portfolio. The vendor’s primary source for security valuation is IDC, which evaluates securities based on market data. IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

- 36 -

Loans

The fair value of performing loans is estimated by discounting expected future cash flows using a yield curve that is constructed by adding a loan spread to a market yield curve. Loan spreads are based on spreads currently observed in the market for loans of similar type and structure. Fair value for impaired loans and their respective level within the fair value hierarchy, are described in the previous disclosure related to fair value measurements of assets that are measured on a nonrecurring basis.

Bank owned life insurance

The carrying value of bank owned life insurance approximates fair value. The Company records these policies at their cash surrender value, which is estimated using information provided by insurance carriers.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Borrowings

The carrying value of the Company’s repurchase agreements is a reasonable estimate of fair value. Other borrowings are discounted using the current yield curve for the same type of borrowing. For borrowings with embedded optionality, a third party source is used to value the instrument. The Company validates all third party valuations for borrowings with optionality using Bloomberg’s derivative pricing functions.

Accrued interest

The carrying amounts of accrued interest approximate fair value.

- 37 -

The carrying values and estimated fair values of the Company’s financial instruments at March 31, 2016 and December 31, 2015 are as follows (dollars in thousands):

			Fair Value Measurements at March 31, 2016 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	133,339	$	133,339	$	-	$	-	$	133,339
Securities available for sale		939,409		-		939,409		-		939,409
Held to maturity securities		204,444		-		210,349		-		210,349
Restricted stock		58,211		-		58,211		-		58,211
Loans held for sale		25,109		-		25,109		-		25,109
Net loans		5,746,103		-		-		5,781,970		5,781,970
Derivatives:
Interest rate lock commitments		1,252		-		-		1,252		1,252
Interest rate swap		7,540		-		7,540		-		7,540
Cash flow hedges		1,797		-		1,797		-		1,797
Accrued interest receivable		22,018		-		22,018		-		22,018
Bank owned life insurance		175,033		-		175,033		-		175,033

LIABILITIES
Deposits	$	5,945,982	$	-	$	5,944,634	$	-	$	5,944,634
Borrowings		849,638		-		827,558		-		827,558
Accrued interest payable		1,660		-		1,660		-		1,660
Derivatives:
Interest rate swap		7,540		-		7,540		-		7,540
Cash flow hedges		15,279		-		15,279		-		15,279
Fair value hedges		3,418		-		3,418		-		3,418

- 38 -

			Fair Value Measurements at December 31, 2015 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
ASSETS
Cash and cash equivalents	$	142,660	$	142,660	$	-	$	-	$	142,660
Securities available for sale		903,292		-		903,292		-		903,292
Held to maturity securities		205,374		-		209,437		-		209,437
Restricted stock		51,828		-		51,828		-		51,828
Loans held for sale		36,030		-		36,030		-		36,030
Net loans		5,637,415		-		-		5,671,155		5,671,155
Derivatives:
Interest rate lock commitments		701		-		-		701		701
Interest rate swap		3,758		-		3,758		-		3,758
Cash flow hedges		946		-		946		-		946
Accrued interest receivable		20,760		-		20,760		-		20,760
Bank owned life insurance		173,687		-		173,687		-		173,687

LIABILITIES
Deposits	$	5,963,936	$	-	$	5,957,484	$	-	$	5,957,484
Borrowings		680,175		-		659,364		-		659,364
Accrued interest payable		1,578		-		1,578		-		1,578
Derivatives:
Interest rate swap		3,758		-		3,758		-		3,758
Cash flow hedges		10,352		-		10,352		-		10,352
Fair value hedges		888		-		888		-		888

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

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10.

EARNINGS PER SHARE

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock awards.

There were approximately 76,583 and 159,460 shares underlying anti-dilutive awards for the three months ended March 31, 2016 and 2015, respectively. Anti-dilutive awards were excluded from the calculation of diluted EPS.

The following is a reconciliation of the denominators of the basic and diluted EPS computations for the three months ended March 31, 2016 and 2015 (in thousands except per share data):

	Net Income Available to Common Shareholders (Numerator)		Weighted Average Common Shares (Denominator)		Per Share Amount
For the three months ended March 31, 2016
Net income, basic	$	16,961		44,251	$	0.38
Add: potentially dilutive common shares - stock awards		-		76		-
Diluted	$	16,961		44,327	$	0.38

For the three months ended March 31, 2015
Net income, basic	$	15,701		45,106	$	0.35
Add: potentially dilutive common shares - stock awards		-		82		-
Diluted	$	15,701		45,188	$	0.35

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11.

SEGMENT REPORTING DISCLOSURES

The Company has two reportable segments: a traditional full service community bank segment and a mortgage loan origination business segment. The community bank segment includes one subsidiary bank, the Bank, which provides loan, deposit, investment, and trust services to retail and commercial customers throughout its 124 retail locations in Virginia. The mortgage segment includes UMG, which provides a variety of mortgage loan products principally in Virginia, North Carolina, Maryland, and the Washington D.C. metro area. These loans are originated and sold primarily in the secondary market through purchase commitments from investors, which serves to mitigate the Company’s exposure to interest rate risk.

Profit and loss is measured by net income after taxes including realized gains and losses on the Company’s investment portfolio. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process.

Both of the Company’s reportable segments are service-based. The mortgage business is a primarily fee-based business while the bank is driven principally by net interest income. The bank segment provides a distribution and referral network through its customers for the mortgage loan origination business. The mortgage segment offers a more limited referral network for the bank segment.

The community bank segment provides the mortgage segment with the short-term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest. The interest rate on the warehouse line of credit for both the three months ended March 31, 2016 and 2015 was the three month LIBOR rate plus 0.15% with no floor. These transactions are eliminated in the consolidation process.

During 2015, the mortgage segment began originating loans with the intent that they be held for investment purposes. The community bank segment provides the mortgage segment with the long-term funds needed to originate these loans through a long-term funding facility and charges the mortgage segment interest. The interest charged is determined by the community bank segment based on the cost of funds available to the community bank segment for similar durations of the loans being funded by the mortgage segment.

A management fee for operations and administrative support services is charged to all subsidiaries and eliminated in the consolidated totals.

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Information about reportable segments and reconciliation of such information to the consolidated financial statements for the three months ended March 31, 2016 and 2015 is as follows (dollars in thousands):

UNION BANKSHARES CORPORATION AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

	Community Bank		Mortgage			Eliminations			Consolidated
Three Months Ended March 31, 2016
Net interest income	$	63,425	$	306		$	-		$	63,731
Provision for credit losses		2,500		104			-			2,604
Net interest income after provision for credit losses		60,925		202			-			61,127
Noninterest income		13,608		2,477			(171	)		15,914
Noninterest expenses		51,844		2,599			(171	)		54,272
Income before income taxes		22,689		80			-			22,769
Income tax expense		5,782		26			-			5,808
Net income	$	16,907	$	54		$	-		$	16,961
Total assets	$	7,825,652	$	55,069		$	(48,110	)	$	7,832,611

Three Months Ended March 31, 2015
Net interest income	$	61,723	$	246		$	-		$	61,969
Provision for credit losses		1,750		-			-			1,750
Net interest income after provision for credit losses		59,973		246			-			60,219
Noninterest income		12,848		2,376			(170	)		15,054
Noninterest expenses		50,972		3,038			(170	)		53,840
Income (loss) before income taxes		21,849		(416	)		-			21,433
Income tax expense (benefit)		5,881		(149	)		-			5,732
Net income (loss)	$	15,968	$	(267	)	$	-		$	15,701
Total assets	$	7,382,266	$	55,380		$	(49,087	)	$	7,388,559

12.

SUBSEQUENT EVENTS

On April 5, 2016, Union Bankshares Corporation announced that its subsidiary bank, Union Bank & Trust, entered into an agreement to acquire Old Dominion Capital Management, Inc., a Charlottesville, Virginia based registered investment advisor with nearly $300 million in assets under management.

