About Union
About Union

Letter from the Chief Executive Officer

Dear Fellow Shareholder:

As I reflect on 2014, let me start by saying that I am proud of our teammates for their hard work and dedication during this transformative year. The StellarOne integration, which was a massive undertaking by our team, has been a success.

Union is now the largest community bank headquartered in Virginia, but that is an outcome of the merger, not the goal. The goal of the merger is to deliver improved financial performance resulting in better returns for our shareholders over the long term.

In 2014, the Company focused on smoothly integrating StellarOne into Union. Our team wanted to hit our cost savings targets and develop the combined community banking franchise to generate sustainable growth. I am pleased to note that our systems integration efforts were successful. We experienced lower than projected customer attrition and started to see net new household growth in the former StellarOne markets in the fourth quarter - our brand proposition continues to resonate as net new households grew 5% in the legacy Union markets.

To go a little further on the brand, in November we conducted a brand awareness survey to understand the impact of our ad campaign in both the legacy and former StellarOne markets. The data showed a significant increase in brand consideration, familiarity, and unaided awareness. Brand building takes time, but Union already has the highest recall of any community bank in Virginia and we’ve got a solid platform to build upon going forward.

While loan growth for the year came in under our mid-single digit projection at 1.3%, the primary reason for the miss was the unexpected departure of some former StellarOne loan officers which resulted in lost production. The lost production will cause a delay in reaching our profitability targets by a couple of quarters, but we still expect to achieve those targets by the second quarter of 2016. Union hired 15 loan officers in 2014 and, in the fourth quarter, the bank generated the strong loan growth we expected as our lending team began to assert itself in our markets.

Our plan moving forward is to keep doing what we have done to reach this point. We are remaining true to our core community banking values, and remain focused on prudent commercial and consumer loan and deposit growth through customer retention and developing new client relationships.

The competition for loans remains strong. In the second half of the year, we lowered the return on equity goals in the loan pricing model to help Union remain competitive in the market. This credit and price discipline will ensure that our net interest margin remains one of the best in our peer group, even though we expect it will compress 2-4 basis points a quarter this year.

The mortgage company did not turn a profit in 2014, but I am excited about the energy and work done by JG Carter, who was named president of Union Mortgage Group in September. JG brings more than 30 years of experience in the mortgage industry, including supervising the back office operations as well as loan officers. The mortgage company is nearly finished with the back office consolidations, which will enable the mortgage company to have better expense control in good times and bad, and are hiring new originators to grow revenue. Our expectation is that the mortgage company will return to profitability on a quarterly basis by mid-year 2015.

Considering the current economic and regulatory environment, I believe that Virginia is overbanked and more consolidation will occur. Our primary focus is on delivering the top tier profitability goals through organic growth and creating a more efficient enterprise, but we will remain opportunistic when it comes to acquisitions.

As I said at the beginning, 2014 was a transformative year for Union. The work done by our teammates in 2014 provides Union with the growth opportunities, asset base, and footprint to continue to deliver a best-in-class customer experience, offer superior financial services and solutions, provide a rewarding experience for our teammates, and generate top-tier financial performance which will build long term shareholder value.



G. William Beale
Chief Executive Officer

Union Bank & Trust
Mailing Address:
P.O. Box 940
Ruther Glen, VA 22546