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Review Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors of Union Bankshares Corporation

We have reviewed the consolidated balance sheet of Union Bankshares Corporation (the “Company”) as of March 31, 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2016 and 2015. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended, not presented herein and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 25, 2016. In our opinion, the accompanying consolidated balance sheet of the Company as of December 31, 2015, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Richmond, Virginia

May 5, 2016

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Union Bankshares Corporation and its subsidiaries (collectively, the “Company”). This discussion and analysis should be read with the consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company’s Annual Report on Form 10-K and management’s discussion and analysis for the year ended December 31, 2015. Highlighted in the discussion are material changes from prior reporting periods and any identifiable trends affecting the Company. Results of operations for the three months ended March 31, 2016 and 2015 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes while some of the percentages presented are computed based on unrounded amounts.

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 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 projected 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, stock and bond markets, accounting standards or interpretations of existing standards, mergers and acquisitions, technology, information security, 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 Form 10-Q. 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.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking industry. The Company’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company’s consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company’s critical accounting policies and estimates with the Audit Committee of the Board of Directors.

The critical accounting and reporting policies include the Company’s accounting for the allowance for loan losses, acquired loans, and goodwill and intangible assets. The Company’s accounting policies are fundamental to understanding the Company’s consolidated financial position and consolidated results of operations. Accordingly, the Company’s significant accounting policies are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

The Company provides additional information on its critical accounting policies and estimates listed above under “MD&A—Critical Accounting Policies” in our 2015 Form 10-K.

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ABOUT UNION BANKSHARES CORPORATION

Headquartered in Richmond, Union Bankshares Corporation is the largest community banking organization headquartered in Virginia and operates in all major banking markets of the Commonwealth. Union Bankshares Corporation is the holding company for Union Bank & Trust, which provides banking, trust, and wealth management services and has a statewide presence of 121 bank branches and approximately 200 ATMs. Non-bank affiliates of the holding company include: Union Mortgage Group, Inc., which provides a full line of mortgage products, and Union Insurance Group, LLC, which offers various lines of insurance products.

Shares of the Company’s common stock are traded on the NASDAQ Global Select Market under the symbol UBSH. Additional information is available on the Company’s website at http://investors.bankatunion.com. The information contained on the Company’s website is not a part of or incorporated into this report.

RESULTS OF OPERATIONS

Executive Overview

For the quarter ended March 31, 2016, the Company reported net income of $17.0 million and earnings per share of $0.38. These results represent an increase of $1.3 million, or 8.0%, from $15.7 million in earnings from the first quarter of 2015. Earnings per share of $0.38 for the current quarter represent an increase of $0.03, or 8.6%, in earnings per share from the first quarter of 2015. This increase is primarily attributable to increases in net interest income, resulting from higher average loan balances.

Net income for the first quarter of 2016for the community bank segment was $16.9 million, or $0.38 per share, compared to $16.0 million, or $0.36 per share, in the first quarter of 2015.

The mortgage segment reported net income of $54,000 for the first quarter of 2016, an improvement of $321,000 from a loss of $267,000 in the first quarter of 2015. The improvement was largely a result of cost control initiatives in personnel costs.

Net income for the first quarter of 2016 included after-tax branch closure costs of approximately $195,000 related to the previously announced 2016 branch closures.

Adjusted for the sale of the credit card portfolio that occurred in the third quarter of 2015, loans held for investment grew $417.4 million, or 7.8%, from March 31, 2015, while average loan balances increased $373.8 million, or 7.0%, from the prior year. Period end loan balances grew $109.0 million, or 7.7% (annualized), from December 31, 2015.

Deposits grew $275.8 million, or 4.9%, from March 31, 2015, while average deposit balances increased $259.5 million, or 4.6%, from the prior year. Period end deposit balances decreased $18.0 million, or 1.2% (annualized), from December 31, 2015.

Asset quality continued to improve due to reductions in nonperforming assets and past due loan levels.

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Net Interest Income

	For the Three Months Ended
	March 31,
	2016			2015			Change
	(Dollars in thousands)
Average interest-earning assets	$	6,968,988		$	6,576,415		$	392,573
Interest income (FTE)	$	73,238		$	69,761		$	3,477
Yield on interest-earning assets		4.23	%		4.30	%		(7	)bps
Core yield on interest-earning assets (1)		4.16	%		4.26	%		(10	)bps
Average interest-bearing liabilities	$	5,379,799		$	5,096,040		$	283,759
Interest expense	$	7,018		$	5,631		$	1,387
Cost of interest-bearing liabilities		0.52	%		0.45	%		7	bps
Core cost of interest-bearing liabilities (1)		0.53	%		0.54	%		(1	)bps
Cost of funds		0.41	%		0.35	%		6	bps
Core cost of funds (1)		0.40	%		0.42	%		(2	)bps
Net Interest Income (FTE)	$	66,220		$	64,130		$	2,090
Net Interest Margin (FTE)		3.82	%		3.95	%		(13	)bps
Core Net Interest Margin (FTE) (1)		3.76	%		3.84	%		(8	)bps

(1) Core metrics exclude the impact of acquisition accounting accretion and amortization adjustments in net interest income.

For the first quarter of 2016, tax-equivalent net interest income was $66.2 million, an increase of $2.1 million from the first quarter of 2015, primarily driven by higher average loan balances. Net accretion related to acquisition accounting decreased $705,000 from the first quarter of 2015 to $1.1 million in the first quarter of 2016. The first quarter 2016 tax-equivalent net interest margin decreased by 13 basis points to 3.82% compared to 3.95% in the comparable quarter in the prior year. Core tax-equivalent net interest margin (which excludes the 6 basis point impact of acquisition accounting accretion in the first quarter of 2016 and 11 basis points in the first quarter of 2015) decreased by 8 basis points to 3.76% in the first quarter of 2016 from 3.84% in the first quarter of 2015. The decrease in core tax-equivalent net interest margin was driven by the 10 basis point decline in interest-earning asset yields outpacing the 2 basis point reduction in cost of funds. The decline in interest-earning asset yields was primarily driven by lower loan yields, as new and renewed loans were originated and re-priced at lower rates.

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The following tables show interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the periods indicated (dollars in thousands):

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

	For the Three Months Ended March 31,
	2016								2015
	Average Balance			Interest Income / Expense		Yield / Rate (1)			Average Balance			Interest Income / Expense		Yield / Rate (1)
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	743,724		$	4,316		2.33	%	$	730,404		$	3,807		2.11	%
Tax-exempt		443,426			5,291		4.80	%		413,228			5,114		5.02	%
Total securities		1,187,150			9,607		3.25	%		1,143,632			8,921		3.16	%
Loans, net (2) (3)		5,709,998			63,326		4.46	%		5,360,676			60,527		4.58	%
Loans held for sale		27,304			257		3.79	%		38,469			296		3.12	%
Federal funds sold		813			1		0.47	%		792			-		0.20	%
Money market investments		-			-		0.00	%		1			-		0.00	%
Interest-bearing deposits in other banks		43,723			47		0.44	%		32,845			17		0.20	%
Total earning assets		6,968,988		$	73,238		4.23	%		6,576,415		$	69,761		4.30	%
Allowance for loan losses		(35,034	)							(32,992	)
Total non-earning assets		830,876								819,260
Total assets	$	7,764,830							$	7,362,683

Liabilities and Stockholders' Equity:
Interest-bearing deposits:
Transaction and money market accounts	$	2,809,961		$	1,393		0.20	%	$	2,591,991		$	1,160		0.18	%
Regular savings		580,923			217		0.15	%		555,356			268		0.20	%
Time deposits (4)		1,171,972			2,585		0.89	%		1,269,352			1,893		0.60	%
Total interest-bearing deposits		4,562,856			4,195		0.37	%		4,416,699			3,321		0.30	%
Other borrowings (5)		816,943			2,823		1.39	%		679,341			2,310		1.38	%
Total interest-bearing liabilities		5,379,799		$	7,018		0.52	%		5,096,040		$	5,631		0.45	%

Noninterest-bearing liabilities:
Demand deposits		1,336,548								1,223,218
Other liabilities		59,069								60,877
Total liabilities		6,775,416								6,380,135
Stockholders' equity		989,414								982,548
Total liabilities and stockholders' equity	$	7,764,830							$	7,362,683

Net interest income				$	66,220							$	64,130

Interest rate spread (6)							3.71	%							3.85	%
Cost of funds							0.41	%							0.35	%
Net interest margin (7)							3.82	%							3.95	%

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

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

(3) Interest income on loans includes $1.1 million and $639,000 for the three months ended March 31, 2016 and 2015, respectively, in accretion of the fair market value adjustments related to acquisitions.

(4) Interest expense on certificates of deposits includes $0 and $1.1 million for the three months ended March 31, 2016 and 2015, respectively, in accretion of the fair market value adjustments related to acquisitions.

(5) Interest expense on borrowings includes $62,000 and $137,000 for the three months ended March 31, 2016 and 2015, respectively, in accretion of the fair market value adjustments related to acquisitions.

(6) Income and yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 35%.

(7) Core net interest margin excludes purchase accounting adjustments and was 3.76% and 3.84% for the three months ended March 31, 2016 and 2015, respectively.

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The Volume Rate Analysis table below presents changes in interest income and interest expense and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate). Changes attributable to both volume and rate have been allocated proportionally. Results, on a taxable equivalent basis, are as follows (dollars in thousands):

	Three Months Ended
	March 31, 2016 vs. March 31, 2015
	Increase (Decrease) Due to Change in:
		Volume			Rate			Total
Earning Assets:
Securities:
Taxable		$	71		$	438		$	509
Tax-exempt			365			(188	)		177
Total securities			436			250			686
Loans, net (1)			3,889			(1,090	)		2,799
Loans held for sale			(92	)		53			(39	)
Federal funds sold			-			1			1
Interest-bearing deposits in other banks			7			23			30
Total earning assets		$	4,240		$	(763	)	$	3,477

Interest-Bearing Liabilities:
Interest-bearing deposits:
Transaction and money market accounts		$	102		$	131		$	233
Regular savings			12			(63	)		(51	)
Time Deposits (2)			(155	)		847			692
Total interest-bearing deposits			(41	)		915			874
Other borrowings (3)			475			38			513
Total interest-bearing liabilities			434			953			1,387

Change in net interest income		$	3,806		$	(1,716	)	$	2,090

(1) The rate-related change in interest income on loans includes the impact of higher accretion of the acquisition-related fair market value adjustments of $445,000.

(2) The rate-related change in interest expense on time deposits includes the impact of lower accretion of the acquisition-related fair market value adjustments of $1.1 million.

(3) The rate-related change in interest expense on other borrowings includes the impact of lower accretion of the acquisition-related fair market value adjustments of $75,000.

The Company’s fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments. The net accretion impact for the quarters ended March 31, 2015 and 2016 as well as the remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

	Accretion				Accretion (Amortization)
	Loan		Certificates of Deposit		Borrowings			Total

For the quarter ended March 31, 2015	$	639	$	1,075	$	137		$	1,851
For the quarter ended March 31, 2016		1,084		-		62			1,146
For the remaining nine months of 2016		3,047		-		271			3,318
For the years ending:
2017		4,018		-		170			4,188
2018		3,572		-		(143	)		3,429
2019		2,718		-		(286	)		2,432
2020		2,067		-		(301	)		1,766
2021		1,879		-		(316	)		1,563
Thereafter		8,910		-		(5,306	)		3,604

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Noninterest Income

	For the Three Months Ended
	March 31,						Change
	2016			2015			$			%
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	4,734		$	4,214		$	520			12.3	%
Other service charges, commissions and fees		4,156			3,584			572			16.0	%
Fiduciary and asset management fees		2,138			2,219			(81	)		-3.7	%
Mortgage banking income, net		2,146			2,379			(233	)		-9.8	%
Gains on securities transactions, net		143			193			(50	)		-25.9	%
Bank owned life insurance income		1,372			1,135			237			20.9	%
Other operating income		1,225			1,330			(105	)		-7.9	%
Total noninterest income	$	15,914		$	15,054		$	860			5.7	%

Mortgage segment operations	$	(2,477	)	$	(2,376	)	$	(101	)		4.3	%
Intercompany eliminations		171			170			1			0.6	%
Community Bank segment	$	13,608		$	12,848		$	760			5.9	%

For the quarter ended March 31, 2016, noninterest income increased $860,000, or 5.7%, to $15.9 million from $15.1 million in the first quarter of 2015. The main drivers of the increase in noninterest income include an increase in customer-related noninterest income (service charges on deposit accounts and other service charges), primarily due to higher overdraft fees and interchange fees, and an increase in income from bank owned life insurance. These increases were partially offset by a decrease in mortgage banking income driven by lower originations in the current quarter. Mortgage loan originations declined $40.5 million, or 29.2%, from $138.7 million in the first quarter of 2015 to $98.2 million for the quarter ended March 31, 2016.

Noninterest expense

	For the Three Months Ended
	March 31,						Change
	2016			2015			$			%
	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	28,048		$	27,492		$	556			2.0	%
Occupancy expenses		4,976			5,133			(157	)		-3.1	%
Furniture and equipment expenses		2,636			2,813			(177	)		-6.3	%
Technology and data processing		3,814			3,255			559			17.2	%
Professional services		1,989			1,348			641			47.6	%
Marketing and advertising expense		1,938			1,687			251			14.9	%
OREO and credit-related expenses ⁽¹⁾		569			1,186			(617	)		-52.0	%
Other operating expenses		10,302			10,926			(624	)		-5.7	%
Total noninterest expense	$	54,272		$	53,840		$	432			0.8	%

Mortgage segment operations	$	(2,599	)	$	(3,038	)	$	439			-14.5	%
Intercompany eliminations		171			170			1			0.6	%
Community Bank segment	$	51,844		$	50,972		$	872			1.7	%

(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 quarter ended March 31, 2016, noninterest expense increased $432,000 to $54.3 million from $53.8 million when compared to the first quarter of 2015. The main drivers of the increase in noninterest expense include an increase in salaries and benefits expense of $556,000 primarily related to annual merit adjustments and increases in equity-based compensation, an increase in technology and software costs of $559,000 due to investments in infrastructure as the Company prepares for growth, and an increase in professional fees of $641,000 due to higher audit and project-related consulting expenses. These increases were offset by declines in OREO and credit-related costs of $617,000 related to lower valuation adjustments and OREO expenses, lower CDI amortization expense of $342,000, and decreases in printing and postage costs of $231,000.

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SEGMENT INFORMATION

Community Bank Segment

For the three months ended March 31, 2016, the community bank segment reported net income of $16.9 million, which was $939,000 higher than net income in the first quarter of 2015. Net interest income increased $1.7 million from $61.7 million in the first quarter of 2015 to $63.4 million in the first quarter of 2016, primarily driven by loan growth. The provision for credit losses for the quarter ended March 31, 2016 was $2.5 million, an increase of $750,000 compared to the same quarter a year ago. The increase in the provision for loan losses in the current period compared to the same periods in the prior year was primarily driven by higher loan balances in 2016.

Noninterest income increased $760,000, or 5.9%, from $12.9 million in the first quarter of 2015 to $13.6 million in the first quarter of 2016. Customer-related noninterest income (service charges on deposit accounts and other service charges) increased $1.1 million primarily due to higher overdraft fees and interchange fees. Other increases in noninterest income were related to an increase in income from bank owned life insurance of $237,000 and an increase in loan interest-rate swap fees of $451,000. These increases in noninterest income were partially offset by a nonrecurring gain from the dissolution of a limited partnership that occurred in the first quarter of 2015.

Noninterest expense increased $872,000, or 1.7%, from $51.0 million in the first quarter of 2015 to $51.8 million in the current quarter. The increase in noninterest expense is driven by an increase in salaries and benefits expense primarily related to annual merit adjustments and increases in equity-based compensation, an increase in technology and software costs, and an increase in professional fees due to higher audit and project-related consulting expenses. Noninterest expense in the first quarter included branch closure costs of approximately $300,000 related to previously announced 2016 branch closures. These increases in noninterest expense were partially offset by decreases in OREO and credit related expenses and other operating expenses. The community banking segment’s efficiency ratio (tax-effected) was 65.3% compared to 66.4% for the first quarter of 2015.

Mortgage Segment

The mortgage segment reported net income of $54,000 for the first quarter of 2016, an improvement of $321,000 from a net loss of $267,000 in the first quarter of 2015. The improvement was due to a reduction in noninterest expense of $439,000, largely a result of cost control initiatives in personnel costs as well as volume-driven expenses. Mortgage banking income, net of commissions, declined $233,000 from the first quarter of 2015 due to lower origination volume of 29.2%.

Income Taxes

The provision for income taxes is based upon the results of operations, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of temporary differences, projected future taxable income, and tax planning strategies. Management continues to believe that it is not likely that the Company will realize its deferred tax asset related to net operating losses generated at the state level and accordingly has established a valuation allowance. The Company’s bank subsidiary is not subject to a state income tax in its primary place of business (Virginia). The Company’s other subsidiaries are subject to state income taxes and have generated losses for state income tax purposes which the Company is currently unable to utilize. State net operating loss carryovers will begin to expire after 2026.

The effective tax rate for the three months ended March 31, 2016 and 2015 was 25.5% and 26.7%, respectively. The decrease in the effective tax rate is primarily related to increases in tax-exempt interest income on the investment portfolio and tax-exempt bank-owned life insurance income.

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BALANCE SHEET

Assets

At March 31, 2016, total assets were $7.8 billion, an increase of $139.3 million, from $7.7 billion at December 31, 2015. The increase in assets was mostly related to loan growth.

Loans held for investment, net of deferred fees and costs, were $5.8 billion at March 31, 2016, an increase of $109.0 million, or 7.7% (annualized), from December 31, 2015. The increase was primarily driven by growth in construction/land development, non-owner occupied commercial real estate, and consumer loans. Average loans increased $97.6 million, or 7.0% (annualized), from December 31, 2015. For additional information on the Company’s loan activity, please refer to “Loan Portfolio” below or Note 3 “Loans and Allowance for Loan Losses” in Part I, Item 1 – Financial Statements, of this report.

Liabilities and Stockholders’ Equity

At March 31, 2016, total liabilities were $6.9 billion, an increase of $153.7 million from December 31, 2015.

Total deposits at March 31, 2016 were $5.9 billion, a decrease of $18.0 million, or 1.2% (annualized), when compared to $6.0 billion at December 31, 2015, while average deposits decreased $6.0 million, or 0.4% (annualized), from December 31, 2015. The net decrease in deposits from year-end 2015 was primarily related to declines in noninterest-bearing deposits, NOW accounts, and time deposits, partially offset by increases in money markets and savings accounts. For further discussion on this topic, see “Deposits” below.

The Company’s short term borrowings generally include secured financing transactions, such as customer repurchase agreements, advances from the FHLB, and other lines of credit. Short-term borrowings at March 31, 2016 were $558.0 million, an increase of $169.0 million from December 31, 2015, primarily due to an increase in FHLB advances. For additional information on the Company’s borrowings activity, please refer to Note 5 “Borrowings” in Part I, Item 1 – Financial Statements, of this report.

At March 31, 2016, stockholders’ equity was $981.0 million, a decrease of $14.4 million from $995.4 million reported at December 31, 2015. The Company’s capital ratios continue to exceed the minimum capital requirements for regulatory purposes but have decreased from prior periods primarily due to share repurchases. The total risk-based capital ratios at March 31, 2016 and December 31, 2015 were 12.16% and 12.46%, respectively. The Tier 1 risk-based capital ratios were 11.63% and 11.93% at March 31, 2016 and December 31, 2015, respectively. The common equity Tier 1 risk-based capital ratios were 10.25% and 10.55% at March 31, 2016 and December 31, 2015, respectively. The Company’s common equity to total asset ratios at March 31, 2016 and December 31, 2015 were 12.52% and 12.94%, respectively, while its tangible common equity to tangible assets ratios were 8.86% and 9.20%, respectively, at the same dates.

On October 29, 2015, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $25.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions. This share repurchase program was completed on February 19, 2016. On February 25, 2016, the Company’s Board of Directors authorized another share repurchase program to purchase up to $25.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions. The Company repurchased approximately 1.0 million shares during the quarter ended March 31, 2016 and had approximately $22.4 million available for repurchase under the current program.

Also, the Company declared and paid a cash dividend of $0.19 per share during the first quarter of 2016, consistent with the dividend paid in the prior quarter, and an increase of $0.04 per share, or 26.7%, compared to the same quarter in the prior year.

Securities

At March 31, 2016, the Company had total investments in the amount of $1.2 billion, or 15.3% of total assets, as compared to $1.2 billion, or 15.1% of total assets, at December 31, 2015. The Company seeks to diversify its portfolio to minimize risk. It focuses on purchasing mortgage-backed securities for cash flow and reinvestment opportunities and securities issued by states and political subdivisions due to the tax benefits and the higher yield offered from these securities. The majority of the Company’s mortgage-backed securities are investment grade. The investment portfolio has a high percentage of municipals and mortgage-backed securities; therefore a higher taxable equivalent yield exists on the portfolio compared to its peers. The Company does not engage in structured derivative or hedging activities within the investment portfolio.

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The table below sets forth a summary of the securities available for sale, securities held to maturity, and restricted stock, at fair value for the following periods (dollars in thousands):

	March 31,		December 31,
	2016		2015
Available for Sale:
Obligations of states and political subdivisions	$	265,969	$	268,079
Corporate and other bonds		93,766		75,979
Mortgage-backed securities		568,562		548,171
Other securities		11,112		11,063
Total securities available for sale, at fair value		939,409		903,292

Held to Maturity:
Obligations of states and political subdivisions		204,444		205,374

Federal Reserve Bank stock		23,808		23,808
Federal Home Loan Bank stock		34,403		28,020
Total restricted stock		58,211		51,828
Total investments	$	1,202,064	$	1,160,494

During each quarter and at year end, the Company conducts an assessment of the securities portfolio for OTTI consideration. No OTTI was recognized for the quarter ended March 31, 2016. For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000. During the quarter ended March 31, 2016, the municipal security was sold. As a result, the Company recognized an additional loss on sale of the previously written down security. The Company monitors the portfolio, which is subject to liquidity needs, market rate changes, and credit risk changes, to determine whether adjustments are needed. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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The following table summarizes the contractual maturity of securities available for sale at fair value and their weighted average yields as of March 31, 2016 (dollars in thousands):

	1 Year or Less		1 - 5 Years		5 - 10 Years		Over 10 Years		Total

Mortgage backed securities:
Amortized cost	$	-	$	49,089	$	183,381	$	328,996	$	561,466
Fair value		-		49,497		185,824		333,241		568,562
Weighted average yield ⁽¹⁾		-		1.98		2.18		2.16		2.15

Obligations of states and political subdivisions:
Amortized cost		3,618		40,024		93,959		117,250		254,851
Fair value		3,680		42,104		98,820		121,365		265,969
Weighted average yield ⁽¹⁾		7.08		4.68		4.74		4.17		4.50

Corporate bonds and other securities:
Amortized cost		6,085		5,040		39,557		55,871		106,553
Fair value		6,112		5,040		39,258		54,468		104,878
Weighted average yield ⁽¹⁾		0.36		0.31		3.91		1.99		2.53

Total securities available for sale:
Amortized cost		9,703		94,153		316,897		502,117		922,870
Fair value		9,792		96,641		323,902		509,074		939,409
Weighted average yield ⁽¹⁾		2.87		3.04		3.15		2.61		2.84

⁽¹⁾ Yields on tax-exempt securities have been computed on a tax-equivalent basis.

The following table summarizes the contractual maturity of securities held to maturity at carrying value and their weighted average yields as of March 31, 2016 (dollars in thousands):

	1 Year or Less		1 - 5 Years		5 - 10 Years		Over 10 Years		Total
Obligations of states and political subdivisions:
Carrying Value	$	1,477	$	7,907	$	49,884	$	145,176	$	204,444
Fair value		1,479		8,046		51,178		149,646		210,349
Weighted average yield ⁽¹⁾		1.38		1.59		3.00		3.40		3.22

⁽¹⁾ Yields on tax-exempt securities have been computed on a tax-equivalent basis.

As of March 31, 2016, the Company maintained a diversified municipal bond portfolio with approximately 73% of its holdings in general obligation issues and the remainder backed by revenue bonds. Issuances within the State of Texas represented 13%, the State of Washington represented 12%, and the Commonwealth of Virginia represented 12% of the municipal portfolio; no other state had a concentration above 10%. Substantially all municipal holdings are considered investment grade by Moody’s or Standard & Poor’s. The non-investment grade securities are principally insured Texas municipalities with no underlying rating. When purchasing municipal securities, the Company focuses on strong underlying ratings for general obligation issuers or bonds backed by essential service revenues.

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Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, money market investments, federal funds sold, securities available for sale, loans held for sale, and loans maturing or re-pricing within one year. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary through federal funds lines with several correspondent banks, a line of credit with the FHLB, the purchase of brokered certificates of deposit, and a corporate line of credit with a large correspondent bank. Management considers the Company’s overall liquidity to be sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

As of March 31, 2016, the cash, interest-bearing deposits in other banks, money market investments, federal funds sold, loans held for sale, and loans that mature within one year totaled $1.9 billion, or 27.6%, of total earning assets. As of March 31, 2016, approximately $1.8 billion, or 30.5%, of total loans are scheduled to mature within one year based on contractual maturity, adjusted for expected prepayments.

Loan Portfolio

Loans, net of deferred fees and costs, were $5.8 billion at March 31, 2016, $5.7 billion at December 31, 2015, and $5.4 billion at March 31, 2015. Loans secured by real estate continue to represent the Company’s largest category, comprising 82.6% of the total loan portfolio at March 31, 2016.

The following table presents the Company’s composition of loans, net of deferred fees and costs, in dollar amounts and as a percentage of total gross loans as of the quarter ended (dollars in thousands):

	March 31,				December 31,				September 30,				June 30,				March 31,
	2016				2015				2015				2015				2015
Loans secured by real estate:
Residential 1-4 family	$	926,556	16.0	%	$	925,490	16.3	%	$	935,266	16.9	%	$	937,557	17.0	%	$	916,557	17.0	%
Commercial		2,145,454	37.2	%		2,130,566	37.6	%		2,087,186	37.6	%		2,092,228	38.0	%		2,078,688	38.6	%
Construction, land development and other land loans		776,698	13.4	%		749,720	13.2	%		694,644	12.5	%		671,233	12.2	%		657,581	12.2	%
Second mortgages		51,921	0.9	%		52,977	0.9	%		52,547	0.9	%		54,224	1.0	%		54,371	1.0	%
Equity lines of credit		517,122	9.0	%		517,050	9.1	%		514,730	9.3	%		512,499	9.3	%		515,187	9.6	%
Multifamily		323,270	5.6	%		322,528	5.7	%		329,959	6.0	%		316,474	5.7	%		298,651	5.5	%
Farm land		29,724	0.5	%		28,963	0.5	%		26,984	0.5	%		25,061	0.5	%		27,029	0.5	%
Total real estate loans		4,770,745	82.6	%		4,727,294	83.3	%		4,641,316	83.7	%		4,609,276	83.7	%		4,548,064	84.4	%

Commercial & industrial loans		453,208	7.8	%		435,366	7.7	%		409,654	7.4	%		426,024	7.7	%		409,867	7.6	%

Consumer installment loans
Personal		447,341	7.7	%		403,857	7.1	%		389,379	7.0	%		354,485	6.4	%		335,649	6.2	%
Credit cards		-	0.0	%		-	0.0	%		-	0.0	%		26,349	0.5	%		24,691	0.5	%
Total consumer installment loans		447,341	7.7	%		403,857	7.1	%		389,379	7.0	%		380,834	6.9	%		360,340	6.7	%

All other loans		109,208	1.9	%		104,945	1.9	%		103,272	1.9	%		94,251	1.7	%		69,484	1.3	%
Gross loans	$	5,780,502	100.0	%	$	5,671,462	100.0	%	$	5,543,621	100.0	%	$	5,510,385	100.0	%	$	5,387,755	100.0	%

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The following table presents the remaining maturities, based on contractual maturity, by loan type and by rate type (variable or fixed), as of March 31, 2016 (dollars in thousands):

					Variable Rate						Fixed Rate
	Total Maturities		Less than 1 year		Total		1-5 years		More than 5 years		Total		1-5 years		More than 5 years
Loans secured by real estate:
Residential 1-4 family	$	926,556	$	74,401	$	345,251	$	15,558	$	329,693	$	506,904	$	281,108	$	225,796
Commercial		2,145,454		228,577		619,302		150,196		469,106		1,297,575		964,668		332,907
Construction, land development and other land loans		776,698		457,310		203,081		174,218		28,863		116,307		92,031		24,276
Second mortgages		51,921		4,096		5,396		1,075		4,321		42,429		15,313		27,116
Equity lines of credit		517,122		36,306		480,586		40,858		439,728		230		102		128
Multifamily		323,270		24,399		89,895		20,676		69,219		208,976		163,620		45,356
Farm land		29,724		8,165		9,047		5,456		3,591		12,512		12,338		174
Total real estate loans		4,770,745		833,254		1,752,558		408,037		1,344,521		2,184,933		1,529,180		655,753

Commercial & industrial loans		453,208		136,167		122,979		116,287		6,692		194,062		135,483		58,579
Consumer loans		447,341		140,072		4,925		4,719		206		302,344		131,122		171,222
All other loans		109,208		27,103		22,891		11,338		11,553		59,214		23,330		35,884
Gross loans	$	5,780,502	$	1,136,596	$	1,903,353	$	540,381	$	1,362,972	$	2,740,553	$	1,819,115	$	921,438

While the current economic environment is challenging, the Company remains committed to originating soundly underwritten loans to qualifying borrowers within its markets. The Company is focused on providing community-based financial services and discourages the origination of portfolio loans outside of its principal trade areas. As reflected in the loan table, at March 31, 2016, the largest component of the Company’s loan portfolio consisted of real estate loans, concentrated in commercial, construction, and residential 1-4 family. The risks attributable to these concentrations are mitigated by the Company’s credit underwriting and monitoring processes, including oversight by a centralized credit administration function and credit policy and risk management committee, as well as seasoned bankers focusing their lending to borrowers with proven track records in markets with which the Company is familiar. UMG serves as a mortgage brokerage operation, selling the majority of its loan production in the secondary market or selling loans to meet the Bank’s current asset/liability management needs.

Asset Quality

Overview

During the first quarter of 2016, the Company experienced declines in total past due and nonaccrual loan levels and OREO balances from the prior year. OREO balances declined from December 31, 2015 primarily as a result of sales of foreclosed property. Past due loans decreased while nonaccrual loans increased from December 31, 2015, as loans were moved from past due status to nonaccrual status during the current quarter. The combined past due and nonaccrual loan balances decreased $6.7 million, or 12.3%, from December 31, 2015. The loan loss provision and allowance for loan losses increased from December 31, 2015 due to loan growth in the current quarter.

Troubled Debt Restructurings

The total recorded investment in TDRs as of March 31, 2016 was $13.0 million, an increase of $255,000, or 2.0%, from $12.7 million at December 31, 2015 and a decline of $11.1 million, or 46.1%, from $24.1 million at March 31, 2015. Of the $13.0 million of TDRs at March 31, 2016, $11.5 million, or 88.5%, were considered performing while the remaining $1.5 million were considered nonperforming. Loans removed from TDR status represent restructured loans with a market rate of interest at the time of the restructuring. These loans have performed in accordance with their modified terms for twelve consecutive months and were no longer considered impaired. Loans removed from TDR status are collectively evaluated for impairment; due to the significant improvement in the expected future cash flows, these loans are grouped based on their primary risk characteristics, typically using the Company’s internal risk rating system as its primary credit quality indicator. Impairment is measured based on historical loss experience taking into consideration environmental factors. The significant majority of these loans have been subject to new credit decisions due to the improvement in the expected future cash flows, the financial condition of the borrower, and other factors considered during re-underwriting. The TDR activity during the quarter did not have a material impact on the Company’s allowance for loan losses, financial condition, or results of operations.

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Nonperforming Assets

At March 31, 2016, nonperforming assets totaled $27.3 million, an increase of $103,000, or 0.4%, from December 31, 2015 and a decline of $15.5 million, or 36.2%, from a year ago. In addition, NPAs as a percentage of total outstanding loans decreased 1 basis point to 0.47% in the current quarter from 0.48% as of December 31, 2015 and declined 32 basis points from 0.79% a year earlier. All nonaccrual and past due loan metrics discussed below exclude PCI loans, which totaled $70.1 million (net of fair value mark of $16.2 million) at March 31, 2016.

The following table shows a summary of asset quality balances and related ratios as of and for the quarters ended (dollars in thousands):

	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Nonaccrual loans, excluding PCI loans	$	13,092		$	11,936		$	12,966		$	9,521		$	17,385
Foreclosed properties		10,941			11,994			18,789			18,917			21,727
Former bank premises		3,305			3,305			3,305			3,305			3,707
Total nonperforming assets		27,338			27,235			35,060			31,743			42,819
Loans past due 90 days and accruing interest		5,723			5,829			5,164			10,903			7,932
Total nonperforming assets and loans past due 90 days and accruing interest	$	33,061		$	33,064		$	40,224		$	42,646		$	50,751

Performing Restructurings	$	11,486		$	10,780		$	9,468		$	19,880		$	21,336

Balances
Allowance for loan losses	$	34,399		$	34,047		$	33,269		$	32,344		$	30,977
Average loans, net of deferred fees and costs		5,709,998			5,612,366			5,525,119			5,448,126			5,360,676
Loans, net of deferred fees and costs		5,780,502			5,671,462			5,543,621			5,510,385			5,387,755

Ratios
NPAs to total loans		0.47	%		0.48	%		0.63	%		0.58	%		0.79	%
NPAs & loans 90 days past due to total loans		0.57	%		0.58	%		0.73	%		0.77	%		0.94	%
NPAs to total loans & OREO		0.47	%		0.48	%		0.63	%		0.57	%		0.79	%
NPAs & loans 90 days past due to total loans & OREO		0.57	%		0.58	%		0.72	%		0.77	%		0.94	%
ALL to nonaccrual loans		262.75	%		285.25	%		256.59	%		339.71	%		178.18	%
ALL to nonaccrual loans & loans 90 days past due		182.83	%		191.65	%		183.50	%		158.36	%		122.36	%

Nonperforming assets at March 31, 2016 included $13.1 million in nonaccrual loans, a net increase of $1.2 million, or 9.7%, from December 31, 2015 and a decline of $4.3 million, or 24.7%, from March 31, 2015. The following table shows the activity in nonaccrual loans for the quarter ended (dollars in thousands):

	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Beginning Balance	$	11,936		$	12,966		$	9,521		$	17,385		$	19,255
Net customer payments		(1,204	)		(1,493	)		(1,104	)		(4,647	)		(2,996	)
Additions		5,150			2,344			5,213			581			4,379
Charge-offs		(1,446	)		(1,245	)		(541	)		(2,171	)		(3,107	)
Loans returning to accruing status		(932	)		(402	)		(123	)		(919	)		(53	)
Transfers to OREO		(412	)		(234	)		-			(708	)		(93	)
Ending Balance	$	13,092		$	11,936		$	12,966		$	9,521		$	17,385

The additions to nonaccrual loans in the first quarter of 2016 were comprised of several smaller credit relationships, the majority of which were secured by residential 1-4 family property.

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

	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Construction and Land Development	$	2,156		$	2,113		$	3,142		$	2,401		$	3,104
Commercial Real Estate - Owner Occupied		2,816			3,904			3,989			3,625			4,954
Commercial Real Estate - Non-owner Occupied		-			100			200			200			2,655
Commercial and Industrial		810			429			403			564			2,018
Residential 1-4 Family		5,696			3,563			3,960			2,128			4,000
HELOC		973			1,348			937			493			544
Consumer and All Other		641			479			335			110			110
Total	$	13,092		$	11,936		$	12,966		$	9,521		$	17,385

Coverage Ratio		262.75	%		285.25	%		256.59	%		339.71	%		178.18	%

Nonperforming assets at March 31, 2016 also included $14.2 million in OREO, a decrease of $1.1 million, or 6.9%, from December 31, 2015 and a decrease of $11.2 million, or 44.0%, from the prior year. The following table shows the activity in OREO for the quarters ended (dollars in thousands):

	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Beginning Balance	$	15,299		$	22,094		$	22,222		$	25,434		$	28,118
Additions of foreclosed property		456			234			1,082			904			158
Additions of former bank premises		-			1,822			-			-			402
Capitalized improvements		-			-			9			243			56
Valuation adjustments		(126	)		(4,229	)		(473	)		(710	)		(590	)
Proceeds from sales		(1,390	)		(4,961	)		(767	)		(3,511	)		(2,748	)
Gains (losses) from sales		7			339			21			(138	)		38
Ending Balance	$	14,246		$	15,299		$	22,094		$	22,222		$	25,434

During the first quarter of 2016, the majority of sales of OREO were related to land and residential real estate.

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

	March 31,		December 31,		September 30,		June 30,		March 31,
	2016		2015		2015		2015		2015
Land	$	4,874	$	5,731	$	7,139	$	7,254	$	8,412
Land Development		2,616		2,918		6,700		7,013		7,192
Residential Real Estate		2,707		2,601		3,517		3,217		4,794
Commercial Real Estate		744		744		1,433		1,433		1,329
Former Bank Premises ⁽¹⁾		3,305		3,305		3,305		3,305		3,707
Total	$	14,246	$	15,299	$	22,094	$	22,222	$	25,434

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

Past Due Loans

At March 31, 2016, total accruing past due loans were $35.1 million, or 0.61% of total loans, compared to $42.9 million, or 0.76%, at December 31, 2015 and $42.7 million, or 0.79%, a year ago. At March 31, 2016, loans past due 90 days or more and accruing interest totaled $5.7 million, or 0.10% of total loans, compared to $5.8 million, or 0.10%, at December 31, 2015 and $7.9 million, or 0.15%, a year ago.

Charge-offs and delinquencies

For the quarter ended March 31, 2016, net charge-offs were $2.2 million, or 0.15% on an annualized basis, compared to $3.2 million, or 0.24%, for the same quarter last year. The decrease in net charge-off levels is attributable to improving asset quality. The majority of net charge-offs in the first quarter of 2016 were related to commercial real estate and consumer loans.

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Provision

The provision for loan losses for the quarter ended March 31, 2016 was $2.5 million, an increase of $754,000 compared to the same quarter a year ago. The increase in the provision for loan losses in the current year compared to the prior year was primarily driven by higher loan balances in 2016. Additionally, a $100,000 provision was recognized during the current quarter for unfunded loan commitments, resulting in a total of $2.6 million in provision for credit losses for the quarter.

Allowance for Loan Losses

The allowance for loan losses of $34.4 million at March 31, 2016, is an increase of $352,000 compared to the allowance for loan losses at December 31, 2015. The allowance for loan losses as a percentage of the total loan portfolio, unadjusted for acquisition accounting, was 0.60% at March 31, 2016, 0.60% at December 31, 2015, and 0.57% at March 31, 2015. The ALL as a percentage of the total loan portfolio, adjusted for acquisition accounting (non-GAAP), was 0.95% at March 31, 2016, a decrease from 0.98% at December 31, 2015 and 1.03% at March 31, 2015. In acquisition accounting, there is no carryover of previously established allowance for loan losses, as acquired loans are recorded at fair value.

The nonaccrual loan coverage ratio was 262.8% at March 31, 2016, compared to 285.3% at December 31, 2015, and 178.2% at March 31, 2015. 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.

The following table summarizes activity in the allowance for loan losses during the quarters ended (dollars in thousands):

	March 31,			December 31,			September 30,			June 30,			March 31,
	2016			2015			2015			2015			2015
Balance, beginning of period	$	34,047		$	33,269		$	32,344		$	30,977		$	32,384
Loans charged-off:
Commercial		617			280			388			1,022			671
Real estate		1,427			1,360			1,480			1,722			2,596
Consumer		936			525			468			461			562
Total loans charged-off		2,980			2,165			2,336			3,205			3,829
Recoveries:
Commercial		238			182			559			120			97
Real estate		391			561			565			720			308
Consumer		199			190			175			183			267
Total recoveries		828			933			1,299			1,023			672
Net charge-offs		2,152			1,232			1,037			2,182			3,157
Provision for loan losses		2,504			2,010			1,962			3,549			1,750
Balance, end of period	$	34,399		$	34,047		$	33,269		$	32,344		$	30,977

Allowance for loan losses to loans		0.60	%		0.60	%		0.60	%		0.59	%		0.57	%
ALL to loans, adjusted for acquisition accounting (Non-GAAP)		0.95	%		0.98	%		1.01	%		1.02	%		1.03	%
Net charge-offs to average loans		0.15	%		0.09	%		0.07	%		0.16	%		0.24	%
Provision to average loans		0.18	%		0.14	%		0.14	%		0.26	%		0.13	%

The following table shows both an allocation of the allowance for loan losses among loan categories based upon the loan portfolio’s composition and the ratio of the related outstanding loan balances to total loans as of the quarters ended (dollars in thousands):

	March 31,					December 31,					September 30,					June 30,					March 31,
	2016					2015					2015					2015					2015
	$		% (1)			$		% (1)			$		% (1)			$		% (1)			$		% (1)
Commercial	$	4,225		7.8	%	$	3,163		7.7	%	$	2,790		7.4	%	$	3,092		7.7	%	$	2,817		7.6	%
Real estate		27,576		82.6	%		27,537		83.3	%		26,638		83.7	%		25,731		83.7	%		24,861		84.4	%
Consumer		2,598		9.6	%		3,347		9.0	%		3,841		8.9	%		3,521		8.6	%		3,299		8.0	%
Total	$	34,399		100.0	%	$	34,047		100.0	%	$	33,269		100.0	%	$	32,344		100.0	%	$	30,977		100.0	%

(1) The percent represents the loan balance divided by total loans.

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Deposits

As of March 31, 2016, total deposits were $5.9 billion, a decrease of $18.0 million, or 1.2% (annualized), from December 31, 2015. Total interest-bearing deposits consist of NOW, money market, savings, and time deposit account balances. Total time deposit balances of $1.2 billion accounted for 25.4% of total interest-bearing deposits at March 31, 2016.

The following table presents the deposit balances by major categories as of the quarters ended (dollars in thousands):

	March 31,					December 31,
	2016					2015
Deposits:	Amount		% of total deposits			Amount		% of total deposits
Non-interest bearing	$	1,363,243		22.9	%	$	1,372,937		23.0	%
NOW accounts		1,504,227		25.3	%		1,521,906		25.5	%
Money market accounts		1,323,192		22.3	%		1,312,612		22.0	%
Savings accounts		589,542		9.9	%		572,800		9.6	%
Time deposits of $100,000 and over		508,153		8.5	%		514,286		8.7	%
Other time deposits		657,625		11.1	%		669,395		11.2	%
Total Deposits	$	5,945,982		100.0	%	$	5,963,936		100.0	%

The Company may also borrow additional funds by purchasing certificates of deposit through a nationally recognized network of financial institutions. The Company utilizes this funding source when rates are more favorable than other funding sources. As of March 31, 2016 and December 31, 2015, the Company did not have purchased certificates of deposit included in certificates of deposit on the Company’s Consolidated Balance Sheets. Maturities of time deposits as of March 31, 2016 are as follows (dollars in thousands):

	Within 3 Months		3 - 12 Months		Over 12 Months		Total
Maturities of time deposits of $100,000 and over	$	52,648	$	181,501	$	274,004	$	508,153
Maturities of other time deposits		82,690		272,387		302,548		657,625
Total time deposits	$	135,338	$	453,888	$	576,552	$	1,165,778

Capital Resources

Capital resources represent funds, earned or obtained, over which financial institutions can exercise greater or longer control in comparison with deposits and borrowed funds. The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to size, composition, and quality of the Company’s resources and consistency with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses, yet allow management to effectively leverage its capital to maximize return to shareholders.

In July 2013, the Federal Reserve issued final rules to include technical changes to its market risk capital rules to align them with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. Effective January 1, 2015, the final rules require the Company and the Bank to comply with the following minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets (increased from the prior requirement of 4.0%); (iii) a total capital ratio of 8.0% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4.0% of total assets (unchanged from the prior requirement). These are the initial capital requirements, which will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

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Beginning January 1, 2016, the capital conservation buffer requirement is being phased in at 0.625% of risk-weighted assets, and will increase by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The table summarizes the Company’s regulatory capital and related ratios for the periods presented (dollars in thousands):

	March 31,			December 31,			March 31,
	2016			2015			2015
Common equity Tier 1 capital	$	674,498		$	691,195		$	672,369
Tier 1 capital		764,998			781,695			762,869
Tier 2 capital		34,811			34,346			31,093
Total risk-based capital		799,809			816,041			793,962
Risk-weighted assets		6,577,394			6,551,028			6,191,268

Capital ratios:
Common equity Tier 1 capital ratio		10.25	%		10.55	%		10.86	%
Tier 1 capital ratio		11.63	%		11.93	%		12.32	%
Total capital ratio		12.16	%		12.46	%		12.82	%
Leverage ratio (Tier 1 capital to average assets)		10.25	%		10.68	%		10.79	%
Capital conservation buffer ratio ⁽¹⁾		4.16	%		N/A			N/A
Common equity to total assets		12.52	%		12.94	%		13.36	%
Tangible common equity to tangible assets		8.86	%		9.20	%		9.40	%

(1) Calculated by subtracting the regulatory minimum capital ratio requirements from the Company's actual ratio results for Common equity, Tier 1, and Total risk based capital. The lowest of the three measures represents the Company's capital conservation buffer ratio.

NON-GAAP MEASURES

In reporting the Company’s results as of and for the periods ended March 31, 2016 and 2015, the Company has provided supplemental performance measures on a tangible basis. Tangible common equity is used in the calculation of certain capital and per share ratios. The Company believes tangible common equity and the related ratios are meaningful measures of capital adequacy because they provide a meaningful base for period-to-period and company-to-company comparisons, which the Company believes will assist investors in assessing the capital of the Company and its ability to absorb potential losses.

These measures are a supplement to U.S. GAAP used to prepare the Company’s financial statements and should not be viewed as a substitute for U.S. GAAP measures. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies.

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The following table reconciles these non-GAAP measures from their respective U.S. GAAP basis measures for each of the periods presented (dollars in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2016		2015
Tangible Common Equity
Ending equity	$	980,978	$	986,916
Less: Ending goodwill		293,522		293,522
Less: Ending core deposit intangibles		21,430		29,533
Ending tangible common equity (non-GAAP)	$	666,026	$	663,861

Average equity	$	989,414	$	982,548
Less: Average goodwill		293,522		293,522
Less: Average core deposit intangibles		22,330		30,597
Average tangible common equity (non-GAAP)	$	673,562	$	658,429

The allowance for loan losses ratio, adjusted for acquisition accounting (non-GAAP), includes an adjustment for the fair value mark on acquired performing loans. The acquired performing loans are reported net of the related fair value mark in loans, net of deferred fees and costs, on the Company’s Consolidated Balance Sheets; therefore, the fair value mark is added back to the balance to represent the total loan portfolio. The adjusted allowance for loan losses, including the fair value mark, represents the total reserve on the Company’s loan portfolio. The PCI loans, net of the respective fair value mark, are removed from the loans, net of deferred fees and costs, as these PCI loans are not covered by the allowance established by the Company unless changes in expected cash flows indicate that one of the PCI loan pools is impaired, at which time an allowance for PCI loans will be established. U.S. 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 ratio, adjusted for acquisition accounting, 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, and the fair value mark on the purchased performing loans represents the allowance associated with those purchased loans. The Company believes that this measure is a better reflection of the reserves on the Company’s loan portfolio. The following table shows the allowance for loan losses as a percentage of the total loan portfolio, adjusted for acquisition accounting, as of the quarters ended (dollars in thousands):

	March 31,			December 31,			March 31,
	2016			2015			2015
Allowance for loan losses	$	34,399		$	34,047		$	30,977
Remaining fair value mark on acquired performing loans		19,994			20,819			23,794
Adjusted allowance for loan losses	$	54,393		$	54,866		$	54,771

Loans, net of deferred fees	$	5,780,502		$	5,671,462		$	5,387,755
Remaining fair value mark on acquired performing loans		19,994			20,819			23,794
Less: PCI loans, net of fair value mark		70,105			73,737			91,346
Adjusted loans, net of deferred fees	$	5,730,391		$	5,618,544		$	5,320,203

Allowance for loan losses ratio		0.60	%		0.60	%		0.57	%
Allowance for loan losses ratio, adjusted for acquisition accounting		0.95	%		0.98	%		1.03	%

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk. The ALCO of the Company is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to this risk. The Company’s Board of Directors reviews and approves the guidelines established by ALCO.

Interest rate risk is monitored through the use of three complementary modeling tools: static gap analysis, earnings simulation modeling, and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk models has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Static gap, which measures aggregate re-pricing values, is less utilized because it does not effectively measure the options risk impact on the Company and is not addressed here. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.

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The Company determines the overall magnitude of interest sensitivity risk and then formulates policies and practices governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the states of the national, regional, and local economies, and other financial and business risk factors. The Company uses simulation modeling to measure and monitor the effect of various interest rate scenarios and business strategies on net interest income. This modeling reflects interest rate changes and the related impact on net interest income and net income over specified time horizons.

EARNINGS SIMULATION ANALYSIS

Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis discussed above.

Assumptions used in the model are derived from historical trends and management’s outlook and include loan and deposit growth rates and projected yields and rates. Such assumptions are monitored by management and periodically adjusted as appropriate. All maturities, calls, and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage-backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.

The Company uses its simulation model to estimate earnings in rate environments where rates are instantaneously shocked up or down around a “most likely” rate scenario, based on implied forward rates. The analysis assesses the impact on net interest income over a 12 month time horizon after an immediate increase or “shock” in rates, of 100 basis points up to 300 basis points. The shock down 200 or 300 basis points analysis is not as meaningful as interest rates across most of the yield curve are at historic lows and cannot decrease another 200 or 300 basis points. The model, under all scenarios, does not drop the index below zero.

The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled for balances as of March 31, 2016 and 2015 (dollars in thousands):

	Change In Net Interest Income
	March 31,
	2016						2015
	%			$			%			$
Change in Yield Curve:
+300 basis points		5.14			14,241			4.74			12,460
+200 basis points		3.72			10,304			3.29			8,640
+100 basis points		2.05			5,683			1.32			3,472
Most likely rate scenario		-			-			-			-
-100 basis points		(1.77	)		(4,912	)		(1.59	)		(4,171	)
-200 basis points		(3.59	)		(9,934	)		(3.71	)		(9,740	)
-300 basis points		(3.71	)		(10,267	)		(3.81	)		(10,020	)

Asset sensitivity indicates that in a rising interest rate environment the Company’s net interest income would increase and in a decreasing interest rate environment the Company’s net interest income would decrease. Liability sensitivity indicates that in a rising interest rate environment the Company’s net interest income would decrease and in a decreasing interest rate environment the Company’s net interest income would increase.

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As of March 31, 2016, the Company became more asset sensitive in a rising interest rate environment scenario when compared to March 31, 2015 due to the composition of the balance sheet. The Company would expect net interest income to increase with an immediate increase or shock in market rates. In the decreasing interest rate environments, the Company would expect a decline in net interest income as interest-earning assets re-price at lower rates and interest-bearing deposits remain at or near their floors. It should be noted that although net interest income simulation results are presented through the down 300 basis points interest rate environments, the Company does not believe the down 200 and 300 basis point scenarios are plausible given the current level of interest rates.

ECONOMIC VALUE SIMULATION

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.

The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly periods ended March 31, 2016 and 2015 (dollars in thousands):

	Change In Economic Value of Equity
	March 31,
	2016						2015
	%			$			%			$
Change in Yield Curve:
+300 basis points		(1.23	)		(16,345	)		0.44			5,675
+200 basis points		0.06			757			1.43			18,365
+100 basis points		0.55			7,341			1.32			16,964
Most likely rate scenario		-			-			-			-
-100 basis points		(3.31	)		(43,817	)		(3.90	)		(50,216	)
-200 basis points		(7.21	)		(95,510	)		(8.96	)		(115,286	)
-300 basis points		(6.19	)		(82,106	)		(8.03	)		(103,270	)

The shock down 200 or 300 basis points analysis is not as meaningful since interest rates across most of the yield curve are at historic lows and cannot decrease another 200 or 300 basis points. While management considers this scenario highly unlikely, the natural floor increases the Company’s sensitivity in rates down scenarios.

Compared to March 31, 2015, the Company’s economic value of equity model as of March 31, 2016 projects that an instantaneous change in market interest rates would result in less overall variation in the Company’s estimated economic value of equity in the shock up 100 or 200 basis point and shock down 100 basis point interest rate scenarios, while the Company is more sensitive to market interest rates in a shock up 300 basis point scenario. The Company believes the down 200 and 300 basis point scenarios are not plausible given the current low level of interest rates.

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ITEM 4 – CONTROLS AND PROCEDURES

The Company maintains “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective at the reasonable assurance level. There was no change in the internal control over financial reporting that occurred during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.

ITEM 1A – RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities – None.

(b) Use of Proceeds – Not Applicable.

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Stock Repurchase Program

The following information describes the Company’s common stock repurchases for the three months ended March 31, 2016:

Period	Total number of shares purchased⁽¹⁾		Average price paid per share ($)		Approximate value of shares that may be purchased under the plan ($)
December 31, 2015						21,139,000
January 1 - January 31, 2016		380,882		23.70		12,114,000
February 1 - February 29, 2016		553,566		21.99		24,942,000
March 1 - March 31, 2016		106,164		23.55		22,442,000
Total		1,040,612		22.77

⁽¹⁾ On October 29, 2015, the Company’s Board of Directors authorized a share repurchase program to purchase up to $25.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions. The repurchase program was authorized through December 31, 2016, and completed in February 2016. On February 25, 2016, the Company’s Board of Directors authorized a new share repurchase program to purchase up to $25.0 million worth of the Company’s common stock on the open market or in privately negotiated transactions. The repurchase program is authorized through December 31, 2016.

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ITEM 6 – EXHIBITS

The following exhibits are filed as part of this Form 10-Q and this list includes the Exhibit Index:

Exhibit No.		Description
3.02		Bylaws of Union Bankshares Corporation, as amended January 28, 2016 (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed on February 2, 2016)

10.1		2016 Management Incentive Plan.

15.01		Letter regarding unaudited interim financial information.

31.01		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02		Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01		Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.00		Interactive data files formatted in eXtensible Business Reporting Language for the quarter ended March 31, 2016 pursuant to Rule 405 of Regulation S-T (1): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Union Bankshares Corporation

	(Registrant)

Date: May 5, 2016	By:	/s/ G. William Beale
		G. William Beale,
		President and Chief Executive Officer
		(principal executive officer)

Date: May 5, 2016	By:	/s/ Robert M. Gorman
		Robert M. Gorman,
		Executive Vice President and Chief Financial Officer
		(principal financial and accounting officer)

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